On 1 May 2020, the UK Financial Conduct Authority (“FCA”) published a statement on its website about business interruption (“BI”) insurance cover in light of the current COVID-19 pandemic. The FCA confirmed that it intends to obtain a fast-tracked court declaration to resolve current contractual uncertainty in relation to the same.

The issue which the FCA would like to resolve is that there is currently a great lack of clarity and certainty for many businesses making BI claims, and the basis on which insurance firms are subsequently making decisions in relation to whether to pay out on such claims.

Due to this uncertainty, the FCA intends to urgently bring key cases to court “as promptly as possible” in order to get an independent, authoritative declaratory judgment, which should provide fast clarity about the meaning and the effect of certain BI insurance policy wordings where such wording currently gives rise to unresolved uncertainty. In the event that the FCA does obtain a declaratory judgment, the Financial Ombudsman Service will be able to take such a judgment into account when considering relevant complaints.

Christopher Woolard, interim chief executive of the FCA, reiterated the previous FCA view that most policies do not generally cover pandemics, stating “in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly.”

In this respect, the FCA confirmed that it is writing to a number of relevant firms and ask them to clarify their position as to whether they believe that their policy wordings for BI losses (arising other than from property damage) provide cover by 15 May 2020.

The FCA’s general expectations of insurance firms

The FCA also reiterated its general expectations of all general insurance firms to meet their regulatory obligations in this area. Specifically, the FCA has outlined the following guidance measures which are designed to support consumers and businesses:

  • firms must meet their obligations under Principle 6[1] of the FCA’s Principles for Businesses, the Insurance: Conduct of Business sourcebook (ICOBS) and Dispute Resolution (DISP) when handling claims and any complaints arising from them. Firms should communicate clearly and sympathetically to their customers at all times;
  • expectations under Principle 6 and ICOBS also apply to firms’ work to establish the amount due to be paid to customers in cases of valid claims. In some cases, it will be possible to make interim or partial payments until final amounts are established; and
  • firms should communicate their approach and decisions clearly to their customers and to promptly and appropriately investigate any complaints that they receive.

This latest statement demonstrates the FCA’s commitment to protect businesses and customers not only to provide rapid certainty to policy holders of BI insurance cover, but also to ensure that FCA-authorised firms adhere to the FCA’s Principles for Businesses in relation to paying due regard to customers’ interests and treating them fairly.

Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

[1] This principle states that a firm must pay due regard to the interests of its customers and treat them fairly.

Photo of Kirsten E. Lapham Kirsten E. Lapham

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of institutional clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues impacting asset managers arising under…

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of institutional clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues impacting asset managers arising under the AIFMD, and MiFID for a range of EU and indirectly impacted firms outside of the EU.

Kirsten has experience advising multiple clients on the EU marketing and registration regimes and overlaying local regulatory considerations, such as the U.K. retail distribution review and Financial Promotion regime. She has also worked on MIFID II, SFDR and the Senior Managers and Certification Regime (SMCR) implementation projects for firms subject to regulatory developments. Kirsten routinely advises on the regulatory issues that impact M&A transactions. She has represented some of the largest and most well-known alternative investment managers, including: TPG; PIMCO; Citi Private Bank; AnaCap Financial Partners, UBS, Pathway Capital LLC; and a number of US and UK boutiques among many others.

Kirsten is co-chair of Proskauer’s global ‘ESG Taskforce’ and as an expert in the sustainable financing space, regularly speaks at industry events and is quoted on these issues. In addition, She has assisted numerous firms on ESG driven projects including the drafting of ESG policies, and internal restructurings, capturing diversity and inclusion, modern slavery and broader internal issues related to responsible investing. Kirsten works closely with clients on best approach for disclosure to both investors and regulators, on the integration of ESG practices in investment processes.

Photo of John Verwey John Verwey

John Verwey is a partner in the Corporate Department and a member of the Private Funds Group.

John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, change in control, market abuse, Electronic Money…

John Verwey is a partner in the Corporate Department and a member of the Private Funds Group.

John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, change in control, market abuse, Electronic Money Regulations, Payment Services Regulations and client money rules. He represents a variety of clients that range from private equity firms and insurance intermediaries to global investment banks and sovereign wealth funds.

Photo of Andrew Wingfield Andrew Wingfield

Andrew Wingfield is a partner in the Corporate Department and a member of our Private Equity Mergers & Acquisitions Group. As businesses globally are impacted by the Coronavirus (COVID-19) pandemic, Andrew is a member of the firm’s Coronavirus Response Team helping clients respond…

Andrew Wingfield is a partner in the Corporate Department and a member of our Private Equity Mergers & Acquisitions Group. As businesses globally are impacted by the Coronavirus (COVID-19) pandemic, Andrew is a member of the firm’s Coronavirus Response Team helping clients respond and solve issues across myriad fronts.

Andrew undertakes a broad range of domestic and cross-border corporate and commercial work for both corporate and private equity clients, advising on acquisitions and disposals, joint ventures, mergers and public takeovers, flotations and equity capital markets and private equity investment.

He is called upon by financial institutions, private equity houses, management and corporates to lead on complex and high-value transactions. Andrew has a very strong financial institutions practice and is recognized by Chambers UK and Legal 500 as the “go to regulatory M&A lawyer” for regulated institutions such as banks, lenders, payment providers, insurance companies, wealth managers or other financial institutions transactions.

In addition, Andrew is recognized as a leading individual in the corporate/M&A: upper mid-market and premium deals category in The Legal 500 and clients note he is “pragmatic and knowledgeable.” In Chambers UK, Andrew is noted as “dynamic and commercial” and for providing “tailored, practical advice,” and is recognized in the corporate/M&A: mid-market category.

Photo of Amar Unadkat Amar Unadkat

Amar Unadkat is a special regulatory counsel in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of financial services regulatory and compliance matters both from a UK and European perspective. Amar regularly advises his clients…

Amar Unadkat is a special regulatory counsel in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of financial services regulatory and compliance matters both from a UK and European perspective. Amar regularly advises his clients on issues relating to the Alternative Investment Fund Managers Directive (“AIFMD”), the second Markets in Financial Instruments Directive (“MiFID II”), as well as the latest ESG developments. Amar also focusses on UK regulatory compliance matters, including the FCA’s change of control regime, the appointed representative regime and the Senior Managers & Certification Regime.

Amar’s clients include private equity firms, investment managers and advisers, firms in the FinTech space, wealth management businesses, banks and sovereign wealth funds.