CMC in FCA BI insurance coverage test case shines a light on issues at trial
The first Case Management Conference (“CMC”) in the FCA’s test case on business interruption (“BI”) insurance coverage took place earlier this week before Judge Christopher Butcher.
At a day-long virtual hearing, the Court decided a number of important procedural issues including the following:
- The claim was granted “test case” status in the Court‘s Financial List;
- The defendant insurers’ defences are due to be served on 24 June 2020;
- A second CMC is due to take place on 26 June 2020; and
- An expedited trial will take place on 20 July 2020 in the High Court before Judge Butcher and Court of Appeal Lord Justice Julian Flaux and is due to last 8 days.
However the debate between the various parties’ legal representatives at the CMC shone a light on some of the important areas of likely controversy at trial.
It seems that some of the defendant insurers will argue that insured businesses would have suffered financial loss as a result of the prevalence of COVID-19 in the UK regardless of the Government mandated lockdown measures (such measures forming the trigger for cover in many non- damage BI policies). Insurers are suggesting therefore the relevant BI losses should not be covered under the policy at all or should be severely reduced (for example what would have been the trading position in a country suffering from COVID-19 but without a lockdown?).
Insurers are likely to seek support in this regard from a comparison with BI losses in Sweden which suffered from COVID-19 but which did not impose anything like the same mandatory restrictions on use and denial of access as imposed in the UK. Therefore, it looks as if the insurers will ask the Court to consider a situation in which the rules and regulations were not in place in the UK but COVID-19 nonetheless existed
In also seems that the FCA will seek to argue, supported by the Cambridge Analysis (relied upon by the Government in determining the “R” number, rate of infection), that COVID-19 was prevalent in the UK even before the start of the Government mandated lockdown and well above the number of reported cases.
The FCA says that the methods used in the Analysis represent a legitimate way for calculating the “R” number. This goes to, amongst other things, the issue of some policy wordings providing cover when there is an incidence of an infectious disease within a certain miles radius of the insured’s premises which then causes a business to have to shut-down and suffer BI losses. It seems that some insurers are looking to put the burden of proof on insureds to prove that COVID -19 was, as a matter of fact, prevalent within that radius, whereas the FCA looks to be putting the burden of proof back on the insurer to prove the contrary, relying on the Cambridge Analysis as evidence of COVID-19 infection rates at any given time within areas of the UK.
However, the insurers have opposed the FCA’s use of this evidence, arguing that they do not have enough time to consider the FCA’s evidence which is disputed as scientific understanding of COVID-19 continues to develop.
The FCA intention was that the test case would help to reduce controversy and offer guidance in a great number of policy wording disputes. The hope was to promote resolution of disputes between insured and insurer without recourse to the Court, to arbitration or the Financial Ombudsman Service. However, at the CMC some of the legal representatives raised the spectre of an appeal against the Court decision in the July trial which would severely delay matters and in the meantimeprobably lead to mnay insureds pursuing their own legal claims without waiting for an appeal decision.
Watch this space for further developments as the insurer defendants serve their defences on 24 June 2020 and following the second CMC on 26 June 2020.