Following the decision of the High Court in Financial Conduct Authority v Arch and others [2020] EWHC 2448 (Comm), the Financial Conduct Authority (FCA) has decided to publish guidance in respect of the evidence and methodologies which policyholders may use to prove the presence of Covid-19. Although some aspects of the High Court decision have been appealed to the Supreme Court (judgment is pending), declarations of the High Court relating to proving the presence of Covid-19 are not subject to appeal. The draft guidance is open for consultation until 18 January 2021.
For regulated firms (both insurers and intermediaries) the FCA says that the guidance sets out firms’ obligations under the Principles for Businesses (PRIN), the Insurance Conduct of Business sourcebook (ICOBS) and the Dispute Resolution: Complaints sourcebook (DISP).
Methodologies for enabling policyholders to satisfy the minimum requirements of their policy were discussed in the High Court case. By publishing this guidance the FCA is inviting insurers who doubt the appropriateness of the Court’s methodology to explain their reasons for doing so. In other words, the FCA guidance is being established on the basis of ‘comply or explain’.
The High Court case considered the extent to which non-damage business interruption policies responded to the pandemic. The guidance relates to claims under contracts in force during the pandemic and which require the policyholder to provide the presence of Covid-19 within a particular area. The FCA proposes that the guidance cease to have effect on 31 December 2021.
The draft guidance covers the following areas:
- Chapter 2 sets out how policyholders should use the guidance. This includes the types of wordings for which the guidance is relevant and examples of the evidence that should be submitted.
- Chapter 3 sets out guidance for insurers and insurance intermediaries. The guidance states that insurers should provide fair consideration and assessment of any evidence submitted by policyholders to prove the presence of Covid-19 where it is required under the policy. Where the insurer submits counter-evidence it must clearly explain the basis on which the policyholder’s evidence does not discharge the burden of proof. The FCA makes a couple of suggestions as to how insurers might assist policyholders with their claims. For example, where one policyholder has proved that Covid-19 was present, the insurer should not require other policyholders to provide the same when making a claim.
- Chapters 4, 5, 6, 7, 8 and 9 consider different types of evidence and methodologies for establishing Covid-19 numbers.
