By: 26 January 2021
Business interruption claims must be met ‘in full as soon as possible’

It is critical that insurers pay all valid business interruption claims in full as soon as possible, following the Supreme Court judgment in the Financial Conduct Authority’s test case, according to chief executive Sheldon Mills.

Mills wrote to the leaders of all affected insurers on 22 January, outlining the regulator’s expectations following the judgment, in which the Supreme Court largely backed policyholders whose Covid-19 claims were dismissed last year.

“The Supreme Court judgment on the test case has brought clarity and certainty for all parties. It is critical that this results in all insurers paying valid claims in full as soon as possible to support their customers during the current situation,” Mills says in the Dear CEO letter.

Although it remains the case that most business interruption policies for small- and medium-sized enterprise focus on property damage and so are unlikely to pay out on the Covid-19 pandemic and its effects, some do cover infectious or notifiable diseases and non-damage denial of access and public authority closures or restrictions.

As a result, the FCA expects insurers to follow the Supreme Court judgment in these instances, meaning that, among others, cover may be available for the partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding.

Furthermore, valid claims should not be reduced because the loss would have resulted in any event from the pandemic.

According to Mills, this will mean that “more policyholders will have valid claims and some pay-outs will be higher”.

In his letter, Mills goes on to highlight the policies and perils that remain outside the scope of the Supreme Court’s judgment, including the impact of its overturning of the Orient Express case on the handling of other claims, and commit to engaging with insurers on these points going forward.