The Financial Conduct Authority (FCA) has urged UK insurers to consider steps they can take to progress business interruption claims following a High Court test case judgment that it says backed policyholders “on the majority of key issues”.

“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid,” Interim CEO Christopher Woolard said.

“They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

The High Court’s160-page decision was delivered last week after an eight-day hearing in July that considered 21 sample wordings from eight insurers.

The Association of British Insurers says the judgment divides evenly between insurers and policyholders on the main issues.

“It will take a little time for those involved in the court case to understand what it means and consider any appeals,” Director-General Huw Evans said.

“Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”

Participants in the case were QBE, Arch, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin, RSA and Zurich.

QBE says the court found in its favour on two out of three of its notifiable disease policy wordings examined, and it’s considering an appeal on the matter decided in favour of insureds.

Zurich and Ecclesiastical also say they were not required to pay on their wordings, with RSA noting some of its interpretations were upheld and some were not.

Hiscox says the judgment clarifies that fewer than one-third of its UK business interruption policies may respond, while Lloyd’s says it will “take the time” to carefully consider the judgment, while noting it retains less than 2% of the overall UK property SME market.

The FCA says most business interruption policies have basic cover and do not extend to pandemics, but it brought the case to bring clarity in areas of dispute. Some 370,000 policyholders were identified as being potentially affected by the outcome of the test case.

“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process,” Mr Woolard said. “As we have recognised from the start of this case [that] thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”

The New York-based Insurance Information Institute says the UK findings are not relevant for litigation underway in the US, given differences in the policy wordings there.

“Direct physical loss or damage must occur for a BI claim to be triggered, and government orders do not constitute direct physical loss or damage to property,” the institute says.

See ANALYSIS.