4 June 2020
The Financial Conduct Authority (FCA) intends to seek a judgment from the courts to resolve some contractual uncertainty in business interruption (BI) insurance policies that has arisen as a result of the COVID-19 pandemic. In the public interest and to avoid numerous BI policyholders seeking guidance from the courts at considerable expense, the FCA will put forward policyholders' arguments to their best advantage for a quicker and cheaper solution. This is not intended to replace the existing options or current claims (for example negotiation, settlement, arbitration etc.), rather, it is to provide clarity and certainty for some policyholders whose claims, as the FCA notes, are being refused when the firms think they should be considered.
BI policies are complex, and the terms and types of cover provided can vary significantly across the industry. Both customers and firms, are facing increasing uncertainty and difficulty in determining whether a policyholder has cover and can make a claim, and the FCA has doubts over the interpretation of the terms of BI policies in some cases. To avoid the increase in disputes arising during the current coronavirus crisis, the FCA has decided to resolve some key contractual uncertainties through its test case in the High Court. Accordingly, the FCA wishes to engage with willing policyholders and insurance intermediaries over unresolved disputes with insurers over BI policy terms to identify a sample of cases. Taylor Wessing is working with the hospitality sector and has partnered with the trade association UKHospitality to consider how the FCA court action impacts on the BI insurance claims of policy holders in the hospitality sector (see here).
Following an initial consultation in May 2020, on 1 June 2020, the FCA provide an update on progress on its court action. Having reviewed 500 relevant policies from 40 insurers, it has identified a preliminary list of affected insurers and policies and selected a representative sample of 17 policy wordings that capture the majority of the key issues that could be in dispute.
The FCA has now published a further short consultation on draft guidance asking all insurers to check their policy wordings against the list to test to see if theirs will be impacted by the outcome of the case. The consultation on draft guidance also sets out the FCA’s expectations of all firms handling BI claims and any related complaints between now and the court decision. The FCA also published 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.
The FCA invites comments from other insurers, policyholders and other stakeholders on these documents by 3pm on Friday 5 June to: firstname.lastname@example.org, stating the relevant firm name in the subject line of the email. It reminds all stakeholders that any information provided is confidential and subject to the FCA's litigation privilege (meaning it would be entitled not to produce it to a third party or the court).
The FCA encourages policyholders and insurance intermediaries to submit their information for consideration to ensure the FCA can act in their best interests and evaluate all the arguments and materials. It has developed a Policyholder Engagement Statement and published a dedicated webpage to provide information, updates and access to relevant documents including court pleadings. Further, policyholders can sign up to receive email updates from the FCA on BI insurance and the High Court test case.
If you would like to discuss any of the points arising out of the FCA's announcement or if you would like assistance in making a submission to the FCA on your BI policy concerns, please get in touch.
by multiple authors
by multiple authors