Financial Conduct Authority asks courts to help settling insurance claims for firms hit by virus

Financial Conduct Authority

The Financial Conduct Authority is asking the courts to clear up uncertainty over business interruption insurance policies after some companies have had coronavirus claims rejected.

The regulator said that decisive action was appropriate given the severity of the potential consequences for customers in the coronavirus emergency.

Companies have had to halt operations and furlough as a result of the lockdown and they argue that their insurance policies entitle them to payouts. The Lloyd’s of London insurer Hiscox is facing action from holders of its business interruption policies over refused pandemic-related claims and the FTSE 100 insurer RSA is facing a similar possible group claim from holiday let owners.

The FCA said that the policies were complex, there were significant differences in wording between them and it wanted to “help ensure there is not undue delay to payments where there are valid claims”. It is working with the Association of British Insurers to bring to court a sample of cases of the most frequently used policy wordings that are creating uncertainty to get an authoritative judgment.

“This will assist both insurers and the insured,” the regulator said in a statement. “It will not determine how much is payable under individual policies, but will provide the basis for doing so.”

A group of about 200 small and medium sized businesses, have appointed the law firm Mishcon de Reya to examine a potential claim over Hiscox’s refusal to pay out on business interruption policies. The disputed Hiscox policies insure against financial loss arising from an inability to use an insured property that is caused by “an occurrence of any human infectious or human contagion disease”. Hiscox rejects the claims and says that the policies were not designed to cover situations such as pandemics.

Richard Leedham, a partner at Mishcon de Reya, said: “Hiscox have said that they did not intend to cover what has happened. That is irrelevant. We are looking at what is in the contract. They could have excluded it but they didn’t. They have provided a very broad form of wording and its natural meaning would cover someone whose business was interrupted by the lockdown.”

The Association of British Insurers has said that the vast majority of policies would not provide cover for the impact on businesses of Covid-19.

Simon Sloane, a partner at the law firm Fieldfisher, who has acted against insurers after catastrophes such as the terrorist attacks of September 11, 2001, and the 2004 Asian earthquake and tsunami, said that while “no insurer would ever intend to cover a pandemic”, several had left themselves open to valid claims because “some of the policies are poorly drafted. What might have taken a number of insurers by surprise is that they haven’t got exclusions in policies from pandemic exposure.”

The FCA also set out measures to support consumers and businesses who hold insurance products and who are facing other problems as a result of coronavirus. “The package of measures sets out the FCA’s expectations that insurance firms should consider whether their products still offer value to customers in the current situation and whether they can be doing more for those suffering a financial impact because of coronavirus,” the watchdog said.