AFCA’s Role in BI Insurance Claims and the FCA Test Case

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A vast number of Australian businesses have been interrupted by the impact of the COVID-19 pandemic. Media sources have suggested that losses to insurers in Australia could be in the order of $535 million and greater. [i]

Various insurance policies cover interruption generally, but this does not necessarily lead to a covered claim. That said, there are some policies which may respond.

This article assesses the role of the Australian Financial Conduct Authority (“AFCA”) in assessing BI claims the Financial Conduct Authority (“FCA“) test case and the prospect of a test case in Australia.


Historically, business interruption insurance (“BI”) cover only responded as a result of damage first occurring to property. However, non-damage policies have also come to exist in the Australian and overseas markets. These policies may provide cover.

The policy forms considered in the UK test case are usually triggered by a ‘denial of access’ to the insured premises following ‘advice from government or local authority’. Certain policies also require the occurrence of an ‘incident’ within a defined vicinity of the insured premises. Whether the COVID-19 pandemic amounts to an ‘incident’ in this sense is an issue that will need to be considered by the English High Court along with other legal questions.

Australian law firms and media commentary have focused on a local issue in relation to excluding diseases which are “quarantinable diseases” under the Quarantine Act 1908 (Cth) which is now repealed or “listed human diseases” under the Biosecurity Act 2015 (Cth) and whether exclusions will be upheld given some wordings continued to refer to the Quarantine Act 1908 (Cth).

Local media commentary has indicated that AFCA is considering a test case to decide how Australian insurers should respond to the pandemic. [ii]

This article explores the legal issues advanced by the FCA test case and this is ‘Part One’ in a two-part series exploring the FCA’s findings and the AFCA position to a test case. The English High Court is expected to hand down its judgment on 30 July 2020 and the hearing began earlier this week.

Business Interruption since COVID-19

As many businesses have been forced to close, the potential for substantial claims and potential claim denials means that AFCA will face increased complaints. AFCA initially reported that it has received more than 1800 claims regarding general insurance since the pandemic was declared in March 2020 and whilst 1500 of these claims relate to travel insurance [iii], a large amount of BI claims have or will be lodged. Given the pandemic commenced in March 2020, many of these matters are reaching a conclusion of IDR.

The Jurisdiction of AFCA

The AFCA Rules[iv] define the jurisdiction for a complaint to be made, this includes:

  • Small businesses with less than 100 employees along with consumers can make a complaint to the AFCA.
  • Compensation for a successful claim is generally capped at $500,000.
  • A claim must be brought within either:
    • Six years from when the complainant knew of or should have known of their loss; or
    • Two years from when a complainant is given a response from a firm’s IDR process.

An AFCA decision maker may also order a financial firm to pay costs for the complainant, generally up to $5,000. Furthermore, an AFCA decision maker is also empowered to award the payment of interest to complainant, in addition to compensation for a claim.

The AFCA Rules allow a complainant to not accept an AFCA determination, meaning they can proceed to the Court system, but a financial firm is bound if accepted by the complainant.

Given business insurance disputes of some size are now within AFCA’s jurisdiction, undoubtedly there will be a number of contested BI claims before it and litigation in Australian courts as well.

The UK Experience

The FCA chose to run a test case in the English High Court quite swiftly after the pandemic was first identified. The FCA has powers under the Financial Markets Test Case Scheme [v] and in Australia, AFCA is similarly empowered to initiate a test case under their Rules.

As the claimant in the proceedings, the FCA filed particulars of claim on behalf of policyholders on 26 June 2020 in relation to eight insurers and a vast array of policy wordings. This includes:

  • Arch Insurance (UK) Limited;
  • Argenta Syndicate Management Limited;
  • Ecclesiastical Insurance Office PLC;
  • Hiscox Insurance Company Limited;
  • MS Amlin Underwriting Limited;
  • QBE UK Limited;
  • Royal & Sun Alliance Insurance PLC; and
  • Zurich Insurance PLC [vi].

Defences were filed by insurers on 23 June 2020 and can be accessed from the FCA website. The hearing commenced on Monday 20 July 2020 and written submissions are also published.

The final outcome of the test case is scheduled to be handed down by Thursday 30 July 2020.

What will the findings be?

The FCA has stated this will be a binding authority as to how the representative policy wordings are to be interpreted. The practical limitations of a test case mean that it is advanced on a set of ‘agreed facts’ and a chronology of events it seeks to agree with the defendants, therefore individual insureds will still be required to consider the relevance of the judgment to their situation.

