There will be few businesses across the globe that will not feel the negative effects of this exceptional crisis driven by the coronavirus pandemic.  As governments grapple to make decisions in the knowledge that the best information they are able to draw on offers no clear right or wrong direction. There are daily announcements from the largest to the smallest organisations of permanent business closures, dramatic redundancy programmes and range of life-lines that either do not materialise or are withheld.

The British Government’s measures focussing on emergency loans, whilst extremely welcome, have revealed gaps that some businesses have fallen through and also have been slow to arrive. However, a major disappointment, although not entirely unexpected, is the failure of the insurance sector to pay out on insurance claims.  Initially the Financial Conduct Authority (FCA) issued instructions to the effect that claims should be paid as promptly as possible. However, it swiftly became obvious that the insurance sector was rebuffing a considerable number of claims, leading to a rise in proposed class actions and other litigation. 

Following the widespread difficulties for businesses to persuade their insurers to accept that the coronavirus pandemic triggered the business disruption and force majeure clauses in insurance policies, the FCA received a vast number of appeals for assistance from businesses believing that insurance companies were failing to observe the regulations.  In order to bring resolution to the entire situation the FCA have decided to obtain a definite answer to the current state of affairs by recourse to the courts for legal clarity.  Interim CEO Christopher Woolard said: “It is clear that decisive action is appropriate given the severity of the potential consequences for customers.”  Furthermore the FCA made it clear that the cases it chooses to bring before court “will be carefully chosen as a representative sample of the most frequently used policy wordings that are giving rise to uncertainty.”  The FCA stated that once it, together with the insurers, had identified the most frequently used wording in policies it would present them to a court to obtain a ruling. The FCA has also contacted a number of insurers to ask if they are declining to pay out on claims and requesting them to clarify their position. 

The Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) are supportive of the FCA’s intended court action. Huw Evans, director general of the ABI, said insurers would “work closely with the regulator to make this process a success.”  A spokeswoman for BIBA said brokers had “serious concerns over whether customers would recover from the lockdown” further commenting “this intervention from the regulator to create certainty for many customers making business interruption claims and the basis on which firms are making decisions on claims is a step in the right direction.”

Legal Law Limited’s insurance and reassurance team has considerable experience in dealing with insurance matters. Our lawyers are closely monitoring the situation and the various options that have been put forward by trade bodies and other relevant organisations such as the Night Time Industries Association (NTIA) which has been outspoken in its views.  

Simon Mabb, managing director of NTIA, commented “We’ve pushed and challenged insurers but have reached an unmanageable deadlock.”  In light of the extraordinary circumstances that have arisen as a result of the coronavirus pandemic the NTIA together with others believe that it sanctions the unprecedented solution of allowing access to the reserves of Pool Re, a state-backed terrorism reinsurer designed to address the effects on businesses exposed to major terrorism losses.  The Chancellor, Rishi Sunak, has been approached with this suggestion as a way of avoiding the potentially crippling pay-outs and litigation costs that the insurance sector now faces.

The court decision will be eagerly awaited by all parties.