UPDATES from FCA on Business Interruption Insurance
The coronavirus pandemic has led to widespread disruption and business closures resulting in substantial financial loss. Many customers have made claims for these losses under their BI insurance policies. There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims.
The issues surrounding BI policies are complex and have the potential to create ongoing uncertainty for both customers and firms. The variation in the types of cover provided and wordings used mean it can be difficult to determine whether customers have cover and can make a valid claim. There are genuine doubts over the appropriate interpretation of the wording in some cases. This has led to uncertainty and disputes, with many customers who believe they have valid claims having these rejected by their insurer.
We believe the circumstances of the current coronavirus emergency, and its effect on businesses holding BI policies means this uncertainty needs to be resolved as quickly as possible. We intend to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims.
What the Test Case will decide.
The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings considered by the court. It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases including in Scotland and Northern Ireland, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.
The test case is not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers. It will not determine how much is payable under individual policies, but will provide the basis for doing so.
The Steps the FCA have taken, latest updates and timetable
The steps we have taken so far are set out in the latest updates section below. These include our announcement of the insurers that have agreed to be the parties to the test case, publication of our proposed representative sample of policy terms and other key documents, as well as our invitation for comments on those documents by 3pm on Friday 5 June. We give the principal next steps and timelines for how we envisage the test case to proceed below (although there remain a number of uncertainties to the timeline, including the consent of the court):
|9 June||FCA files Claim Form and Particulars of Claim|
|c.11 June||Case management conference, at which the court will be invited to fix the timetable for the case and other procedural matters|
|23 June||Insurers file Defences|
|c.26 June||Further case management conference|
|3 July||FCA files Reply|
|1st half July||Skeleton arguments and replies served|
|2nd half July||5-10 day court hearing|
Engagement with Policyholders and insurance intermediaries
We have developed a Policyholder Engagement Statement for policyholders and insurance intermediaries which sets out our approach to the High Court test case for BI insurance policies, with the key points as follows:
- The FCA will put forward policyholders’ arguments to their best advantage using a highly experienced counsel team including Colin Edelman QC, Leigh-Ann Mulcahy QC, Richard Coleman QC, and Herbert Smith Freehills.
- The intended action will not prevent policyholders from pursuing issues through negotiated settlement, arbitration, court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service.
- We wish to ensure that policyholders and insurance intermediaries are properly engaged throughout the test case process.
- Information provided by policyholders in response to our requests will be treated as confidential and covered by the FCA’s litigation privilege.
- We will consult policyholders and insurance intermediaries at key stages in the test case.
- We expect to make public all the ‘pleadings’ in the test case, and will update this webpage regularly and be available for discussion with action groups and policyholders and their legal representatives.
- See the latest updates section below for how you can comment at each stage of the case
Engagement with Insurers
The FCA has announced the insurers who we have invited to be the parties to the test case. These are:
- Arch Insurance (UK) Limited
- Argenta Syndicate Management Limited
- Ecclesiastical Insurance Office Plc
- Hiscox Insurance Company Limited
- MS Amlin Underwriting Limited
- QBE UK Limited
- Royal & Sun Alliance Insurance plc
- Zurich Insurance Plc
These insurers have entered into a framework agreement with us governing the process and timetable for the test case.
We also appreciate that other insurers have an interest in the test case. If you have any comments on the test case process generally or in relation to any of the documents we have published please email: [email protected], stating the relevant firm name in the subject line of the email.