A recent media release sets out the FSCA’s current position on certain aspects of Contingent Business Interruption Insurance (CBI) cover as well as its expectations of non-life insurers and policyholders in respect of CBI claims, in order to ensure that the processing of these claims is not unduly delayed and in line with the legal certainty that has been obtained in recent judgments.
Insurers are once again reminded to consider the guidance that the FSCA issued in FSCA Communication 34 of 2020 (INS) and to finalise any claims as expeditiously as possible. “Most importantly, insurers must ensure that policyholders do not face unreasonable post-sale barriers to submit CBI claims,” the FSCA states.
Specific aspects to consider:
Insurers have indicated that many claims received were incomplete. Advisers have an important role to play in this regard.
The Trends Clause
This is a clause in an insurance contract, the purpose of which “is to adjust the loss an insured has suffered as a consequence of the insured peril, so that the insured is put in the same trading position after the business interruption, as if it had not happened”.
The FSCA requested insurers to be mindful of the factors to be considered when applying the “trends clause” and to ensure that it is applied in line with the court judgment. This means that no insurer may, when it considers adjusting the loss that a policyholder has suffered as a consequence of Covid-19 and the government’s response to it (composite insured peril), take into consideration circumstances which are part and parcel of the composite insured peril. The FSCA will closely monitor how the “trends clause” will be applied by the non-life insurance industry.
The FSCA ascertained that the dispute regarding the indemnity period does not apply to most of the insurers providing CBI insurance cover. Thus, the dispute will not affect the majority of CBI claims that have been lodged. (Many clients have unrealistic expectations in this regard, and advisers will play an important role in managing unrealistic expectations.)
In July 2020 the non-life insurance industry agreed to make interim relief payments to policyholders while legal certainty was being obtained from the courts. Where a policyholder accepted the interim relief payment on a “full and final” basis, the policyholder is bound by such agreement and will not be entitled to any additional payment from an insurer.
A policyholder who, on the other hand, accepted interim relief payments on a without prejudice or not on a “full and final” basis are entitled to receive additional payment, if applicable, from the insurer. Some insurers have indicated that they will be making interim payments to policyholders following the initial assessment of CBI claims and prior to completing the full claims assessment process. The FSCA supports this approach as the interim payments are likely to assist policyholders while their claims are still being assessed in full.
Prescription and time barring clauses
In the FSCA press release dated 12 August 2020, policyholders were reminded to be cognisant of time barring clauses in their CBI policies so that they may take the necessary legal steps within the set time period.
Click here to download the latest FSCA media release on CBI claims.