January 6, 2021

Business interruption insurance (BII) update: FCA draft guidance on proving presence of Covid-19

business interruption

The Financial Conduct Authority is running a consultation on its draft guidance on proving the presence of Covid-19 in a vicinity of your premises. For most policy types, the business will need to be able to show that a case occurred at any time prior to the period of interruption to claim. The deadline for consultation responses is 18 January 2021 and responses should be sent to the following email address: [email protected].

The guidance explains what types of evidence and methodologies may be used to prove the disease was present within a certain proximity to the insured premises or in a particular area to the extent it could impact the policyholder. The FCA refer to this as the Relevant Policy Area (RPA). It intends to provide clarity for businesses, insurers and intermediaries alike to:

  • assist insurers in meeting their obligations to handle claims fairly; and
  • alleviate the evidential burden on policyholders in securing early (and much-needed given the third lockdown) pay outs from insurers in the event that the Supreme Court upholds the relevant parts of the High Court’s decision.

Please see our article on the earlier decision here. Although some elements of the High Court's judgment are subject to the appeal, the declarations made by the Court in respect of proving the presence of Covid-19 are not. Should the imminent Supreme Court decision impact the guidance, the FCA have confirmed it will be updated accordingly.

Types of evidence a policyholder can use

The FCA splits the type of evidence which can be used into four categories:

  1. Specific evidence (for example, personal knowledge or well-established media reports of a case near the premises);
  2. NHS data on deaths due to Covid-19;
  3. Office of National Statistics (ONS) data on deaths due to Covid-19; and
  4. Reported cases of Covid-19 in different areas (for example, local authorities).

If the above are not sufficient, the guidance goes on to describe two methodologies which a policyholder may adopt to prove the presence of Covid-19 in their RPA, as follows:

  1. Geographical distribution - where reported cases of Covid-19 are averaged across an area, weighted according to population size; or
  2. Using a ratio against the number of reported cases to assess the likely true number of cases of Covid-19 in an area.

Some comfort for businesses can be found at paragraph 3.6 on page 11 of the guidance which provides that where one policyholder has established that Covid-19 was present in a particular RPA, the relevant insurer should not require its other policyholders to also prove the same. The FCA suggests that insurers should notify other policyholders within that RPA that such proof is not necessary when updating them on their individual claim.

The FCA intends for the guidance to have effect once it is finalised (which will be after the consultation period and perhaps the Supreme Court decision). As all claims are expected to have been resolved by the end of this year, it is anticipated that the guidance will cease to have effect on 31 December 2021.

Further detail on the evidence, methodologies and relevant sources can be found in the draft guidance using the link provided above.

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