Are you Insured? Business Loss and COVID-19: FCA Response Update

By Jessica-Anne Johnson and Katie Byrne at Irwin Mitchell

Thousands of businesses are still facing uncertainty in relation to their eligibility for business interruption insurance (“BI Insurance”) as a result of the current pandemic.

In our article ‘Are you Insured? Business Loss and COVID-19 – The Key Questions’  we considered some of the main issues around insurance policies, business loss and COVID-19.

On 1 May 2020 the Financial Conduct Authority (“FCA”) announced that it intended to seek legal clarity from the court on the contractual uncertainty surrounding BI Insurance claims. 

In this article we look at the FCA’s court action, the timeline, and our thoughts on the impact it will have on policyholders and insurers.

What is the FCA doing?

The FCA is pursuing a test case in the High Court on the validity of business interruption claims.

The FCA has approached 56 insurers and reviewed over 500 relevant BI Insurance policies to identify a sample of 17 different approaches in policy wording. The FCA considers that the different clauses capture the majority of the key issues that could be in dispute between insurers and policyholders as a result of the pandemic. This sample will go before the court for guidance on their interpretation. Where policy wording isn’t specifically reviewed by the court, the FCA expects the test case to provide guidance for the interpretation of other BI Insurance policies.

By obtaining a judgment from the Court, the FCA hopes to provide policyholders and insurers with clarity and certainty as to which BI Insurance policies respond to the pandemic, and those which do not. By covering multiple policies and insurers, it aims to be a useful precedent across the insurance market for their interpretation going forward.

The FCA has also published:

• presumed facts, concerning types of businesses and how they responded to the pandemic;
• a proposed issues matrix, which contains some of the key terms that are likely to be argued; and
• proposed questions for determination by the court, to narrow the issues and assist the court to come to its decision on the sample policies.

Insurers, policyholders and other interested parties are able to provide comments in relation to these documents by 3pm on 5 June 2020.

Timeline

• 9 June 2020 – FCA claim to be issued at court
• 11 June 2020 – the Court is expected to fix the timetable for the case
• 23 June 2020 – insurers are given the opportunity to submit their defences
• Early July 2020 - FCA expects to publish a list of all the relevant insurers and policies that may have impacted wordings
• 3 July 2020 – the FCA is given the opportunity to reply to the insurers’ defences
• Second half of July 2020 – the court hearing will take place

The impact this will have on policyholders and insurers

The court’s decision is likely to finally bring certainty regarding some of the issues which are currently faced by policyholders and insurers regarding the interpretation of BI Insurance policies. The FCA considers the court’s assistance will be the quickest way to provide clarity to policyholders, who have faced extremely difficult times since the impact of the pandemic was felt. By reference to the court’s determination on the issues, it is hoped ambiguity in the interpretation of relevant policies will be reduced, and confidence restored in the insurance market.

For policyholders, they may finally be able to recover under their BI Insurance for losses incurred as a result of COVID-19. However, policyholders should be mindful that whilst they should soon better understand their positions under their BI insurance, it is anticipated that the vast majority of BI Insurance claims are not expected to provide coverage for the consequences of COVID-19, as most only provide cover for physical damage and, even where losses incurred as a result of infectious disease are covered, the cover provided is often limited and / or excluded. Notwithstanding, policyholders are best advised to read the wording of their BI Insurance policies carefully and, if in any doubt, put in a notification of a claim as soon as possible. Indeed, even if a policyholder holds the correct level of cover, Insurers will still be able to reject the claim if the correct notification and claims procedures as set out in the policies are not followed.

If policyholders find themselves without applicable BI Insurance cover, they may wish to consider whether they can make a claim against their insurance brokers. For our top tips for businesses when considering whether they are covered for losses arising out of the pandemic, read our article ‘COVID-19: Insurance cover and the current pandemic’ here.

For further information contact Jessica-Anne Johnson (jessica.johnson@irwinmitchell.com) and Katie Byrne (katie.byrne@irwinmitchell.com).