Background
As the impact of Covid-19 became real for organisations, some facing sudden and catastrophic reductions in turnover or demands for price reductions and cancellations, attention turned to whether insurance would assist. On 05 March the government designated Covid-19 a notifiable disease, and advised both in their daily press conference and online that this would mean that if you had Business Interruption cover, most insurance policies would pay, subject to the limits of the policy.
This advice was incorrect, and whilst it was eventually changed, it meant more worry and confusion at an already difficult time for small and large organisations alike.
We have addressed the reasons for the lack of cover in our frequently asked questions section, but crucially we do not believe any insurer intended to provide cover under the Business Interruption (BI) section of the policy for a pandemic, and were there to be cover under all insurance policies either the insurance would be unaffordable or insurers would not have sufficient capital to pay claims.
Options
For those with BI insurance cover, it has become apparent that some policy wordings are poorly drafted, and some insurers have relied on arguments for not paying claims that we do not believe have legal merit. We have pursued insurers where BI is in place and the policy is not clear, but have mostly been met with standard denials of liability which have not always felt in the spirit of the Financial Conduct Authority’s (FCA) rules or indeed to be a correct legal interpretation.
When insurers deny liability there are normally several options available, namely:
- Negotiate, particularly with a qualified insurance broker
- Financial Ombudsman Service, for those eligible
- Arbitration, often this is required in the policy prior to litigation
- Litigation, potentially as part of a group
All of the above can be both expensive and timely, at a time when urgency is required. The crisis is now.
FCA
On 01 May the FCA announced that as a result of the confusion and the effect on organisations, a resolution is required urgently and therefore the FCA intended to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims. Hayes Parsons welcomed this development, and as a consequence has been advising clients to pause the use of any other options, as listed above.
On 15 May insurance brokers were invited to assist in providing arguments, policy wordings and other contextual information with regard to BI claims, including where insurers have denied liability on claims and why we believe they should be paid. Hayes Parsons submitted significant amounts of information to the FCA to assist our clients and the trade sectors we are specialists in, sometimes in conjunction with relevant trade bodies and other professional organisations.
The rough timeline for the court review is as follows:
09 June FCA started claim in the High Court
16 June Case management conference, at which the court fixed the timetable for the case and other procedural matters
23 June Insurers file Defences
26 June Further case management conference, at which the court will deal with any outstanding procedural matters to ensure the case is ready for trial
3 July FCA files Reply
1st half July Skeleton arguments and replies served
20-23 July and 27-30 July 8 day court hearing before Lord Justice Flaux and Mr Justice Butcher
The FCA has created a statement for policyholders which can be found here.
