According to the FCA, most SME (small medium entities) insurance policies are focused on property damage (and only have basic cover for business interruption (BI) as a consequence of property damage) so, at least in the majority of cases, insurers are unlikely to be obliged to pay out in relation to the coronavirus pandemic.
Some customers’ policies also cover for BI from other causes (for example in relation to infectious/notifiable diseases, non-damage denial of access and public authority closures/restrictions) and may in some cases provide cover. Whether there is cover for the business interruption related to the pandemic crisis will depend on a number of factors including the policy’s wording. The range of wordings and types of coverage are sufficiently broad in the BI market that it is difficult to determine at a general level the degree to which any one individual customer may be able to claim.
There are BI policies where firms have determined an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. Firms still need to do more work to agree, process and pay these claims as promptly as possible in all cases, including using interim payments where appropriate.
However, in relation to other policies, firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.
The issues around BI policies are complex and there are significant differences in policy wording between policies and across firms. These complexities have the potential to create ongoing uncertainty for a lengthy period.
It is clear that decisive action is appropriate given the severity of the potential consequences for customers in the current coronavirus emergency.
In this context, FCA will work actively and promptly to seek to resolve issues causing uncertainty over BI coverage, to provide greater clarity for parties and help ensure there is not undue delay to payments where there are valid claims.
The FCA intend to do this by seeking to bring relevant cases to court as soon as possible for an authoritative declaratory judgment regarding the meaning and effect of some BI insurance policy wordings where there remains unresolved uncertainty. The FCA is working to identify a sample of cases representative of all the most frequently used policy wordings that are giving rise to uncertainty, where it would be appropriate for them to bring such proceedings.
Who will side insurers (except their fully paid lawyers)? should they be protected? did they sell unreasonable policies? who will side SME? time will tell.