The FCA has today stepped in to take further action on the issue of business interruption insurance and whether certain policies cover losses related to the current pandemic.
On 16 April we explained that the FCA had written to insurers setting out its key expectations in this area. Whilst acknowledging that a large number of business interruption policies clearly did not cover losses arising from the current pandemic, there has been an increasing level of disquiet in the market around policies that cover, for example, "notifiable diseases", but where the insurer is indicating that they still do not consider that this includes the current pandemic. Several insurers in this position appear already to be facing the prospect of class actions from policyholders.
In an attempt to bring some clarity to this area, the FCA has now released a statement indicating that it intends to seek a declaratory judgment from the courts on whether a group of the most commonly used policy wordings in this area cover losses arising from the current pandemic or not. The announcement isn't clear what key clauses the FCA has identified but the areas we are seeing regularly include the tension between policies covering only damage to property, and non-damage: denial of access cover, and clauses which insurers say require the presence of the infection at the insured premises (giving rise to what we view as the perverse situation where it is said that a government mandated shutdown due to a global pandemic is said not to be covered but a local bug at one premises would be). Some clauses we have seen are ambiguously worded as to whether the virus itself, or the risk or likelihood of infection (which isn't necessarily the same thing) need to be present at the insured premises for cover to respond.
This action will not necessarily prevent individual policyholders from pursuing their insurers through the courts or via the Financial Ombudsman Service (where eligible) but it is likely that many policyholders will wait to see the result of this action before deciding on their own next steps because it should provide a Court ruling on common areas of contractual uncertainty. That can change insurer's positions on that issue and make them more likely to settle claims. That said, one of the key areas in all policies is causation – how the policy covers the link between what's covered and loss arising, which are fact sensitive. So, the FCA's action won't mean a business won't have to pursue its own insurer, but resolving uncertainty around clauses being argued about and establishing key themes for cover, should make such action more straightforward. The FCA have asked a group of insurers that they have already identified have policies that are uncertain in this area to state their position by 15 May, after which the FCA will seek a court declaration on the meaning and effect of the policies in question, as soon as possible.
The FCA have also issued further more general guidance on how they expect business interruption insurers to treat their policyholders at this difficult time.