The Financial Sector Conduct Authority (FSCA) has completed talks with non-life insurers about contingent business interruption insurance to confirm that legal certainty had been obtained, and is now calling on insurers to pay out these claims without any undue delay.
Various insurers refused to entertain claims for business interruption after the lockdown was introduced in March last year, until the high court ruled in one of the cases that there is cover for business interruption losses caused by Covid-19 itself, as well as generally by the national lockdown and related restrictions, provided that Covid-19 infection happened within the designated radius of the insured premises.
This approach was confirmed by the Supreme Court of Appeal. Insurers have since started to review previous and current claims to ensure that claim decisions are in line with recent court judgments.
According to the FSCA, it received some complaints from policyholders regarding the “burden of proof” requirements for business interruption claims, but several insurers indicated that some policyholders had only sent claims notifications to them without the necessary supporting documentation to enable them to assess the claims.
The FSCA therefore urged policyholders to liaise with their brokers and contact their insurers urgently with the necessary information.
“Insurers should provide detailed guidance to policyholders, as business interruption claims are of a technical nature. Insurers are also reminded to consider the guidance that the FSCA issued in this regard and finalise these claims as expeditiously as possible.”
The FSCA stressed that insurers should ensure that policyholders did not face unreasonable post-sale barriers to submit business interruption claims. To assist policyholders with the information that must be submitted to their insurers for the claim assessment process, the FSCA advised insurers to develop a set of ‘frequently asked questions’ (FAQs) for their websites that contain clear and visible answers.
The trends clause
The purpose of a trends clause in an insurance contract is to put the insured business in the same trading position after the business interruption, as if it had not happened. The FSCA and the Prudential Authority (PA) also discussed the trends clause with the insurers and the possibility that they would use it during the claims assessment process.
According to the FSCA, it requested insurers to be remember the factors to consider when applying the trends clause and ensure that it was applied in line with the court judgment.
“This means that no insurer may, when it considers adjusting the loss that a policyholder has suffered as a consequence of Covid-19 and the government’s response to it, consider circumstances which are part and parcel of the composite insured peril. The FSCA will closely monitor how the trends clause is applied by the non-life insurance industry.”
While one insurer was appealing the high court decision about the duration that businesses can claim for, the FSCA has ascertained that the dispute regarding the indemnity period does not apply to most of the insurers involved and therefore does not believe that the dispute will affect the majority of business interruption claims.
The FSCA and PA reached an understanding with the non-life insurance industry in July last year that interim relief payments would be made to policyholders, while waiting for legal certainty from the courts.
“Some insurers provided these payments to policyholders on a full and final basis, which binds the policyholder, provided that the insurer has complied with the requirements set out by the FSCA.” This means that a policyholder will not be entitled to any additional payment from an insurer where a full and final settlement has been reached.
However, policyholders who accepted interim relief payments on a “without prejudice” or not on a “full and final” basis, could be entitled to receive additional payments if applicable. The FSCA said it supported the approach of some insurers to make interim payments after the initial assessment of claims and before completing the full claims-assessment process.
Prescription and time-barring clauses
The FSCA also reminded policyholders to submit all valid claims as soon as possible to prevent the prescription of their claims and be aware of time-barring clauses in their policies to ensure that they could take the necessary legal action within the set time.