The UK Financial Conduct Authority has announced that it intends to take the unusual step of seeking a High Court ruling in respect of how business interruption insurance policies should be interpreted.
Business interruption insurance is typically designed to provide cover for loss arising to the income of a business that suffers some form of disaster (normal examples would be a flood or fire) and is often subject to much bespoke drafting.
Since the COVID-19 pandemic ensued, the subsequent lockdown imposed by the UK Government was considered by many to be an event enabling cover holders to claim under business interruption policies. However there has been much uncertainty and concern amongst cover holders about how insurers are responding to claims.
In a proactive approach to its regulatory role, and relying upon its consumer protection and market integrity objectives the FCA has moved to resolve uncertainty by clarifying some of the key contractual uncertainty in the area.
The FCA plans to pursue the action with a small number of insurers on an urgent basis and with the facts agreed with the insurers. The action does not relate to any individual policy or claim, rather the FCA is seeking an urgent declaration on a range of frequently used policy wordings that are giving rise to genuine uncertainty as to whether COVID-19 related claims are covered.
The outcome will provide guidance to both cover holders and insurers on a broad basis, including to those small firms who may not otherwise be able to take part in such a claim, and will be resolved more quickly than individual claims being pursued through the courts or via the Financial Ombudsman Scheme (FOS) – which can make decisions that are binding on firms in respect of awards of up to £100,000.
Any outcome will not prevent policy holders bringing their own claims based on their own set of facts and policy, either in the courts or via the FOS, but the declarations granted by the High Court are likely to be of great weight in the final determination of other claims.
This novel approach will assist both consumers and insurers to obtain clarity and has been welcomed by business groups, the Treasury Select Committee and insurer’s themselves. Any declaration is likely to play a major role in shaping how the insurance sector as a whole responds to COVID-19 claims, and the role this plays in supporting the economy during the recovery period.
Members of 1 Chancery Lane regularly represent some of the London market’s leading insurers and are well versed in the interpretation of contracts of insurance and coverage disputes. Members also undertake financial regulation work in respect of matters falling within the FCA’s regulatory perimeter.
Anyone requiring assistance with any FCA matters or their insurance policies; including pursuing or defending claims in the courts or bringing them via the Financial Ombudsman Service should contact the clerks for assistance – firstname.lastname@example.org