The coronavirus pandemic has hit businesses far and wide – and many have turned to their insurers in the hope that business interruption policies can bail them out amid massive volumes of lost business. The insurance industry, meanwhile, has argued that, in most cases, it never meant to offer coverage for pandemic related losses, especially on such a scale – and that doing so could cripple the industry.
With the likes of Hiscox and QBE already facing campaigns relating to their business interruption offerings and COVID-19, the Financial Conduct Authority (FCA) has stepped in to attempt to offer some clarity. Now, it is offering an update on how its investigation is progressing.
Since its original announcement on May 01, it has approached 56 insurers and reviewed more than 500 relevant policies across 40 insurers. Then, on May 15, it invited holders of business interruption insurance policies who remained in dispute with their insurers over the terms of their policies to send in their arguments, related policies and relevant facts by May 20. It received more than 1,200 submissions from policyholders and brokers.
Now, the regulator states that it has identified a sample of 17 policy wordings that it believes capture “the majority of the key issues that could be in dispute.” It has offered an initial list of insurers to be examined in the test case, as well as draft guidance that asks all insurers to check their policy wordings against those it intends to test to see if theirs will be impacted by the outcome.
The following 16 insurers use at least one of the policy wordings in the representative sample, according to an FCA release:
- Allianz Insurance plc (part of Allianz SE)
- American International Group UK Limited (part of American International Group, Inc.)
- Arch Insurance (UK) Limited (part of Arch Capital Group Limited)
- Argenta Syndicate Management Limited (part of Hannover Re)
- Aspen Insurance UK Limited (part of Aspen Insurance Holdings Limited)
- Aviva Insurance Limited (part of Aviva plc)
- AXA Insurance UK plc (part of AXA SA)
- Chubb European Group SE (part of Chubb Limited)
- Ecclesiastical Insurance Office plc
- Hiscox Insurance Company Limited (part of Hiscox Limited)
- Liberty Mutual Insurance Europe SE (part of Liberty Mutual Group)
- MS Amlin Underwriting Limited (part of MS&AD Insurance Group Holdings, Inc.)
- Protector Insurance UK (part of Protector Forsikring ASA)
- QBE UK Ltd (part of QBE Insurance Group Limited)
- Royal & Sun Alliance Insurance plc (part of RSA Insurance Group plc)
- Zurich Insurance plc (part of Zurich Insurance Group Limited)
It has now asked the following insurers to participate in the High Court test case:
- Arch Insurance (UK) Limited
- Argenta Syndicate Management Limited
- Ecclesiastical Insurance Office plc
- Hiscox Insurance Company Limited
- MS Amlin Underwriting Limited
- QBE UK Ltd
- Royal & Sun Alliance Insurance plc
- Zurich Insurance plc
“The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike,” said FCA interim chief executive Christopher Woolard. “We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market. The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court.”
In response to being among the firms asked to participate, Argenta Syndicate Management issued the following statement to Insurance Business.
“Argenta Syndicate Management Limited (“ASML”) is pleased to accept the invitation to participate in the FCA’s test case for business interruption insurance, as announced this morning,” it said. “ASML supports the FCA’s aim to achieve clarity for all concerned in this unprecedented situation and to do so in a manner which provides the quickest route to achieving such clarity.”
How will insurers know if the test case applies to them?
According to the FCA, the policies and wordings selected are representative in nature – meaning they will provide guidance for many other business interruption policies not included in the sample. This means other insurers will also be affected by the test case and its conclusions – it plans to deliver a comprehensive list of those other insurers and policies that will be affected in July.
Insurers are expected to review the test case, including the sample policy wordings and determine whether or not their claims decisions for each relevant policy may be affected. They should, the regulator states, identify “where the test case may provide guidance on the interpretation or effect of a relevant policy wording but where the insurer believes that their decision on claims under the policy will not be affected by the test case” or where “the test case is not relevant to the interpretation or effect of a relevant policy wording.”
Insurers should make records of the reasons behind their conclusions and should update them as the case develops, or in light of other changing circumstances.
In addition, in its draft guidance, the FCA outlined how claims should be handled that are partially affected by the test case, how to identify claims affected and how to communicate and update policyholders who have made claims or complaints. The full draft guidance can be read here.
What is the FCA hoping to achieve?
Ultimately, the FCA says it wants to “achieve clarity for all concerned in an unprecedented situation.” This means taking representative sample cases to court.
“Our view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic,” it said. “This case is focused on the remainder of policies that could be argued to include cover.
“Policyholders should not assume that simple inclusion of their policy wording in this case will mean their policies are responsive. We are seeking a judgement that will help policyholders and insurers have a much clearer view of which business interruption policies respond to the pandemic, and those that don’t. Therefore, the court may well decide a number of these policies respond to the pandemic and others do not.”
What’s the timeline?
The FCA also offered a timeline for its next steps – noting that these are uncertain due to a number of factors, such as the consent of the court.
- June 09: FCA files claim form and particulars.
- c. June 11: Case management conference at which the court will be invited to fix a timeline for the case.
- June 23: Insurers file defences.
- c. June 26: Further case management conference.
- July 03: FCA files reply.
- First half July: Skeleton arguments and replies served.
- Second half July: Five- to 10-day court hearing.