Insurers have so far paid out £472 million to policyholders who claimed for losses resulting from the closure or partial closure of their businesses in the wake of the pandemic. That figure, however, represents less than the total claim value as estimated by the Association of British Insurers in February 2021 – and the final claim value could be significantly higher.
The FCA has published helpful guidance which will be of particular use to business insurance (BI) policyholders who have found their claims challenged by insurers on a number of technical points. The full guidance can be found here, but we summarise some of the key takeaways below.
Many BI policies require the policyholder to prove presence of a disease within a particular area. That can be difficult, even though it is self-evident that most areas of the country have been affected. The FCA guidance sets out how policyholders should proceed in the following cases:
- Policyholders whose policies require them to demonstrate that there was at least one case of Covid-19 within a 25-mile radius of the premises should seek to use the following types of evidence (set out in the order in which they should be followed):
i) specific evidence (ie newspaper reports of a case near the premises); ii) NHS data on deaths due to Covid-19; iii) Office for National Statistics (ONS) data on deaths due to Covid-19; iv) reported cases of Covid-19 in different areas; and v) if none of the above is available, the FCA suggests either using an ‘undercounting methodology’ (in other words arguing that testing was limited/non-existent before the first national lockdown) or using a ‘geographical distribution methodology’ (where actual or estimated Covid-19 infections are averaged across an area). The FCA will shortly publish a Covid-19 calculator to assist with this approach.
- Where policies require policyholders to demonstrate that there was at least one case of Covid-19 within a one-mile radius of the premises, the policyholder should start with (i) above. If specific evidence is hard to come by, it is suggested that policyholders search data published by the ONS showing the number of Covid-19 deaths in what are termed ‘Middle Super Output Areas’ (MSOAs) – these are small areas with an average population of around 7200. The Government started publishing data for MSOAs recently, hence this data is not mentioned in the High or Supreme Court judgments. MSOA data is especially useful for policyholders with a one-mile radius requirement as it shows reported cases within a small geographical area. If the policyholder is unable to obtain MSOA data, they should look to NHS data. If a policyholder can establish cogent evidence of one of these types, there is no need to establish other types of evidence.
- Vicinity requirements: the High Court confirmed that the particular definition of ‘vicinity’ in the disease clause of the policy type referred to in the FCA test case as RSA4 meant that Covid-19 occurred within the ‘vicinity’ of all premises in England and Wales on 31 January 2020, the date of the first positive test for Covid-19 in England. Policyholders with this type of policy do not need to prove the presence of Covid-19. The FCA considers that other policies which require the presence of Covid-19 within an area defined as ‘vicinity of’ - or in a similar way - should benefit from the same reasoning.
- Policies requiring the occurrence of a ‘notifiable disease’: the High Court confirmed that Covid-19 occurred on 5 March 2020 in England and on 6 March 2020 in Wales, within Hiscox 1-3 policies. Policyholders with these policies do not need to take any further steps to prove the presence of Covid-19. Where other policies have similar wording and refer to ‘notifiable disease’ the FCA proposes this same approach should be used.
The above is intended as a summary of the longer FCA guidance note. The guidance is not binding and may be challenged by insurers. It is strongly recommended that any prospective claimants review the note and seek expert advice if they have any questions.