Context
The FCA has published Finalised Guidance setting out how to prove the presence of Covid-19 in a particular area, based on the High Court’s judgment and declarations. The FCA has also published a feedback statement summarising the feedback received on their draft guidance published on 11 December 2020.
The coronavirus pandemic has led to widespread disruption and business closures resulting in substantial financial loss. Many customers have made claims for these losses under their BI insurance policies. There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims.
The guidance will provide clarity for all parties and help to ensure that the process of proving the presence of Covid-19 is made as simple as possible for policyholders and enable valid claim payments to be made as early as possible.
Key points to note
Why the FCA is issuing this guidance
This guidance builds on the High Court’s judgment and declarations and the additional statements from the Supreme Court in the context of insurers’ obligations under the FCA’s rules to handle claims fairly. It is intended to:
- provide clarity for all parties
- help ensure that the process of proving the presence of Covid-19 is made as simple as possible for eligible policyholders and
- enable those policyholders to receive claim payments as early as possible.
Who this applies to
This guidance is for:
- policyholders
- insurers (including managing agents at Lloyd’s)
- insurance intermediaries
Background
The FCA has received many complaints that insurers were taking a narrow view of whether their business interruption (BI) policy wordings would provide cover in response to Covid-19. The FCA’s supervisory work confirmed that insurers were refusing most SME BI claims, with genuine debate about the meaning of some policy wordings. Some policies require the policyholder to prove the presence of Covid-19 in a particular area around their premises. In June 2021, the FCA began a test case in the High Court to provide certainty for all parties. Aspects of the High Court judgment were appealed to the Supreme Court, which delivered its judgment on 15 January 2021. The declarations of the High Court relating to proving the presence of Covid-19 and covered by the draft guidance were not under appeal.
The guidance comes into effect on 3 March 2021 and will cease to have effect on 31 January 2022, by which time the FCA expects that all issues relating to proving the presence of Covid-19 will have been resolved. This guidance is the FCA’s view and it does not prevent policyholders using other sources of evidence or putting forward their own arguments regarding the sources of evidence in this guidance.
FCA Covid Calculator
The FCA will shortly publish a Covid-19 Calculator to assist policyholders to carry out the calculations in Chapters 7, 8 and 9 of the Finalised Guidance. The results of the calculator can be used to evidence whether Covid-19 was likely to be present in the relevant policy area but it is open to policyholders to carry out the calculations themselves. If firms would like to use the calculator, please sign up for the FCA’s BI test case email alerts and you will get an email when the calculator is launched. The guidance explains the steps that the FCA calculator will take.
Next actions
Firms likely to be involved with their customers in relation to coronavirus-related claims should familiarise themselves with the guidance.