The Financial Conduct Authority (the “FCA”) has published a ‘Dear CEO’ letter to insurers following the recent decision made in the Supreme Court test case on non-physical damage business interruption (“BI”) insurance. The FCA is determined to make the next steps on the recent ruling as clear as possible.
A table of outcomes arranged by policy types was published on the FCA website last week, detailing the list of policies reviewed by the High Court and the Supreme Court. It covers the final judgment on whether policies would provide cover and other factors to assess against specific policies. The table uses a sample of 21 policy wordings to assist insurers and policyholders in understanding whether their policy provides cover.
The letter reflects on those policyholders in receipt of financial support from the Government. It refers back to the FCA’s August 2020 statement that such support should only be deducted from claims payments if the appropriateness of such a deduction has been thoroughly considered. The FCA confirms that insurers should have considered the impact of government support at board level and this consideration should be properly documented. Any decisions reached by insurers may be subject to scrutiny by the FCA who will contact insurers, where necessary, and assess the appropriateness of any such deductions.
The FCA acknowledges that some policy claims may be subject to further litigation but makes clear that insurers should consider the significant costs outcome to policyholders in those circumstances. If any disputes proceed to litigation, firms should narrow the disputed issues in order to ensure the matter is resolved quickly and at a low cost.
It has been emphasised in the Dear CEO letter that “clear, accurate and timely communication is crucial” between insurers and policyholders. The regulator seeks to “ensure that all businesses with valid BI claims receive the payments due to them as soon as possible”. The FCA website will be updated accordingly, as the FCA seeks to provide consistent guidance.
Insurers should ensure they are communicating with policyholders who may be affected by the judgment as soon as possible. It may well be that some cases of previously rejected or not fully paid claims and complaints are now valid under the recent decision. Insurers should reassess all policies that they did not previously uphold if they suspect they could now be affected by the test case.
As we have mentioned in previous blog posts, insurers should not take the impact of the Supreme Court decision lightly. It should be noted that other policy types may still be affected by the decision to overturn the Orient-Express Hotels case, which the insurers had hoped to rely on.