Brokers react to business interruption case as insurers, policyholders and the FCA consider appeals

Brokers react to business interruption case as insurers, policyholders and the FCA consider appeals The much-anticipated judgment in the Financial Conduct Authority’s (FCA) business interruption test case was handed down on 15 September, revealing a mixed result for both insurers and policyholders. The FCA argued that the High Court had ruled in favour of policyholders on the majority of issues under scrutiny in the case, but the Association of British Insurers (ABI) stated that the result “divides equally between insurers and policyholders on the main issues”. It is clear that the complex judgment, which spans 162 pages, will need further consideration. The court decided that, for many of the policies, whether they will pay out or not is down to the exact wording used and the specific circumstances surrounding the loss

Appeals The story is most likely far from over. At the time of writing it is still unknown whether any parts of the decision will be appealed. The court has confirmed it will hold a consequentials hearing on 2 October, where it will hear submissions from the parties on any applications for appeal.  In a call with journalists on 22 September, FCA interim CEO Christopher Woolard stated that the regulator had not yet decided whether it would appeal. “It’s not purely down to us, other parties can decide to appeal as well,” he added. One of the eight insurers involved in the case, QBE, quickly confirmed that it was “considering options to appeal” after the court ruled in favour of policyholders with respect to one of the provider’s three policy wordings under scrutiny.  The court ruled in favour of QBE with respect to two other policy wordings and hospitality broker NDML hoped there would be an appeal in relation to those. It pledged to continue to fight for QBE clients who had “not yet got the result they deserve”. NDML, which has teamed up with the Night Time Industries Association, earlier paused its own plans to pursue legal action against Hiscox and QBE in order to see what would happen in the test case. However, commentators warned that a lengthy appeals process would have a negative effect on the industry’s reputation, which has already suffered from the insurance sector’s response to the pandemic.  “We’re all very mindful that the industry reputation is front and centre and we want to be very careful of that,” commented Graeme Trudgill, executive director of the British Insurance Brokers’ Association (Biba).

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FCA prepares appeal after it fails to reach agreement with insurers in BI test case

Regulator says it will continue discussions with insurers and action groups to find a solution for the outstanding issues as soon as possible. The Financial Conduct Authority (FCA) has filed a skeleton argument with the High Court and confirmed it will apply to leapfrog an appeal to the Supreme Court in the business interruption test case. The regulator stated it had hoped to reach an agreement yesterday (30 September) with the eight insurers involved in the case around how to interpret some “important elements” of the judgment affecting which small businesses get paid and how much. It noted that this would have allowed for faster pay-outs for those policyholders who have valid claims.

Complex The FCA said in a statement: “However, we recognise that this case has always involved complex issues and we have filed our skeleton argument with the High Court today in an attempt to clarify some of these points at Friday’s hearing.” That consequentials hearing, where the court will consider any applications to appeal the judgment, will be held tomorrow (2 October). The watchdog stated that it will continue discussions with insurers and action groups to find a solution for the outstanding issues as soon as possible.

It added: “At Friday’s hearing, we will ask the Court to give us a certificate to apply to ‘leapfrog’ to the Supreme Court which we believe is the fastest way to get legal clarity as quickly as possible for all parties, in the event that it is not possible to resolve the outstanding issues in the coming weeks.” Earlier this week the regulator said it had filed a leapfrog application on a “precautionary basis” in case it failed to reach an agreement with insurers by close of business on 30 September. Insurers According to the FCA seven of the insurers involved in the case had also applied for leapfrog certificates. Insurance Age understands that Zurich is the only provider involved in the case that has not applied to appeal the outcome. A spokesperson for Zurich commented: “The recent judgement confirmed that the wordings represented by Zurich do not provide cover for business interruption in relation to the Covid-19 outbreak.” The judgment in the case was handed down on 15 September and the FCA argued that the court ruled in favour of policyholders on the majority of the issues under scrutiny in the case. It also sided with insurers on some issues, with the results differing by wordings.

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Covid - 19 and The Insurance Broker Client Relationship

As many insurance underwriters are declining business interruption claims notified as a result of the corona virus. this could cause a strain on broker client relationship as well as tarnish the reputation of the insurance industry as a whole.

The average client would think have thought that they were covered under the business interruption section of their policy. Most business would purchase insurance cover having in mind that they would be protected in the event of any losses or claims.

A lot of clients would believe that they are covered under the business interruption section of the policy and now believe that insurers are just looking for loopholes to get out of settling claims.

Even a lot of brokers would have difficulty in interpreting the policy wording when this pandemic started. I even spoke to a few underwriters who could not state categorically whether a policy would cover covid-19, in fact all the underwriters I spoke to at the beginning of the pandemic advised a wait and see approach. This did not instil any sort of confidence when speaking to clients. It would have been more professional to have been able to explain to client if they were not covered and why in plain language.

The Financial Conduct Authority seeking judicial review of policy wordings would help, but the decision should be interpreted in plain language so that the average person would be able to understand the decision and why whichever way the interpretation falls.  

Where it is found that clients are covered claims should be settled as quickly as possible, but in the event that clients are not covered I think the government should step in and find some sort of palliatives for business for the sake of the general economy.

Going forward a pool such as that of Flood re should be formed as I can see a lot of insurers would specially exempt this type of risk from their policies going forward, in fact this has already started to happen already with renewals.

Michael Olaniyi Kayode

Moyak Insurance Services

3 Bruces Wharf Road

Grays

Essex

RM17 6PE

01375392087

info@moyakinsurance.co.uk

www.moyakinsurance.org.uk 

Michael Kayode is a Director of Moyak Insurance Services