The FCA, in its role as regulator of general insurance business, has provided guidance to insurers since the COVID-19 crisis began.
Specifically in relation to BI policies, the FCA noted a trend: BI policies were not confirming cover for COVID-19-related losses.
The FCA acknowledged that most “standard” BI policies were not likely to provide protection against the effect of “pandemics”. Where the coverage position appeared clear, the FCA saw no reasonable grounds to intervene.
However, as set out in our last alert, in circumstances where claims were being denied when it appeared under the terms of the policy that payment should be made, or that the insured at least had a reasonable understanding that they had purchased cover for this type of situation, the FCA decided it needed to take action.
The FCA is taking legal action to seek a court declaration, on an urgent basis, to resolve uncertainty for many customers making BI claims and to clarify the basis upon which insurers are reaching decisions on coverage.
The FCA’s preparation for that legal action is well underway. In early May, the FCA wrote to a small number of insurance firms that it regulates seeking clarification as to whether they are declining, or intend to decline, BI claims, as well as clarification of their basis for doing so, and requesting copies of relevant policy documents.
The FCA is now inviting BI policyholders who are in dispute with their insurers over the terms of their policies to make a submission to the FCA containing a summary of the dispute and the relevant policy terms. The FCA has asked policyholders (and insurance intermediaries who are similarly aware of unresolved disputes with insurers over the terms of BI policies) to move quickly. The deadline for making a submission to the FCA is next Wednesday, 20 May 2020.
The arguments, policies, and fact patterns put forward by policyholders will supplement the materials already provided by insurers to the FCA and will inform the issues to be determined by reference to a sample of policy wordings and factual loss scenarios to be used in the court proceedings. The regulator has said that the cases taken to court will be “carefully chosen” as a representative sample of the most commonly used policy wordings where cover has been disputed by insurers.
Although this will need to be monitored carefully by all policyholders and their representatives, the FCA will seek to put forward policyholders’ arguments to their best advantage where claims have been rejected and the usual channels of claims settlements have reached an impasse.
The FCA expects to make all of the ‘pleadings’ in the test case public, and will update its web page regularly. The FCA will also be available for discussion with action groups and policyholders and their legal representatives.
The FCA’s aim is to bring clarity on specific policy clauses and to obtain a definitive view on disputed policies. The High Court “test case”, as the FCA is calling it, is not intended to encompass all possible disputes, but to resolve some key contractual uncertainties in order to provide clarity for policyholders and insurers. It will not determine how much is payable under individual policies, but will provide the basis for doing so.
The result of the test case will be legally binding on those insurers that are parties to the test case in respect of the representative sample considered. It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, which will be able to be taken into account in other court cases, by the Financial Ombudsman Service and by the FCA, in looking at whether insurers are handling claims fairly.
For further information, see the FCA’s Policyholder Engagement Statement.
Given our particular experience assisting policyholder clients in disputes against insurers, we are making representations to the FCA on issues faced by our clients.
Is your company in dispute with insurers as to the scope of cover and protections afforded under a BI policy? If you would like an opportunity to have your say, please contact us now so that we can assist you in making a submission to the FCA. Information provided to the FCA will be treated in confidence and covered by the FCA’s litigation privilege. Moreover, being part of this case will not prevent individuals from pursuing issues through negotiated settlement, arbitration, and court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service.
We will continue to update you on this situation, and, in the interim, if you need help understanding more about the FCA’s statements, or assessing your insurance cover, please reach out to one of the lawyers listed below.
Client Alert 2020-321