Following on from the Supreme Court decision on 15 January 2021 relating to the Financial Conduct Authority's (FCA) test case brought to clarify the implication of business interruption clauses in the current coronavirus pandemic for both policyholders and insurers.  The judgment largely supported policyholders many of whom will now be able to rely on their commercial insurance policies. 

In order to further outline the FCA's expectations a Dear CEO letter has been sent to the entire insurance industry sector by Sheldon Mills, executive director of the FCA.  In the five-page letter, it has been made very clear that the FCA now expects insurers to pay out on the, now deemed to be valid, claims with alacrity.  Even suggesting interim payments should be made to hard-pressed businesses where the claim has been accepted. 

The CEO letter also touches on the Supreme Court's overturning of the decision made in 2010 in respect of the Orient-Express Hotels Ltd. v. Assicurazioni Generali SpA case that the insurers had hoped to rely on, warning that this will have a wider impact on claims unrelated to the test case, relating to claims caused by perils that result in damage such as hurricanes and flooding, which has already been felt in some parts of the country recently.

The lawyers in Giambrone's insurance litigation team point out that the insurance industry has relied on the original decision in 2010 to significantly reduce claims for ten years and in light of the Supreme Court ruling it is probable that premiums for business interruption insurance will be far higher which will significantly impact on businesses in parts of the world where natural disasters are more commonly experienced.

The letter further suggests that insurers should revisit claims that they initially rejected or were only partially paid.  The FCA expects insurers to inform policyholders that the claims are being reassessed and inform them as soon as possible of any adjustments that have been made to a settlement offer, including the unaccepted full and final offers that were previously made to policyholders before the Supreme Court judgment.  Furthermore, insurers are urged, in the interests of fairness towards the policyholders, insurers should not limit any payments that are due to policyholders because the time to make a claim has elapsed due to the current circumstances.

Sheldon Mills states unequivocally that “we expect all insurers to take a pragmatic, transparent and consistent approach to their interactions with policyholders over remaining evidence and loss adjusting processes that apply to individual claims, rather than these creating additional barriers or delays to paying valid claims.”  He also directs insurers to consider the FCA August statement which highlighted the need for insurers to reflect on the appropriateness of the deductions that some of them made to off-set the fact that some policyholders were in receipt of financial support from the Government.  He went on to remind insurers of the exchange of correspondence between the Association of British Insurers (ABI) and The Treasury in September 2020 setting out The Treasury's view of how certain types of the Government's support should be dealt with, pointing out that some members of the ABI had agreed not to deduct such payments from any settlements.

Should a complaint have been accepted by the Financial Ombudsman Service (Ombudsman) the insurer should keep the Ombudsman fully informed unless the complaint has been fully settled.

It has been suggested that policyholders are now in the position of claiming damages for late payment under the Enterprise Act of 2016. To establish that right they would have to prove that the delay resulted in material loss.  Under the current circumstance that is highly likely. However, the question of what is an unreasonable delay might be harder to define.

In the final paragraph of the Dear CEO letter a warning shot is sent across the insurance sector's bow in the statement “…Where we see that insurers are not meeting the expectations set out here, we will use the full range of our regulatory tools and powers to ensure they do so. We will also continue to coordinate closely with the Ombudsman…”

Giambrone's lawyers, whilst pleased that the Supreme Court decision has considerably assisted in bringing clarity to the situation there is still considerable mileage for disputes between the insured and the insurers.

Originally Published by Giambrone Law, January 2021

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