On 1 May 2020, the Financial Conduct Authority, the UK’s conduct regulator for general insurers, published a statement announcing that it intends to take a representative sample of cases to court as soon as possible to resolve contractual uncertainty in business interruption cover for SMEs. The FCA refers to continuing and widespread concerns about the lack of clarity and certainty for some customers making BI claims, and the basis on which some insurers are making decisions in relation to claims.
The action is intended to obtain an “authoritative court judgment” to resolve “some key contractual uncertainties” (not to encompass all possible disputes) to assist both insurers and policyholders. The court action will not prevent individual policyholders from pursuing issues through the courts.
The FCA says that its view is that “…most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are unlikely to be obliged to pay out in relation to the coronavirus pandemic…”.
It adds, however, that the issues in relation to BI policies are complex and there are significant differences in policy wording between policies and across insurers:
“…Some customers’ policies also cover for BI from other causes (for example in relation to infectious/notifiable diseases, non-damage denial of access and public authority closures/restrictions) and may in some cases provide cover. Whether there is cover for the business interruption related to the pandemic crisis will depend on a number of factors including the policy’s wording. The range of wordings and types of coverage are sufficiently broad in the BI market that it is difficult to determine at a general level the degree to which any one individual customer may be able to claim…”.
The FCA is working with insurers to identify a sample of cases that are representative of the most frequently used BI policy wordings that are giving rise to uncertainty. To do this, the FCA is writing to relevant insurers asking them to clarify their position, by no later than 15 May 2020, as to whether they believe their policy wordings for BI provide cover for losses arising other than from property damage. Other cases may emerge later and will be asked to join the action.