Reed Smith Client Alerts

The Financial Conduct Authority (FCA) has begun its work to prepare for the legal proceedings that it is bringing in an attempt to obtain as much clarity as possible on the extent to which business interruption (BI) insurance is liable to indemnify losses resulting from COVID-19.

To resolve uncertainty for many customers making BI claims, and to understand more about the basis upon which insurers are making decisions to accept or refuse claims, the FCA intends to seek a declaratory judgment from the English High Court on an urgent basis.

The regulator is now inviting policyholders who are in dispute with their insurers over the terms of their BI insurance policies to engage with the FCA so that the FCA can present an appropriate cross-section of these disputes as part of the “test case”. Policyholders (along with their brokers and other interested insurance intermediaries) have until 20 May 2020 to submit their responses to the FCA.

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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.