Business Interruption Insurance

Battle lines have been drawn between business and the insurers with the issue on 9th June 2020 of legal proceedings in the High Court by the The Financial Conduct Authority (FCA) against 8 major UK insurers.

The principal aim of the test case is to establish whether or not certain business interruption (BI) policy wordings cover losses caused by the Covid-19 pandemic: 

"The coronavirus pandemic has led to widespread disruption and business closures resulting in substantial financial loss. Many customers have made claims for these losses under their BI insurance policies. There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims."  FCA

According to The Association of British Insurers' (ABI) website:

• "Business interruption insurance covers a business for loss of income during periods when they cannot carry out business as usual due to damage caused by a specific set of perils that will be specified in the policy. It aims to replace certain losses sustained by the business during the period of the disruption. These perils can include damage to the premises caused by incidents such as a fire, flooding or other physical damage. 
• The insurance may compensate the business for any increased running costs and/or shortfall in profits as the result of the event, up to a certain limit that is set out in the policy.The Association of British Insurers' "

The FCA has selected several BI policy wordings to go before the Court to issue a legally binding declaration on their meaning and applicability to Covid-19 claims. The Particulars of Claim against the insurers is set out in full on the FCA's website.

The published test case timetable is as follows:

It is important to note that the FCA's test case:

1. Is not intended to cover all possible disputes, but is designed to try to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers;
2. Will not determine how much is payable under individual policies, but will provide the basis for doing so;
3. Will not prevent policyholders from pursuing issues through negotiated settlement, arbitration, court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service.

On 17th June, the FCA issued in a guidance note setting out its expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption policies during the test case brought by the FCA. 

Amongst other things, the FCA requires that:

Policyholders should be provided with: 

• an explanation of the nature and purpose of the test case
• the key steps taken and likely timetable of the test case 
• an explanation of the implications for existing and potential claims
• a link to the FCA’s webpage for the test case, a suggestion that policyholders may wish to subscribe for email updates from the FCA on the FCA’s webpage for the test case and a link to any material issued by the Financial Ombudsman Service concerning business interruption insurance cases.

By the publications team at: Contracts-Direct.com

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