What is it, and what does it mean for my Real Estate business?
FCA Test Case

The Background

On the 1st May, the Financial Conduct Authority (FCA) announced it would seek legal clarity in relation to Business Interruption (BI) insurance to try to resolve some of the uncertainty around who and what is covered, or not, for losses resulting from the Coronavirus pandemic. Following increasing pressure from business owners, landlords, tenants and the Government, the FCA has committed to trying to provide clarity on certain areas of business interruption policy coverage that may or may not exist in the marketplace, alongside a separate piece of work asking insurance firms to consider the impact of coronavirus (COVID-19) on the value of their insurance products.

The Aim

The FCA’s principal focus with this test case is the SME market, with an aim to identify where coverage might be available under certain policies, and to clarify some areas of ambiguity, with the intention of allowing valid claims to be assessed and settled more quickly.

The FCA approached 56 insurers, asking for any BI policy wording which had more than 500 policyholders insured under it. It also collated over 1,200 submissions from policyholders and brokers relating to on-going disputes, including one from Gallagher. Finally, the FCA also reviewed more than 500 policy wordings from 40 insurers. From all of this data, it identified a sample of 17 policy wordings capturing the vast majority of key issues that they believe could be in dispute.

Which Insurers and Policy Wordings are involved?

A total of 16 insurers use at least one of the policy wordings in the sample being taken forward to the test case. A full list can be found here, along with a detailed summary of the clauses, definitions and exclusions that are being looked at: FCA website

What does this mean if I am insured via a different policy wording?

The FCA has responded directly to this question. It is its belief that, given the cross section of policies and wordings it has chosen, the test case should provide useful, informative guidance to many other policies even if they are not directly part of the sample. It will also serve to provide insurers with guidance on the likely stance of the courts when being presented with any future cases of this nature.

What happens next?

The court hearing is currently set to take place on the 20th July. Gallagher will continue to closely monitor the progress and updates from the FCA and the courts in order to keep our Real Estate clients up to date . Clearly the outcome of this case could have far reaching consequences for both landlords and tenants, but a swift resolution either way will benefit all, providing some clarity around where coverage may respond, allowing landlords to better interpret their own policies and be clearer as to their own position.

As ever, should you wish to discuss further the specifics of your policy or situation, please do not hesitate to get in touch for a confidential conversation.