Tim Dowlen is a former Senior Examiner in Liability Insurance for the Chartered Insurance Institute and an experienced broking expert who until recently was a practising broker in the Lloyd’s and London market.
Tim is retained as insurance adviser by a well-known fund management group. He has been instructed in over 130 cases (including six court appearances) and oversees the development of GBRW EW’s insurance work.
The insurance world and Covid - the UK experience so far
Our review a year ago outlined areas where the insurance world would be challenged over the financial protection it had provided for losses arising from the Covid-19 pandemic. The impact is arguably wider than pure financial loss or loss of income; it extends to commercial and corporate decisions made and thus corporate governance during the period.
Arguably private consumers are not directly affected during a major disease outbreak by insurance cover which may have been provided and the major focus has been on commercial enterprises.
In May 2020, the Financial Conduct Authority became involved when it brought a test case against certain insurers, leading to the Supreme Court judgement which appeared in mid-January 2021. Since then, litigation in the commercial courts appears sporadic. Particular organisations – especially in the hospitality and entertainment sectors – have brought and continue to bring claims against their insurers and advisors. Put simply – as in the previous article – few people “saw it (a pandemic) coming”; even if they did, insurance cover for losses arising specifically from a pandemic was not an available product.
The lack of insurance cover for business losses is in some cases due to the recurring issues of negligence of advisors and failure in a general duty of care. The Chief Executive of a leading UK insurance broker, who is also Deputy President of the Chartered Insurance Institute, said in a January 2021 article "a lot of the confusion can be put down to the fact that we (meaning brokers) are still sending out pretty complex policy documents and expecting people to read them, whereas in our heart of hearts we all know that there is not a chance people will read what we are sending them. So our big challenge is how we do communicate with customers in a way that allows them to truly understand what they are buying?"
In a number of instances insurers provided (probably unwittingly) protection for business losses stemming from unspecified outbreaks of disease, although the devil is in the detail; for example, was the cover for “notifiable disease” outbreaks, within a specified area? Those arguments rage on.
Insurance companies have been sympathetic to a good number of small- to medium-sized enterprises and have made payments where their policies provided some cover – usually limited in amount and time, to typically £50,000 or £100,000 and a three-month cover period. However, the proportion of such insured businesses across the UK is probably less than 3%.
The Financial Conduct Authority’s test case
The Supreme Court judgement in January this year substantially allowed the FCA’s appeals and dismissed the insurers’ appeals; it brought to an end legal arguments under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market.
The judgment is complex and has been reviewed by insurers and the FCA. The FCA commented “We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps”.
The results are:
- The Supreme Court’s judgment will be distilled into a set of declarations. These have been issued by the Court.
- Final Guidance was issued by the FCA on 3 March 2021.
- The FCA has produced a set of Q&As for policyholders to assist them and their advisers in understanding the test case.
- The FCA has published a list of policy types that potentially respond to the pandemic based on data from insurers.
- The FCA also published draft guidance for policyholders on how to prove the presence of coronavirus, which is a condition in certain types of policy.
While the judgment relates to specific insurers and the particular policy wordings they issued, the outcome may also have an impact on the interpretation of other policy wordings in the market. It is important to note, however, that it is not expected to affect the response in all policies; some insurers will continue to have valid exclusions to cover they have provided.
We still feel there will be an insurance litigation surge as a result of the Covid-19 pandemic. However, the funds needed to start legal actions are inevitably limited. The money to pursue claims may simply not be there, across all sections of the economy and business. The FCA has done what it can to take action on behalf of the consumer of insurance; that is in our view to be applauded.