FCA identifies insurers for business interruption court case

The Financial Conduct Authority (FCA) has identified eight insurance companies who will be asked to participate in a High Court test case over the failure of certain business interruption (BI) policies to pay out for losses incurred as a result of coronavirus restrictions

At the beginning of May, the regulator said it was working on a project to get legal clarification on whether or not SMEs are able to bring claims under their policies.

While most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage), it says the coronavirus pandemic has thrown up instances where it could be argued the policy does include cover for failure to operate as a result of infectious disease, but SMEs have reported insurers have refused to consider a claim.

In an update, the FCA said it had approached 56 insurers and reviewed over 500 relevant policies from 40 insurers.

As a result, it has identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute.

Now a group of insurers, including Hiscox, QBR, Zurich and Royal & Sun Alliance, have been asked help by participating in the High Court test case.

The FCA said given the representative nature of the policies and wordings selected, it expects the test case to provide guidance for the interpretation of many other BI policies that are not in the original sample.

This means that other insurers will also be affected by the test case and its conclusions. In early July, it expects to publish a comprehensive list of other insurers and many other BI policies in the market that will be impacted.

Christopher Woolard, interim chief executive at the FCA, said: ‘The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike.

‘We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market.

‘The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court.’

The FCA has published a number of documents detailing the outline of the case, including proposed assumed facts (for example, the types of business and how they responded to the pandemic), a proposed issues matrix and proposed questions for determination by the court.

These documents are open for comments by a deadline of 5 June.

In addition, the FCA is consulting on draft guidance setting out its expectations of all firms handling BI claims and any related complaints during this period, including an expectation that they identify those policies where their decision to deny claims may be affected by the test case.

The FCA’s legal team at Herbert Smith Freehills will be available on 3 June and 4 June to speak directly with as many policyholders and intermediaries as possible.

Useful links:

Covid-19: FCA seeks business interruption insurance ruling 

Proposed assumed facts document

Proposed issues matrix

Questions for the court

FCA business interruption webpage

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