Reed Smith Client Alert

The Financial Conduct Authority (FCA) announced late last week that it intends to commence legal proceedings in an attempt to obtain clarity on the extent to which business interruption (BI) insurance should be responding to losses resulting from COVID-19.

The FCA regulates general insurance business to create accountability for and oversight over individual insurers. The FCA says that in some cases, where policyholders have purchased BI cover but insurers are saying that the cover purchased does not extend to a loss resulting from COVID-19, there is a mismatch between insurers’ and customers’ understanding of what they thought was covered by their BI policy.

To resolve uncertainty for many customers making BI claims, and to understand more about the basis on which insurers are making decisions to accept or refuse claims, the regulator intends to seek a court declaration on an agreed and urgent basis.

Read below for a brief summary and look out for further updates from us as this situation develops.

Authors: Douglas E. Cherry Peter Hardy Margaret E. Campbell Mark Pring Laura-May Scott

In its role as regulator of general insurance business, the FCA has provided guidance to insurers since the COVID-19 crisis began.

On 19 March 2020, the FCA set out its expectations of insurance firms during COVID-19. The FCA said that many customers would be in a vulnerable position because of the COVID-19 pandemic, and it expected insurers to be aware of the circumstances in which their customers find themselves.

The FCA expected firms to continue to seek to meet regulatory requirements, including the obligation to act honestly, fairly, and professionally in accordance with the best interests of the customer. This meant, in the FCA’s view, that firms should very carefully consider the needs of their customers and show flexibility in their treatment of them. Further, the FCA warned insurers that it “would not expect to see their ability to claim impacted by circumstances over which they have little control”. For example, if insureds were late in notifying, or were unable to strictly comply with a requirement due to COVID-19, they should not be penalised as a result.