FCA seeks court ruling over business interruption cover and Covid-19

The Financial Conduct Authority (FCA) plans to seek a court declaration to resolve contractual uncertainty in business interruption insurance cover.

The announcement came as two groups representing some 500 businesses that have insurance policies with Hiscox joined forces to pursue legal action against the insurer in a row over coronavirus payouts.

“We are intending to take this action in the public interest to advance our consumer protection and market integrity objectives,” the FCA explained in a statement. “We believe the circumstances of the current coronavirus (Covid-19) emergency, and its effect on businesses holding business interruption policies means that any uncertainty needs to be resolved as quickly as possible.”

The action, to head to court “in an agreed and urgent manner”, is intended to “resolve some key contractual uncertainties” arising from whether standard business interruption policies cover coronavirus claims. It will not encompass all possible disputes, nor determine how much is payable under individual policies, but on this latter point, “will provide the basis for doing so”. The FCA added that the action will not prevent individuals from pursuing issues through the courts, or taking eligible complaints to the Financial Ombudsman.

The FCA is pulling together a sample of cases representative of all the most frequently used policy wordings that are giving rise to uncertainty, and is consultation with “small number of relevant firms” and the Association of British Insurers (ABI).

These firms have until 15 May to tell the FCA whether they believe that their policy wordings for business interruption losses arising other than from property damage provide cover.

Christopher Woolard, interim chief executive of the FCA, wrote to the heads of UK insurers in April and conceded that most basic business interruption policies do not cover pandemics, although he urged insurers to pay out for claims arising from Covid-19 when they are able to do so.

Commenting on the action, Woolard said: “We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.”

“Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers. It is clear that decisive action is appropriate given the severity of the potential consequences for customers.”

In response, ABI director general Huw Evans said: “This is a welcome step from the FCA and insurers will look to work closely with the regulator to make this process a success.”

“Although the vast majority of business interruption policies do not cover pandemics and the government has confirmed it will not seek to retrospectively amend contracts, we support any process that will provide clarity and certainty for the minority of customers who are disputing whether they should be covered.”

“For valid claims, leading ABI members have agreed a set of claims handling principles to ensure speedy processing, including interim payments.”

The FCA has also proposed a series of measures to support both consumers and businesses that hold insurance products and are facing other issues as a result of Covid-19.

The package of measures sets out the FCA’s expectations that insurance firms should consider whether their products still offer value to customers in the current situation and whether they can be doing more for those suffering a financial impact because of coronavirus.

Potential actions that insurers could take include changing how benefits are delivered, refunding some premiums, or suspending monthly payments for a certain period of time. The FCA proposes to give insurers up to six months to assess this so that it can take into account effects of coronavirus in a more rounded manner.

Woolard said: “In addition to this court action, the current emergency has altered the value of some insurance products and we believe that insurers should be looking at both whether their products still offer value. Firms should also look at how they can help customers who may be experiencing financial difficulties as a result of the virus. Many insurers are already taking some kind of action to assist their customers and we want to see a degree of consistency for consumers.”