The FCA has proposed ‘questions for determination’ and other framework documents. Of the 25 ‘Questions for Determination’ this includes, for example:

Question 4: “Subject to any specific policy definition does “notifiable disease” or “human infectious or human contagious disease” or similar include COVID-19?”

Question 5: “If the disease is required by a particular policy to be in the “vicinity” of the insured premises, what does this mean in principle?”

The questions identify that the interpretation of key policy terms will be critical in the judgment. This includes some of the following matters:

Unsophisticated purchasers

One area in which the FCA has advanced argument is that many insureds are essentially unsophisticated purchasers and the court should apply established legal principles with this in mind.  It will be interesting to see how this plays out, given non-damage business interruption policies will have been arranged by brokers, in most, if not all instances, there may be flow on impacts for broker obligations as well, and having such professional insurance advice would run contrary to the FCA’s argument.

The authors recommend that brokers as well as insureds should be obtaining advice on their cover or exposure to non-damage interruption policies and claims.

Government action and denial of access

This includes whether government orders amount to the requirements under the policy, including the requisite prohibition or inability to access premises.

Examples of relevant government action include stay-at-home orders and orders for the closure of businesses. An example of a government action was that:

the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 [ordered] the closure of certain businesses”.

An example of a policy form includes:

inability to use the insured premises due to restrictions imposed by a public authority”.

In Australia, such orders have varied across different states particularly in relation to NSW and Victorian outbreaks.

Vicinity of premises

Some policies require an incident to have occurred within a certain radius of the insured premises. A key argument advanced by the FCA is that various dates from March 2020 onward amount to an incident under the policy. This includes from 3 March on the grounds that an action plan was announced by the UK government and there were 176 cases of COVID-19. In the alternative, the FCA argues there was an incident when a person with COVID-19 was within a mile or the vicinity of the premises. Certain insurers assert that a person with an illness is not an incident under the policy. An example of a policy wording common in the UK is:

an incident occurring during the period of insurance within one mile of the insured premises which results in a denial of access”.


Even if an insured can establish denial of access by government action to fall within an insuring clause, an exclusion or causation could still be substantiated by insurers. An example of an exclusion includes:

closure or restriction in the use of the premises due to the order or advice of the competent local authority as a result of an occurrence of an infectious disease”.

The above is not dissimilar to the exclusions relevant in the Australian market, which have referenced the Quarantine Act 1908 (Cth) or Biosecurity Act 2015 (Cth) but specifying an infectious disease.


Causation, in the sense of what was the cause of the insured’s loss is a critical issue in these proceedings. The FCA’s ‘Question 18’ addresses causation from the perspective of proximate cause. This compares a range of policy wordings to determine the applicable test for causation and whether some wordings provide for a broader or narrower test. Causal language in various policies includes:

“resulting from”

“which results in”

“as a result of”

“caused by”


“arising from”

“due to”

“as a consequence of”, “in consequence of” or “in consequence”

“because of”

“directly resulting from”

“resulting solely and directly from”

Any interpretation of these terms will be relevant to BI claims but for insurance claims generally.

In regard to causation, various insurers seek to apply the ‘but for’ test to a policy trigger such as ‘government action’ to ascertain whether the loss would have existed in the absence of that government action. Given profits and revenue will have been interrupted more broadly as a result of the pandemic itself, this becomes a critical question.  The appropriate counterfactual (ie hypothetical scenario to apply) the FCA suggests should be more broadly applied to the very pandemic itself.


By its very nature, a test case that considers many policies and various types of language will not necessarily be determinative for any particular complainant. However, this will be a landmark case for the insurance sector and we will assess the relevance for the Australian market in our second article.


Corey Johnstone –  Brockhill & Usherwood Lawyers

Blair McNamara – Brockhill & Usherwood LawyersThis article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

[i] ‘Insurers ‘Heading for Half Billion BI Hit’’, (Web Page, 22 July 2020).

[ii] ‘AFCA Investigates BI Test Case’, (Web Page, 9 June 2020).

[iii] ‘AFCA Receives More Than 80,000 Complaints in FY19/20, Nearly 5,000 of Which Are COVID-19 Related’, Australian Financial Complaints Authority (Web Page, 2 July 2020).

[iv] To access the AFCA Rules, visit

[v] See Directions [2]:

[vi] See Amended Particulars of Claim 1.

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