Covid-19 and Business Interruption Insurance – The FCA is trying to help

May 5, 2020

By Jonathan Lowe

In a recent article (read more here), I discussed some of the challenges facing businesses in making claims for business interruption losses arising from the current pandemic, and the potential importance to businesses in seeking expert advice at an early stage to assess whether or not any cover that they have may respond and indemnify for the lost business being suffered. Not only are there issues with whether or not the policy responds but also the extent of loss covered.

Business interruption cover tends to be written in similar ways, providing cover in similar circumstances, but with various alternative wordings. For instance, cover may be provided for certain losses arising from the effect of either one of a number of specified diseases or simply a notifiable disease, or, more commonly, from property damage; it is unlikely that such cover will respond to the current circumstances.

Alternatively, cover may be provided where access to premises is prevented in certain defined circumstances/for certain defined reasons, which circumstances and/or reasons may vary from policy to policy. It is this cover that is more likely to respond.

The Financial Conduct Authority has announced that it intends to take further steps to try and help some policyholders to obtain either successful outcomes to claims or, alternatively, certainty as to the position in which policyholders find themselves. In order to do so it intends to co-operate with certain insurers in speedy court action to obtain a court declaration to resolve contractual uncertainty in business interruption (BI) insurance cover.

The press release says:

“We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.

Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers. It is clear that decisive action is appropriate given the severity of the potential consequences for customers.”

On 1st May the FCA published a further statement setting out its intentions, in which it says as follows:

“What we’ll do to help with this uncertainty 

The issues around BI policies are complex and there are significant differences in policy wording between policies and across firms. These complexities have the potential to create ongoing uncertainty for a lengthy period.

It is clear that decisive action is appropriate given the severity of the potential consequences for customers in the current coronavirus emergency.

In this context, we will work actively and promptly to seek to resolve issues causing uncertainty over BI coverage, to provide greater clarity for parties and help ensure there is not undue delay to payments where there are valid claims. 

We intend to do this by seeking to bring relevant cases to court as soon as possible for an authoritative declaratory judgment regarding the meaning and effect of some BI insurance policy wordings where there remains unresolved uncertainty. We are working to identify a sample of cases representative of all the most frequently used policy wordings that are giving rise to uncertainty, where it would be appropriate for us to bring such proceedings.

We have outlined to a small number of relevant firms, and the Association of British Insurers, our proposals for seeking a timely, transparent and authoritative judgment. This group comprises some firms that have already made decisions about the application of their policies and others that are considering similar questions around policy coverage that could also give rise to genuine uncertainty. Today, we are writing to all these firms and expect them to clarify their position, by no later than 15 May 2020, as to whether they believe that their policy wordings for BI losses arising other than from property damage provide cover.

Further examples may emerge. If we become aware of further such relevant firms we will ask for them to clarify their position and may ask them to join any action.”

It appears that the FCA has identified those insurers whose policy wordings it considers may provide cover, and has written to those insurers. The first step, therefore, is for the insurers that have been identified by the FCA to give their response to the questions raised by the FCA by 15th May. It thereafter appears that where uncertainties remain the FCA will ask those insurers to join with it in seeking urgent declaratory relief in relation to those policy wordings where dispute still requires resolution.

What can be taken from this is that whereas the FCA is seeking to obtain some comfort and certainty for policyholders of a seemingly relatively small number of insurers, and I am sure that policyholders of those insurers will welcome such action, any court action and declaratory judgment will be no panacea to the vast majority of policyholders.

Every policy needs to be considered on its own merits and in the particular circumstances of each individual policyholder and claim. Furthermore, any action by the FCA can only ask a court to give declaratory relief in relation to the actual wordings placed before the court for consideration, and whereas those wordings may be similar to others small differences in wording can make a great deal of difference in interpretation.

The intended court action by the FCA in no way prevents individual customers from taking whatever action they think appropriate, whether via court or the FOS.

Before transferring to the Bar in 2008 Jonathan Lowe was Head of Commercial Insurance at Keoghs. He has a broad commercial practice but in particular has over 25 years’ experience in insurance law.