FCA announces steps to obtain clarity for insurers and policyholders.

By Victoria Sander, Martin Davies, Oliver Middleton, and Duncan Graves

The Financial Conduct Authority (FCA) announced today, 1 May 2020, that it is taking steps to resolve contractual uncertainty in business interruption (BI) insurance cover in light of COVID-19 and intends to apply urgently for a court declaration regarding the scope of BI policies.

The FCA has identified a sample of the most frequently used policy wording in which there remains uncertainty on coverage, and intends for the High Court to provide an authoritative ruling on the correct approach to interpretation of such policies and whether each policy may provide BI insurance coverage as a result of COVID-19. The FCA believes that decisive action is appropriate given the divergent approaches of insurers to BI coverage and the importance of certainty for insurers and policyholders in knowing whether their policy provides for BI coverage in the current circumstances.

The FCA has outlined its proposals to the Association of British Insurers and those firms it considers to have policies for which BI coverage for COVID-19 remains unclear, and is seeking clarification on their position by no later than 15 May 2020. The announcement implies that if uncertainty remains, the FCA will commence proceedings for a declaration and will join those firms to the action, alongside any other relevant firms the FCA becomes aware of.

The action will not prevent insurers or policyholders from pursuing or continuing claims in the courts or from taking eligible complaints to the Financial Ombudsman Service, but the FCA intends that a declaration will provide guidance for such claims or complaints.

Further, the FCA reiterated the requirement for general insurance (GI) firms to meet their obligations under Principle 6, FCA Insurance: Conduct of Business Sourcebook and FCA DISP when handling claims and any complaints arising from them. GI firms may also consider whether they can offer other help to their customers at this point. If valid claims are made, firms should consider issuing an interim or partial payment while discussions regarding the final value of the claims remain ongoing. If policies are found not to provide the coverage desired, the FCA also notes the potential for mis-selling complaints and/or claims that might inevitably arise.

Alongside the inevitable claims and various action groups already being established, the FCA is taking this unusual and proactive approach to seek clarity during a concerning and uncertain time for both insurers and policyholders. However, in light of the breadth of policy wordings in existence, the role of the Financial Ombudsman Service, and the potential for mis-selling claims, how much certainty will be achieved in practice remains to be seen.