UK regulator FCA seeks court clarity on virus business interruption claims

The UK’s Financial Conduct Authority (FCA) has confirmed that it intends to seek legal  clarity on business interruption (BI) insurance to resolve doubt for businesses who are facing uncertainty on their claims. The British Insurance Brokers' Association (BIBA) and the Chartered Insurance Institute (CII) have welcomed the move.

The UK regulator is looking to obtain a court declaration in "public interest" to assist both insurers and the insured as it feels the matter needs to be "resolved as quickly as possible".

The FCA has written to a number of firms to understand whether they are declining or intend to decline BI claims and expects an answer no later than May 15. According to RBC analyst Kamran Hossain, although the higher-profile examples in recent weeks have focused on Hiscox and RSA, providers such as AXA, China Taiping, Touchstone and Zurich would see their insurance wordings reviewed.

The FCA reiterated that in the majority of cases, it believes that business interruption insurance was not purchased and there will be no cover. In the cases where cover was included, the regulator expects claims to be assessed and settled quickly.

Christopher Woolard, interim chief executive of the FCA, said: "We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover."

He explained: "Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers. It is clear that decisive action is appropriate given the severity of the potential consequences for customers.

"In addition to this court action, the current emergency has altered the value of some insurance products and we believe that insurers should be looking at both whether their products still offer value. Firms should also look at how they can help customers who may be experiencing financial difficulties as a result of the virus. Many insurers are already taking some kind of action to assist their customers and we want to see a degree of consistency for consumers. Today’s proposed guidance and statement aims to make our expectations clear to all firms in the insurance market and provide future certainty."

In response to the FCA's move, Matt Connell, director of policy and public affairs for the Chartered Insurance Institute, said: “The FCA’s decision to test the wording of certain business interruption contracts in court is preferable to a disorderly and potentially lengthy series of test cases that are less likely to reach a comprehensive and definitive solution."

He added: “As a result, we welcome this move to reduce uncertainty for both insurers and the public. The process which the FCA will use to select test cases will be very important, and we anticipate that the FCA will consult widely with both consumer groups and the insurance sector to maximise the chances of reaching a decision that is fair, comprehensive and definitive.”

BIBA welcomed FCA's intervention saying: "Our members have serious concerns for their clients and their ability to recover from this situation and we have been working to help members resolve these issues. 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."