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Business interruption test case in UK – Latest developments

The significance of this case in relation to South Africa is that many of the local policy wordings has its roots in the UK.

The finding of the High Court on the majority of the 21 policy wordings tested in the trial case held insurers liable for losses suffered by clients who had a clause providing cover for business interruption resulting from a reportable contagious disease.

The British regulator wrote a “Dear CEO” letter to insurers outlining exactly what it expected them to do. It also indicated that the Court has confirmed that the “Consequentials hearing” will take place on 2 October, where the Court will hear submissions from the parties on any applications for appeal.

“The High Court judgment on the test case has brought greater clarity and certainty for all parties. It is critical that this results in insurers paying valid and successful claims in full at the earliest possible date to support business and consumers during the current situation.”

Communication to policyholders

Whether insurers intend appealing or not, they are required to communicate, in the following week, about the way forward.

The FCA’s objective remains to ensure that slow payment does not exacerbate financial pressures on policyholders. It is important that insurers reassess and settle claims quickly, including making interim payments wherever possible on policies where the legal process is complete or the claim has been accepted in full or in part.

It also expects all insurers to take a pragmatic, transparent and consistent approach to their interactions with policyholders over any remaining evidence that applies to individual claims, rather than those creating additional barriers or delays to paying valid claims.

Claims handling

Insurers, irrespective of any possible appeals, should take all reasonable steps to ensure that all those claims of the type that the judgment says should be paid are ready to be paid and settled at the earliest possible opportunity after any relevant appeals.

Government support deductions

Some insurers have been making deductions from claims payments for some types of Government support policyholders have received during the pandemic. Insurers need to consider the appropriateness of doing so on a case by case basis in the context of their policy.

Tax considerations typically do not form any part of the calculation of losses for business interruption policies. The FCA therefore do not consider the Government’s treatment of the grants for tax purposes as a proper basis for insurers treating those payments as turnover under the policies. Nor does it see that insurers can apply these amounts as savings against fixed business expenses.

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