On 11 February 2021, the Financial Sector Conduct Authority ("FSCA") published a press release titled "FSCA's current position on Contingent Business Interruption Insurance" ("Press Release"), which sets out the FSCA's current expectations of non-life insurers and policyholders in respect of Contingent Business Interruption ("CBI") insurance cover and its latest position on certain aspects thereof (click here to view the Press Release).
In the Press Release, the FSCA records that those non-life insurers who underwrite CBI insurance cover have confirmed that legal certainty regarding CBI insurance cover in the context of COVID-19 related claims has been obtained consequent to recent court judgments, and that these non-life insurers will ensure that determinations in respect of claims accord with the courts' findings in such judgments.
In this regard, the FSCA together with the Prudential Authority has engaged non-life insurers on the application of the contentious "trends clause" in respective policies. The Press Release notes that the FSCA will closely monitor insurers' compliance with the application of the "trends clause" in line with the recent judgments. Accordingly, when an insurer considers adjusting a loss that a policyholder suffered as a consequence of COVID-19 and the government’s response to it (composite insured peril), such insurer may not take into consideration circumstances which are part and parcel of the composite insured peril.
In order to ensure the prompt finalisation by affected non-life insurers of outstanding valid CBI insurance claims, the FSCA has:
The FSCA records that certain non-life insurers have indicated that insurers will be paying interim relief to policyholders whilst completing their claims assessment process, being a relief measure that was initially adopted by certain non-life insurers whilst they were awaiting legal certainty in respect of CBI claims, as set out in the FSCA's Press Release of 24 July 2020 (click here to view our article on the Press Release of 24 July 2020). Notably, where a policyholder accepted the interim relief payment on a “full and final” basis, the policyholder is bound by such agreement with an insurer provided an insurer has complied with the requirements set out in the FSCA Press Release of 24 July 2020, and the policyholder will not be entitled to any additional payment from the insurer. Furthermore, affected non-life insurers are engaging in discussions with their reinsurers following the recent court judgments.
The Press Release mentions the issue of indemnity periods which featured as a concern in some of the cases which received judicial attention, however, it is has become apparent to the FSCA that the indemnity period does not apply to most of the insurers providing CBI insurance cover. Thus, the majority of CBI claims will not be impacted by this aspect.
We suggest that insurers consider the guidelines outlined in the Press Release when assessing claims, including preparing appropriate FAQ documentation which is accessible to their policyholders whilst also ensuring that the burden of proving claims imposed on policyholders does not amount to a barrier for the policyholder to claim.
Should you require further information regarding this Press Release and the impact thereof on business insurance cover, please contact Ernie van der Vyver, Amelia Costa, Tony Hardie or Daniel le Roux.