UK Watchdog Goes to Court to Clarify Coronavirus Business Insurance

Britain’s financial watchdog said on Friday it would urgently ask the courts to clarify uncertainty over whether businesses can claim compensation for disruption caused by the coronavirus pandemic.

The Financial Conduct Authority (FCA) also told all insurers to assess whether they should be giving partial policy refunds during the pandemic.

A national lockdown to fight the pandemic has forced many companies in the UK to temporarily suspend operations and furlough staff.

“We have been clear that we believe in the majority of cases business interruption insurance was not purchased to, and is unlikely to, cover the current emergency,” FCA interim chief executive Christopher Woolard said in a statement.

“However, there remain a number of policies where it is clear that the firm has an obligation to pay out.”

The FCA said it had written to “a small number of firms” to ask if they were declining business interruption claims. It said it would seek a response by May 15 and then “consider which firms to ask to join the court process.”

However, the FCA said the court action – which industry officials said was a first in insurance by the regulator and could save years of costly legal battles – would not determine how much could be payable under individual policies.

Lloyd’s of London insurer Hiscox is among firms that have come under pressure from small businesses to pay out for business interruption, along with, AXA, QBE and Zurich.

QBE said it had received a letter from the FCA on Friday. AXA said it would work closely with the FCA, while Zurich said the FCA move would provide clarity for customers. Hiscox and RSA did not respond to requests for comment.

Broker Willis Towers Watson estimates UK insured losses for business interruption, together with event cancellation, could total up to $14 billion in relation to the pandemic, depending on policy wordings.

Business interruption policies can be worded in 100 or more different ways, industry sources say.

The Association of British Insurers (ABI) said it would “support any process that will provide clarity and certainty for the minority of customers who are disputing whether they should be covered.”

The ABI said most policies did not cover pandemics and noted that the UK government had confirmed it would not seek to retrospectively change contracts.

Eight U.S. states have introduced legislation which would require insurers to pay claims, mainly to small businesses, despite exclusions.

Mel Stride, chair of the UK parliament’s Treasury Committee, welcomed the FCA’s move and urged insurers to pay businesses that should be paid, or risk damaging the sector’s reputation.

Alistair Handyside, executive chair of The Professional Association of Self-Caterers, said many members believed they were covered and he would be sending a report to the FCA.

Premium Refunds

In guidance that will come into effect in mid-May, the FCA suggested insurers could help struggling customers with premium payment holidays or the waiving of administration, cancellation and missed payment charges.

Insurers will also have six months to check whether their products still deliver the benefits promised, the FCA said.

For example, it said boiler cover insurers may not be able to offer the annual service included in many policies, while liability insurance may not currently be relevant to businesses such as hairdressers, bars and restaurants that are closed.

Insurers could refund some premiums or suspend monthly payments for a certain period of time, the FCA said.

Motor insurer Admiral last week said it would refund 110 million pounds to customers, following rebates made by top U.S. motor insurers.

Allianz-owned LV= said on Friday it would refund 30 million pounds ($38 million) to car and motorbike insurance customers in financial difficulties.

Hastings said it had made price reductions and was considering more, while Direct Line said it was being flexible with customers, including offering payment holidays for those in financial difficulties.