On 11 December, the Financial Conduct Authority published draft guidance on how the presence of COVID-19 can be proved where that is a necessary element of establishing a business interruption claim on a property damage policy. The draft has been launched as a consultation exercise, with the period for comment ending on 18 January 2021.
In mid-November, the UK Supreme Court heard appeals on a number of issues in the FCA's COVID-19 business interruption insurance test case. The Supreme Court has just announced that its judgment will not be available before January 2021. The FCA has said that issues relating to the presence of COVID-19 were not subject to the appeal and that therefore the Supreme Court's ruling is not expected to affect the guidance.
In a statement, the FCA explained:
"...We are launching a short consultation on guidance to help policyholders, insurers and insurance intermediaries judge how the presence of coronavirus (COVID-19) in a particular area may be proved. We are launching this consultation so that we will be in a position to issue it as soon as possible, once we have the judgment of the Supreme Court.
The draft guidance builds on the High Court's judgment and is intended to ensure that the process of proving the presence of coronavirus is made as simple as possible for eligible policyholders. This will enable them to receive claim payments as early as possible should the Supreme Court uphold the High Court's decision that relevant policies potentially provide cover in response to the pandemic..."
Some types of business interruption cover (including a number reviewed in the test case) require the presence of the relevant disease within a particular area (Relevant Policy Area). The specification of the Relevant Policy Area varies widely in different policy wordings. The judgment of Lord Justice Flaux and Mr. Justice Butcher handed down on 15 September and their related Declarations gave some guidance about how the presence of COVID-19 in the Relevant Policy Area can be proved in principle. The court made it clear that the burden of proof is on the policyholders to prove the necessary presence of the disease.
The FCA's draft guidance sets out in some detail the FCA's position on the types of evidence on which policyholders can rely and the methodologies that can be employed. The issue of the presence of COVID-19 was a hotly-contested issue at the pre-trial hearings and at the trial itself. The FCA's statement suggests that this continues to be a subject of dispute:
"...If insurers continue to doubt the appropriateness of these methodologies for enabling policyholders to satisfy the minimum requirements of their policy (normally to prove the presence of just one case of Covid-19 in their [Relevant Policy Area], not the precise number of cases), this consultation provides an opportunity to explain why this is the case..."
The draft guidance also gives the FCA's views on how insurers should assess that evidence when handling claims fairly in accordance with the insurers' various regulatory obligations relating to claims handling:
"...Insurers should provide fair consideration and assessment of any evidence submitted by policyholders to prove the presence of Covid-19 where required under their policy. As part of that, we expect insurers to have regard to the guidance provided to policyholders in this document. Where a policyholder has provided cogent evidence in accordance with the approach in this guidance, insurers should accept that evidence as sufficient to handle claims fairly..."
The guidance sets out the insurers' obligations if they wish to put forward counter evidence in response to "cogent evidence" from the policyholder. Where a policyholder has proved the required presence of COVID-19, the FCA states that insurers should accept this evidence as sufficient to discharge the burden of proof in respect of other policyholders whose claims require substantially similar proof.
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