brown gavel and open book on a wooden table of the law in the courtroom

The Financial Conduct Authority (FCA) is asking the courts to clarify whether businesses, shut down by the Covid-19 pandemic, can claim on their Business Interruption (BI) insurance.  The regulator says that most BI policies do not provide cover for pandemics, but is seeking clarity on those policies where the wording is unclear about the cover provided.

Christopher Woolard, Interim Chief Executive of the FCA, sent a ‘Dear CEO’ letter to insurers in mid-April.  He wrote that “most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic.”

However, Mr Woolard went on to encourage insurers to pay out promptly where BI cover was provided.  He also advised insurers to make interim payments on policies where there are reasonable grounds to pay part of the claim, even if payment in full is disputed.

Rebecca Carrera of law firm Pinsent Masons, said: “Insurers are likely to welcome the FCA’s acknowledgement that most business interruption policies will not cover pandemics as well as the fact that the FCA does not propose to intervene in those cases“.

Now the regulator has announced that it is seeking court guidance on BI policy wordings where there is uncertainty about the level of cover.  It will ask the court to rule on a representative sample of the most frequently used policy wordings that are causing uncertainty.

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,” said Mr Woolard.

James Burgoyne, Director – Claims & Technical, Brunel Professions believes that the regulator wants to know which claims are not covered, as this would mean that it should not intervene in these disputes. “A court ruling could also have a knock-on effect on Ombudsman decisions as it would be clear whether or not the policy covered business interruption arising from the pandemic. The Ombudsman could then view a complaint on the basis that just because a policy hadn’t paid it wouldn’t in itself indicate that something was wrong,” he added.

The FCA’s action had its first case management conference on the 16 June 2020, and the court agreed that a decision on the action could be expedited in view of the relevance of the decision to many other actions.

The FCA’s ‘Dear CEO’ letter and press release about its court action have been published on the regulator’s website.  Reports about the issue have been published by Fenchurch Law, Eversheds Sutherland and Pinsent Masons.

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