We often hear in-house lawyers say how they wish they had more time to focus on horizon scanning and assessing the potential risks heading their way. Never has this been more relevant, with many financial services firms impacted in a way they never expected. This new section aims to provide quick summaries of some of the challenges heading your way.
We are starting off the series with a focus on the Insurance sector, carefully curated by one of our experts, Gowling WLG partner Samantha Holland.
Spotlight on the Insurance industry
The UK Covid-19 lockdown measures have had a significant impact on business. The subsequent fall out between policyholders and their insurers has been-well-rehearsed in the press. Nevertheless, the insurance industry estimates pay-outs of £1.2 billion. So what does this mean for clients and their insurance going forwards?
Disputes in relation to Covid-19 insurance claims are here for the long-term
Many policyholders have claimed under non-damage extensions to their business interruption (“BI“) cover for denial of access or disease. Whilst Insurers say that they did not intend these to cover a global pandemic, a court will consider what the language in the policy actually means. Unfortunately, this is often ambiguous.
The FCA has now launched its test case based on a sample of policies written by 16 insurers and has asked the court to determine issues with wider application. It has also issued guidance asking insurers to assess which other policies may be affected by the test case and to update policyholders accordingly. It aims to publish a list of insurers that will be affected by the test case in early July with the outcome expected later that month.
This will bring certainty to many policyholders but will not rule out further litigation. The assumed facts do not, for example, address loss of rent claims or multiple insured locations; and there will inevitably be many who think their policy differs slightly but materially from the FCA test case.
We can therefore expect a slew of hard-fought disputes with insurers and a continuing period of uncertainty for policyholders. In the meantime, businesses should, if they haven’t already, check their polices, notify any claim and engage with their broker and insurers as soon as possible.
Covid-19 will also impact policy wordings at renewal.
Many businesses are already seeing their insurers introduce exclusions for global pandemics on renewal. Policyholders should focus on narrowing down any exclusions as much as possible by limiting these to specific risks or time periods and avoiding broader forms of language such as losses “arising in connection with” in favour of narrower wording such as “directly arising from”.
Businesses will obviously be focused on their BI cover but given the likelihood of third party claims, they should also pay close attention to their liability policies, including their D&O policy. It is crucial that clients maintain robust cover for Covid-19 issues for many years to come.
Guidance is expected on damages for late payment of insurance claims
The group litigation around Covid-19 has given rise to the possibility that we may for the first time see the courts being asked to determine claims under section 13A of the Insurance Act 2015. This implies a term into any insurance contract that an insurer must pay claims within a reasonable time, failing which they are liable to pay damages.
The Act does not define what is meant by a reasonable time save to say that it will allow an insurer to investigate and assess the claim and depends on all the circumstances, including the type of insurance, and the size and complexity of the claim.
It is not clear how this will apply to Covid-19 claims. The courts may give insurers greater leeway in circumstances where the FCA has felt the need to bring a test case on the same point. This could, however, leave policyholders short-changed where they have suffered financial hardship in the interim.
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