Businesses understandably want claims settled quickly and the FCA’s test case importantly provided the necessary clarity for policy wordings where coverage remained in question. Insurers are focused on resolving all outstanding claims and know that a swift conclusion to this matter is now essential for affected businesses. In addition to the Supreme Court ruling, many insurers were already settling claims where business interruption cover was already shown to be clear.
Insurers expect to pay up to £2bn in business interruption Covid claims incurred during 2020, out of an anticipated £2.5bn in Covid-related claims across all insurance products, including travel and life insurance.
Following the publication of the Supreme Court judgment in the business interruption insurance test case on 15 January, here is what you need to know.
- Insurers are committed to settling valid claims as quickly as possible. Steps taken include having dedicated claims handling teams to deal specifically with these claims, online claims portals to streamline making a claim, and making interim payments while claims are being processed.
- ABI members have a clear set of principles for the handling of BI claims to reassure customers and reinforce existing best practice in claims handling.
- It is important to speak to your insurance broker to make sure that you have a valid claim, and where do that the necessary supporting documentation is provided to your insurer as soon as possible.
- You will have been contacted by your insurer if you have an ongoing claim or complaint against a policy that is affected by the test case.
- The Financial Conduct Authority (FCA) has set out its expectations of insurers where there are valid claims under business interruption insurance policies affected by the test case. A letter, which can be read here, was issued to CEOs of insurance firms on Friday 22nd January. Further information from the FCA regarding the test case process can be found here.
- The test case does not apply to all business interruption insurance policies. The FCA has published information on the policies that were found by the High Court and Supreme Court to potentially provide cover. There are a number of insurers who were not part of the test case and whose BI policies are not affected by the Supreme Court ruling. Insurers will have written to customers if their policies were affected by either the High Court and/or the Supreme Court rulings.
Frequently Asked Questions
What progress has been made on settling claims impacted by the FCA Test case judgments?
Claimants, brokers and lawyers are working together with insurers to settle claims as quickly as possible. Steps taken by firms to speed up settling claims include having dedicated claims handling teams, new online systems to streamline making a claim, and making interim payments while claims are being processed.
The FCA has begun to publish claims data based on insurer submissions to the FCA and intends to publish monthly updates. However, the figures may not consistently show all of the additional claims insurers have paid outside of the test case process, where business interruption coverage was agreed.
We expect that the number of claims settled will increase significantly as insurers continue to process claims.
What types of business interruption insurance policies were affected by the test case?
The test case does not apply to all business interruption insurance policies. In a letter issued to CEOs of insurance firms, the FCA said “It remains the case that most SME BI policies are focused on property damage and only have basic cover for BI as a consequence of property damage, so are unlikely to pay out in relation to the Covid-19 pandemic and its effects.”
The test case considered a sample of 21 different types of policy wordings put forward by eight insurers. These policies contained clauses on non-damage business interruption arising from the occurrence of an infectious disease within a radius of the business premises and/or relating to the prevention or denial of access to the business premises. Some policyholders had questioned if they would provide cover for Covid-19 losses to their business and insurers, along with the FCA, wanted to provide clarity for these policyholders as quickly as possible by asking the courts to decide the meaning and effect of these policies.
Following the High Court hearing, and appeals from all sides at the Supreme Court, the FCA has now set out which policies were found to potentially provide cover.
The FCA stated that of the 21 types of policy in the sample, seven do not provide any cover for Covid-19 losses, eight provide cover where Covid-19 occurred within a radius of the insured premises and six provide cover in certain circumstances and for certain types of business, typically where the business was required to close by law.
Insurers are currently assessing which claims fall into these categories and are in contact with all customers affected.
Why were all businesses who hold a business interruption insurance policy not covered by the outcome of the test case?
The test case does not apply to all business interruption insurance – the majority of these policies only provide cover for physical damage to the property and this has been acknowledged by the FCA. In a letter issued to CEOs of insurance firms, the FCA said “It remains the case that most SME BI policies are focused on property damage and only have basic cover for BI as a consequence of property damage, so are unlikely to pay out in relation to the Covid-19 pandemic and its effects.”
The test case considered a sample of 21 types of policy wordings covering non-damage business interruption from eight different insurance firms’, and the final findings of the courts confirmed that seven of these types of wordings do not provide cover at all. The FCA has published information to help policyholders understand which policies could potentially provide cover.
Should policyholders contact their insurer?
Insurers have and will continue contacting businesses who have an ongoing claim or complaint against a business interruption insurance policy which might be impacted by the ruling.
If you have considered the information published by the FCA on which policies are potentially covered, believe you could have a valid claim or have an ongoing claim or complaint but haven’t yet heard from your insurer then we would recommend making contact with your insurer. If you have purchased your cover through a broker, you should consider getting in touch with them.
How soon will anyone with a valid claim receive a pay out from their insurer?
Insurers are committed to settling valid claims as quickly as possible - they understand that their business customers need to be paid quickly. The time frame in which a payment will be made will vary depending on the nature of each individual claim, which can often be complex, and the time taken to gather information to establish the value of each claim.
However, in many cases, the process of settling claims has already begun. Where cover does apply to business interruption claims, ABI members have a clear set of principles for the handling of these claims to reassure customers and reinforce existing best practice in claims handling. This includes, where possible, making interim or part payments where claims are ongoing, which insurers are doing.
What’s involved in the claims handling process?
Insurers are working as quickly as possible to process claims but, as a first step, the amount of money lost by the business during the closure needs to be calculated before a payment can be made. Where possible, interim or part payments are being made whilst the final total value of the claim is confirmed, in line with the industry-developed principles for handling Covid-19 related business interruption claims.
When a claim is made by a business, insurers will require evidence to consider whether the business interruption policy covers the circumstances under which the claim is being made. Evidence will also be required to show how much the business has lost financially. In order to accurately calculate the amount that the business is entitled to under the policy, financial information will be required from the business. This could include details of profit and loss in recent years, any income and costs incurred during the period of insurance as well as any savings made during that period. This can take time for the business to gather and may require support from their broker and/or accountant. The insurer will also need time to consider the information provided and will often engage an expert loss adjuster to calculate how much the business is entitled to.
Answers to many fundamental questions around whether businesses were covered and the amount they are entitled to were only provided when the Supreme Court handed down its judgment in mid-January. Insurers are now working through these claims as quickly as possible once they receive the information required to support the claim.
Further information can be found here.