FCA seeks court declaration to clarify BI virus cover for UK SMEs

UK regulator the Financial Conduct Authority (FCA) is going to ask the courts to provide legal certainty over business interruption (BI) insurance cover for Covid-19 pandemic losses, in order to ensure customers are treated fairly.

It will obtain a court declaration based on sample cases and BI policy wordings to resolve uncertainty for SMEs that have been closed in the government-ordered lockdown.

The FCA has also written to insurers asking them to clarify by 15 May whether their BI policy wordings cover non-property damage claims.

Several insurers have said their policies do not cover global pandemics and have denied claims. Several action groups have formed, including one against insurer Hiscox, to bring potential class actions.

“The current coronavirus (Covid-19) emergency, and its effect on businesses holding BI policies, means that any uncertainty needs to be resolved as quickly as possible,” the FCA said.

It added that asking the courts for their opinion is not intended to cover all active disputes but will settle contractual uncertainty. The regulator will also not seek to determine how much should be paid under individual policies.

The court declaration will draw sample cases that represent the most frequently used policy wordings giving rise to uncertainty between insureds and insurers.

The FCA said it has contacted some firms about its plans, including insurers that have already declared their positions about pandemic-related BI claims. The regulator said it will have the full picture following today’s request for firms to clarify their position by May 15.

Brokers welcomed the FCA’s move. The British Insurance Brokers’ Association (BIBA) said its members have “serious concerns” for their clients. “This intervention from the regulator to create certainty for many customers making BI claims, and the basis on which firms are making decisions on claims, is a step in the right direction,” BIBA said.

The FCA wrote to insurers last month about the status of SME insurance policies following the pandemic. It said that while most BI policies are focused on property damage, some also cover losses from other causes such as infectious or notifiable diseases and non-damage denial of access.

The FCA said broad policy wording has made it difficult to determine these claims. Where there is a valid claim, payments should be made without delay or an interim payment until the full value of the claim is established, the FCA said.

“The issues around BI policies are complex and there are significant differences in policy wording between policies and across firms,” according to the FCA. “It is clear that decisive action is appropriate given the severity of the potential consequences for customers in the current coronavirus emergency.”