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Law360, London (May 15, 2020, 1:22 PM BST) -- The Financial Conduct Authority said Friday it wants businesses that have been denied insurance claims following the coronavirus lockdown to submit policy details so they can be included in a High Court case to test the legality of contracts.
The FCA has asked policyholders to submit information by May 20 and has appointed City law firm Herbert Smith Freehills LLP to act on its behalf in the case.
The deadline is much narrower than that for insurers, which the FCA told on May 1 to disclose by May 15 whether they are paying out on claims for business interruption as a result of the COVID-19 pandemic. It also told companies to disclose their standard policy wording.
The City regulator plans to take a sample of representative policy wordings to court as early as July to get what it calls an authoritative declaratory judgment on whether insurers are responsible for paying compensation.
"The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the representative sample considered," the FCA said in a statement.
"It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly," it added.
Standard business interruption policies offer protection only if a premises was forced to close because of physical damage. Many policies are sold with add-ons that offer cover if the closure was forced by the order of a public authority or through an outbreak of an infectious disease, which are collectively known as "non-damage" extensions.
Several groups have been formed to challenge the decisions taken by insurers, including two representing more than 300 businesses denied cover by Hiscox despite having broad infectious disease cover.
The groups intend to bring group litigation against the insurers and have said they will press ahead without waiting for the result of the FCA's test case.
The watchdog said it will work with the Hiscox Action Group and other groups as it formulates its submissions in the case — which should not prevent those groups pursuing their own proceedings, the FCA added.
"The intended action will not prevent individuals from pursuing issues through negotiated settlement, arbitration, court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service," the regulator said.
The FCA said it will publish all pleadings in the test case on its website.
--Editing by Ed Harris.
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