We recently reported on a major Supreme Court decision concerning business interruption insurance claims, a decision that will mean tens of thousands of small businesses will receive crucial pay-outs from their insurers. The FCA has now published further guidance to aid businesses pursue these claims.

We recently reported on a major Supreme Court decision concerning business interruption insurance claims, a decision that will mean tens of thousands of small businesses will receive crucial pay-outs from their insurers.

The FCA has now updated its webpage on its business interruption (BI) insurance test case and published a “Dear CEO” letter on their expectations of insurers.  They have also included a helpful table summarising the outcome of the test case by policy type.

The FCA’s “Dear CEO” letter outlines its expectations of insurers following the Supreme Court judgment.

An explanation of the Supreme Court judgment

The FCA is keen that all businesses with valid BI claims receive payments as soon as possible. The FCA explains the judgment means that:

• Cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding.
• Valid claims should not be reduced because the loss would have resulted in any event from the COVID-19 pandemic.
• Two additional policy types provide cover, taking this to a total of 14 wordings from the representative sample of 21.

More policyholders will have valid claims and some pay-outs will be higher. Therefore, insurers should promptly reassess all BI claims affected by the test case, including those previously rejected or not fully paid, in accordance with FCA final guidance on the case.

To treat customers fairly and act in their best interests, insurers should not include the period between 17 June 2020 and the date of issue of the Supreme Court’s declarations when relying on any time limits within which policyholders must make potentially affected claims or take any other step under the terms of their policies, such as notifying circumstances in relation to a claim.

Insurers should communicate directly and as soon as possible (that is, over the coming week) with policyholders who have made claims or complaints that are potentially affected by the Supreme Court judgment, to explain the next steps.

For affected claims where full and final settlements have been agreed, insurers should review the information provided to customers, to ensure that it was clear, fair and not misleading. Insurers should have informed policyholders about the test case and its implications when an offer to settle a potentially affected claim was made. If this has not been done, firms should consider further actions, which are likely to include contacting the affected customer and making any residual payments.

In terms of complaints, where insurers have policy wordings that were affected by the test case they should reassess all potentially affected complaints, including those they did not fully uphold, unless the complaint has been properly settled on a full and final settlement basis.

Where there are further disputes that are the subject of legal proceedings, firms should consider the significant costs faced by policyholders bringing legal proceedings to clarify any remaining areas of uncertainty. Firms should seek to narrow the issues in dispute to ensure that the litigation can proceed in the cheapest and quickest way possible, reflecting a firm’s obligation to act fairly, honestly and professionally in the best interests of its customers.

What other guidance has been provided?

In addition to the “Dear CEO” letter, and in order to assist policyholders and other stakeholders to understand the outcome of the test case, the FCA has published a table setting out the outcome of the test case and key paragraphs of the judgments according to policy type in the representative sample of 21 policy wordings.  The table is arranged by policy type and highlights whether the final judgment on a policy potentially provides cover.

Get in touch…

Balfour+Manson can offer advice on insurance issues, including business interruption claims. If you need any input, please contact Scott Clair or Gordon Deane.

Gordon Deane,

Partner