Business Interruption Insurance – Update

16th June 2020

As I trailed in my last blog, the FCA have now progressed their initiative to secure greater certainty in this extremely important area of insurance by issuing test case litigation against a number of insurers.

At the heart of the dispute is whether insurance taken out by businesses respond to Covid 19.

Having consulted with 56 relevant insurers, the FCA have chosen to pursue a representative sample of 17 policy wordings which are used by 16 insurers in one way or another. It would appear 8 insurers are participating in the litigation having entered into a litigation framework agreement which will govern the process and timetable of the test cases.

The insurers under the microscope are Allianz, American International, Arch, Argenta, Aspen, Aviva, Axa, Chubb, Ecclesiastical, Hiscox, Liberty Mutual, MS Amlin and Protector.

The FCA have assembled a first rate legal team and even if an insurance company is not on the “hit list”, it may be that its policy terms or wording are.

The timetable anticipates a trial of these test cases during the second half of July and in the meantime, the pleadings and legal argument is to be made available to the wider public to assist in the understanding of the issues in real time. Indeed, in the fast moving legal action, the FCA has already made available the detailed Particulars of Claim and tracked changes to important legal documents so interested and affected parties can see how the arguments develop. At the time of producing this blog a hearing is to take place seeking court approval of the approach adopted by the FCA.

Anecdotally, I am aware of some claims being accepted on a case by case basis and Axa are said to be settling claims according to reports in the Sunday Telegraph on 14th June.

Also, the Hiscox Action Group has announced that it has referred its 350 claims to arbitration under the terms of its policies.

Nevertheless, it is likely that the FCA litigation will mean that any individual dispute that a business or broker has with an Insurance company will be put on hold until the issues are resolved by a binding judgment of the court. Of course, there could be further delay if the decision is appealed to the higher courts.

There is no doubt that the future viability of a lot of businesses will turn on whether they are entitled to insurance pay-outs for losses caused as a result of Covid 19. This will be brought into sharp focus when government support is removed or loans have to be repaid.

The decision by the FCA  to pursue this novel litigation expeditiously and transparently is to be welcomed but even if this litigation results in some success for businesses, there is likely to be other hurdles to overcome as they navigate a claim with what presently is a resistant insurance community.

Whatever the outcome, we predict a need for on ongoing support for our clients as they seek to secure payments under the policies and fight for their survival. For those that do not survive, we see a likely “secondary” market where Liquidators and Trustees in Bankruptcy pursue legitimate claims for the benefit of creditors or shareholders. Litigation Funding will play a part in that process.

In the meantime, I would recommend that businesses uses this timely wisely. If you haven’t already, check the name of your Insurer and the terms of your policy. Liaise with your broker to ensure as best you can you have complied with and are continuing to comply with the terms of your Policy. Obvious example is the requirement to notify your insurer of a claim or to continue to pay premium instalments.

In spite of the FCA initiative (and perhaps because of it) we continue to see clients looking for direction and advice as to their insurance position.

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Graham Small is a Partner located in Manchester in our Commercial Litigation department

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