We’ve all heard that the Supreme Court has passed judgement, but what has happened in the week following last Friday’s Supreme Court judgement on the Covid-19 Business Interruption test case which ruled in policyholders’ favour?
Clearly, many more claims will now be settled by the insurers. While this is great news for the clients, we need to keep in mind that the test case was about Non-Physical Damage Business Interruption clauses covering areas such as Disease, Denial of Access or a hybrid of the two. Most SME Business Interruption policies do not have this cover which the FCA has always acknowledged.
Given its significance, the case attracted a lot of national media attention that may have raised expectations and overstated that firms will get a pay-out.
Already, we are seeing brokers getting a lot of calls from clients and Claims Management Companies are also getting involved.
It is still very early in the process, and people are still trying to get to grips with the comprehensive 112 page judgement. 1
Herbert Smith Freehills, who acted for the FCA, have produced a summary. 2
The FCA, insurers and the Supreme Court are still determining the declarations in light of the judgement and of course, there is still the quantum of a claim to determine.
Following its victory, the FCA has today issued a ‘Dear CEO’ letter 3.
The letter maintains the pressure on insurers to write to their affected clients, treat them fairly and settle claims accordingly. It will also collect Management Information from insurers to see that they are doing this and will continue to monitor them.
Alongside the ‘Dear CEO’ letter, it also published a table of how the judgement impacted on the policies used in the test case. 4
Earlier in the process the FCA required all insurers to notify them of where they had policy wordings that had Non-Physical Damage Business Interruption clauses that may also be affected and has published this on its website. 5
These insurers should now also be comparing their policies against the judgement to see if they must pay out.
Although mainly aimed at insurers the above ‘Dear CEO’ letter also references brokers:
“We also note the key role that insurance brokers and other insurance intermediaries have in working with insurers to ensure that policyholders’ valid claims are progressed as quickly as possible.”
I am sure that prior to the Supreme Court case, you will already have assessed whether your clients had any relevant policies caught up in this. If you have not done so already, it is now imperative.
Although a number of clients are going to be happy that their claims will be paid, some clients, especially given the difficult financial and economic conditions, may be unhappy and may complain to you, asking why hadn’t you got them a policy that would have paid out?
At a BIBA webinar today Richard Webb, a director at Manchester Underwriting Management who write a lot of insurance broker’s own professional indemnity insurance, was stressing the need for brokers to remain composed, to put things in writing to their clients in a factual, professional, and friendly way.
BIBA had already been working on a “defence document” for its members, with arguments along the lines that the pandemic was not foreseeable, that clients would not have bought the cover anyway (and are only saying they would have with the benefit of hindsight), as they did not buy Business Interruption extensions for Cyber and or Terrorism which were readily available, but only wanted a cheap product.
Also, there is a view that these policies were not designed to pay out for a pandemic; the only reason
there is a pay-out is that the policy wording was loose and therefore had to be decided by the Supreme Court due to its complexity.
BIBA are currently updating the defence document and hopes to issue it next week to members.
Again, Richard Webb said that to defend themselves properly, brokers should have assessed the client’s demands and needs at the time of the placement and recorded it in writing.
Even though some of these complaints may simply be Claims Management Companies ‘chancing their arm’ brokers will still need to address and defend them, taking time and money.
You may be able to access a legal helpline via your PI Insurance. However, this has costs and in an already hard market, we are unfortunately likely to see the knock-on impact on the premiums for PI cover.
If you are affected by this ruling, you may now find it more difficult to renew your PII so plan early. The FCA is paying close attention to firms that have a Covid-19 exclusion in their PII policy.
So now we have the decision which brings clarity, but there is still some way to go and a lot for brokers to do to help their clients and anage their expectations accordingly.
Useful Links
3 Dear-ceo-letter-business-interruption-insurance-january-2021.pdf (fca.org.uk).
5 List of business interruption policies – 15 July 2020 (fca.org.uk)