On Friday 22 January 2020, the FCA sent a ‘Dear CEO’ letter to insurance companies and managing general agents in order to clarify its expectations of firms in respect of business interruption claims following the decision of the Supreme Court on 15 January (see our case summary here). Executive Director of Consumers and Competition, Sheldon Mills, writes that he wishes to see all businesses with a valid claim receive payments as soon as possible.
In some cases previously rejected claims made by businesses will now fall within cover following the decision by the Supreme Court. The FCA expects insurers and managing general agents to provide clarity on coverage to policyholders over the next week. Insurance brokers have a role to play in ensuring that valid claims are progressed quickly. Sheldon Mills writes that it is essential that insurers reassess and settle claims quickly in the light of the Supreme Court judgment, including making interim payments on policies where the claim has been accepted (either in full or in part) but elements of the calculation or agreement on the final settlement remain outstanding.
What does the judgment mean for claims?
The recent Supreme Court decision will result in more claims falling within the terms of the relevant policy wordings. Coverage may be available for partial closure of premises in addition to full closure. Valid claims cannot be reduced on the grounds that the losses suffered would have happened anyway due to the context of the pandemic. Accordingly, insurers must reassess all non-damage business interruption claims and contact policyholders with the reassessment outcome. Insurers must not rely on any time limits for making claims (or taking additional steps) falling within the period from 17 June 2020 until the Supreme Court makes declarations in respect of each policy wording.
The letter reminds insurers of the FCA statement (in August 2020) on firms making deductions for claims in light of government support. Decisions on taking government support into account in claims should be made and documented at board level.
Where insurers have used wordings affected by the Supreme Court decision they should reassess previous complaints (unless settled on the basis of a full and final settlement).
Communicating with policyholders
Insurers should communicate with policyholders affected by the case as quickly as possible. Insurers should have provided an initial update to policyholders on the judgment by 22 January.
Further legal disputes
The FCA suggests that insurers should seek to narrow the issues in dispute where there are further legal proceedings in order to reduce the costs of litigation for policyholders.
The wider implications of the Supreme Court decision
Insurers should take into account the impact of the Supreme Court decision on other types of policies, for example in respect of the meaning of certain policy terms such as ‘event’ and ‘occurrence’ and the overturning of the Orient-Express case.
Sheldon Mills ends the letter with a warning that the FCA will not hesitate to use the regulatory tools available to it where firms are not paying valid claims in full as soon as possible.