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Business Interruption Cover

COVID-19 Statement Update 2

11th May 2020

As many of you will already be aware from the extensive press coverage, the outbreak of the COVID-19 pandemic has brought into question the validity of some insurers' Business Interruption (BI) policy wordings. As a result, the Financial Conduct Authority (FCA) is seeking to bring court action in relation to ‘key relevant cases’, in an attempt to bring some independent legal clarity on specific policy clauses, with the aim to resolve doubt for businesses who are facing uncertainty on their claims.

According to the regulator, the cases taken to court will be ‘carefully chosen’ as a representative sample of the most used policy wordings, where cover has been disputed. It said that it will come to an agreement with the insurers concerned, in order to get the fastest possible judgement on the cases placed in front of the court. The FCA said that it is intending to take this action in the public interest, to advance its consumer protection and market integrity objectives.

The statement continued: “It should be noted that this intended action by the FCA, which we hope to place before the courts in an agreed and urgent manner, is not intended to encompass all possible disputes, but resolve some key contractual uncertainties. This will assist both insurers and the insured. It will not determine how much is payable under individual policies, but will provide the basis for doing so. The action will not prevent individuals from pursuing issues through the courts, or taking eligible complaints to the Financial Ombudsman. If we obtain a declaratory judgment, the Ombudsman will be able to take it into account in considering relevant complaints.”

The FCA is also writing to a small number of insurers to clarify whether they are declining or intend to decline BI claims and expect them to clarify their position by the 15th May 2020. Based on their answers, the FCA will consider which firms to ask to join the court process.

In addition to the FCA initiative, a group of (reportedly over 300) Hiscox policyholders have formed an action group and appointed law firm Mishcon de Reya as its lead counsel in its dispute against the insurer.

We will of course be monitoring the situation as it unfolds and keep you informed of any significant developments. In the meantime, should you have any queries in this regard, please do not hesitate to contact us.

Robin Plaster
Chief Executive Officer

COVID-19 Statement Update 1

24th April 2020

In March, there was considerable press coverage following the Government‘s announcement, that in their opinion Insurers should pay out claims for Business Interruption (BI) cover. However as has become apparent over the proceeding weeks, this rather sweeping statement, has met with considerable resistance from the Insurers.

In April The Financial Conduct Authority (FCA) urged insurers to pay out for business interruption claims that covered a coronavirus shutdown. In a letter to Insurance Companies, the FCA’s interim chief executive Chris Woolard warned the watchdog would be carefully scrutinising the industry’s treatment of customers. The FCA said most business interruption policies did not cover coronavirus, but said where insurers have a clear obligation to pay out on a policy, “it is important that claims are assessed and settled quickly”.

In recent statement from the Association of British Insurers (ABI) issued in order to clarify the situation, they said “The spread of Coronavirus is unprecedented in modern times, and insurers understand this is an incredibly difficult time for families and businesses. No insurance market provides widespread insurance coverage for pandemics, and the UK is no exception. For this type of cover to be available and affordable, would require a very significant subsidy from the government - given the scale of business disruption we have seen with the COVID-19 pandemic. Instead, standard commercial insurance policies – the type the vast majority of businesses purchase – provide cover against a wide range of day to day risks including damage caused by fire, flood, theft and accidents involving employees”.

Businesses unable to operate in full or part during these times are facing uncertain futures and will understandably seek to mitigate any losses and this includes relying on relevant insurance cover. Given our role as advisers to our clients we are often the initial contact point when considering making an insurance claim for losses due to BI. In treating our clients fairly, we would highlight that, where the wording of a BI policy is clear about there being no cover for losses due to a pandemic (subject to exclusions and conditions), it is extremely likely that insurers will decline a claim under that policy. Where there is any degree of uncertainty and as the pandemic continues with us all in lockdown, Insurers may not immediately commit to confirming cover, or making payment in respect of BI claims. Our belief is that Insurers will ultimately rely on the wording for the BI policy to determine coverage and indemnity. They will also seek proof of loss in the event they agree a BI policy does in fact cover the losses incurred. At this moment in time, the position of all Insurers with whom we are in contact, is uncertain, but we will continue to assist our clients and provide guidance in relation to any actual or potential claim arising due to the Covid-19 crisis.

The situation is extremely fluid and changing by the day if not the hour. As recently as two days ago Jonathan Edwards MP signed an early day motion (EDM) calling on the government to instruct all insurers to use dividends to pay Covid-19 claims. In the EDM he also expressed concern that the Financial Conduct Authority (FCA) has advised insurers it sees no reason to intervene in cases where business interruption claims resulting from the coronavirus are not covered. No one knows whether such Government interventions will be successful, but we will of course be following events as they unfold, continue to keep our client abreast of the situation and provide the appropriate advice.

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