Kirstie Goulder

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FCA seeks legal clarity on business interruption insurance

Coronavirus / 07 May 2020

Last month, we shared our insight on ‘when will business interruption insurance cover kick in?’,  particularly in light of the Coronavirus pandemic. At that early stage in the current crisis, we identified key considerations including whether: (i) COVID-19 is included in a policy’s list of notifiable diseases, (ii) the policy is drafted on a ‘non-specified’ basis and (iii) the policy includes a ‘non-damage denial of access’ clause. Business interruption is now making headlines relating to these exact issues with threats of multiple group actions against insurers refusing to payout.

Thousands of organisations have had to halt operations and furlough as a result of the lockdown. Those businesses will almost undoubtedly have suffered a loss of income during that period. In recent weeks, many business owners have filed claims against commercial insurers, only to be informed their business interruption policies do not cover the pandemic.

The Financial Conduct Authority (FCA) believes that most claimants on business interruption policies do not have the right coverage to warrant a pay-out. The FCA intends to seek a court declaration, on an agreed and urgent basis, to resolve uncertainty for many customers making business interruption claims, and the basis on which firms are making decisions to accept claims. The cases placed before court will be carefully chosen as a representative sample of the most frequently used policy wordings that are giving rise to uncertainty.

The FCA will seek to put cases before the court on an agreed basis with the insurers concerned in order to get the fastest possible judgment. It is also writing to a small number of insurance firms seeking clarification about whether they are declining, or intend to decline business interruption claims. The FCA expects these firms to reply to clarify their position, by no later than 15 May 2020. Based on the information obtained, the FCA will consider which firms to ask to join the court process.

Threatened group litigation
Businesses across multiple sectors are affected, from childcare provision and holiday-let providers to pubs, bars and nightclubs. Groups of businesses in these sectors are considering separate legal action against various insurers, including against the Early Years Alliance, an early year’s membership association in England whose packages were underwritten by RSA Insurance Group plc and Lloyd’s of London insurer, Hiscox.

The outcome of the FCA’s application for a court declaration in respect of specific policy wording is therefore eagerly anticipated. Though any decision will not determine how much is payable under individual policies, it will provide the basis for doing so. It will, therefore, assist both insurers and the insured. Any business who has been refused a pay-out under their business interruption policy, and is unsatisfied, should get in touch.

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