Plus, the professional indemnity claim threat over brokers is ‘a big risk’
By Associate Editor Katie Scott
Last Friday, the Supreme Court put the insurance industry and business owners alike out of their misery by publishing its ruling on the appeals hearing of the FCA’s test case regarding business interruption (BI) claims tied to the coronavirus pandemic.
The six remaining insurers saw their appeals dismissed, while the FCA and the Hiscox Action Group (HAG) had theirs allowed – generally speaking, this means that insurers will be required to pay out on claims that they may initially have refused.
Looking to grasp a better understanding of the fallout following the judgment’s publication, I tuned in to an online educational session provided by Branko Bjelobaba, principal at general insurance FCA compliance consultancy Branko, delivered to the Chartered Insurance Institute’s (CII) London-based members.
Outlining the results of the ruling to just over 100 attendees over Zoom, Bjelobaba emphasised what he viewed as the “crux” of the matter – “if you can’t articulate intentions, you are going to lose”, he said, responding to the failed insurer argument that their policy wordings were not intended to cover an unprecedented event such as the pandemic.
Any intention must be clearly articulated within the policy documentation, he added.
Other pointers I found interesting included the “wrongly decided” Orient Express v Generali case, which formed the linchpin of insurers’ arguments thanks to the ‘but for’ methodology.
With the Supreme Court now deciding that the original judgement here should be overruled, it does pose a question mark over what happens to the backlog of cases where ‘but for’ testing was used successfully.
Furthermore, the scope of the judgment’s impact could lead to more queries – Bjelobaba reminded attendees that the test case only concerned the first lockdown, which started last March.
Since then, there has been ‘Lockdown Two’, which occurred just prior to Christmas, as well as the existing ‘Lockdown Three’ that we find ourselves in now.
How does the ruling apply to these later lockdowns, if at all?
Linked to this, we are now also seeing new variants to the original Covid-19 that blighted us in 2020 – if coronavirus is covered under insurers’ disease clauses, does this apply to the initial version of the virus only or are the new strains also insured?
Although the Supreme Court’s ruling can certainly be applauded for providing much-needed clarity, the way the pandemic has evolved has, unfortunately, left more questions than answers.
It’s not all head-scratching conundrums, however.
Also attending Bjelobaba’s session was Roger Flaxman, chairman at Flaxman Partners. He said he was “astounded” by the common sense shown in the Supreme Court’s judgement and thought that its proximate cause concept “trumps” the current industry understanding.
Despite these prominent talking points, the main boomerang issue was undoubtedly whether brokers will be exposed to professional indemnity claims if policyholders are unable to receive a claims payout from their insurer – Bjelobaba described this as “a big risk”.
He told delegates that one law firm he knows of is even advising its clients to sue brokers as part of their “mitigation strategy” if they can’t get their claim paid.
Speaking to brokers within the audience, Bjelobaba said: “PI insurance is hard to get covering Covid, much more expensive, and you must have cover for Covid to continue to advise clients when notifiable diseases are part of the equation.
”If you don’t, you’ve got to tell the FCA you’re riding with an exclusion – you do that on section E of your [Retail Mediation Activities Return form].
”If you’re not covered for this, you can’t give advice for this.”
Furthermore, ”if you have advised clients on cover that would have included Covid, you must have it covered as most claims are on a claims made basis rather than claims occurred basis.
”Not to have it covered means you breach threshold conditions, which means the FCA can withdraw your authorisation”.
In defending potential PI claims, Flaxman flagged the importance of brokers’ demands and needs statements to “show workings” relating to the cover that was recommended.
However, he also added that around one in 10 of these statements could actually stand up to scrutiny. Bjelobaba agreed, saying that you rarely see tailored statements, yet this is what is needed.
Bjelobaba certainly doesn’t pull any punches when he said “this has got to be the worst PR disaster ever for the insurance sector”.
On the face of it, the Supreme Court ruling is not entirely unexpected and it has maintained the majority of the High Court’s decisions, even if it has added its own twists on them occasionally.
Although broadly declared a victory for policyholders, the hard work is surely yet to come as insurers and brokers can now finish studying policy wordings and see where their clients stand – then, the claims process will have to be actioned for the estimated 370,000 policyholders that are said to be impacted by the ruling.
The unanswered questions that Bjelobaba posed are also important ones that have, perhaps, more of a long-term impact on how the pandemic has affected insurance.
One thing is certain: insurance provision, and especially business interruption policies, will never be the same again.