The landscape in relation to COVID-19 and the insurance industry's response continues to develop.
Hiscox Action Group (HAG)
Since our last update, Mishcon has been appointed counsel to the Hiscox Action Group, a collective of hundreds of policyholders, comprising both SMEs and large companies, whose business operations have been limited by the COVID-19 pandemic, and whose claims on their business interruption (BI) insurance policies have been denied by Hiscox. There is wording in the Hiscox policies in question which should respond to the present situation. At the time of writing, this action group comprised approximately 350 policyholders and this number is expected to grow.
Hospitality Industry Action Group (HIGA)
The Firm's Head of Insurance, Sonia Campbell, is advising HIGA on a potential group action on behalf of hospitality sector businesses, who have been particularly devastated by the COVID-19 crisis. The Firm is undertaking an assessment of policies received by HIGA with a view to determining whether losses are, in principle, covered by extensions to the BI sections of policies. Currently, approximately 300 policyholders have registered with HIGA for Mishcon to review their policies – with that number continuing to grow. The action was referred to in the New York Times and The Independent in relation to the action.
FCA update and ABI response
Clearly conscious of policyholder actions around the country, the Financial Conduct Authority (FCA) has announced it will commence legal proceedings to seek clarity on BI insurance to resolve the uncertainty faced by so many businesses with potential insurance claims. The statements issued by the FCA can be found here, and a supportive response from the ABI is here. The FCA is gathering information from a number of insurers, asking them to confirm whether they are declining, or intend to decline BI claims. Responses are required by no later than 15 May 2020. The information gathering exercise will inform the FCA which insurers it will ask to join the legal proceedings.
However, it remains unclear precisely how the FCA will bring its action, and which policy wordings and which insurers will be involved. Until there is more clarity, it is in policyholders' interests to continue to group together to exert maximum pressure on insurers and pursue all applicable legal routes to recovery.
The FCA is also proposing a series of measures to support consumers and businesses who hold insurance products and who have been/are affected by COVID-19. The measures include guidance for insurance firms on assessing whether their products still offer value to customers in the current situation and whether they can be doing more for those suffering a financial impact because of COVID-19.
Legislative moves in the US
COVID-19 has forced the complete or partial shutdown of a huge number of business around the world. Governments are trying to identify the best way to mitigate the economic impact of these closures. The insurance market is an obvious starting point and the UK Government engaged with insurance market leaders early about the response of BI insurance. As previously advised, insurers are generally saying that COVID-19 related losses will not be covered by the vast majority of policies. At the time of writing, the UK Government is looking to pressure insurers to respond to and pay claims without delay where coverage exists. This does not, however, amount to requiring them to cover losses where they have denied coverage.
A more forceful response is being proposed in the US. New Jersey, New York, Ohio, Massachusetts, Louisiana, Pennsylvania and South Carolina are currently debating the introduction of legislation intended to compel insurers to pay BI claims in circumstances where they may not otherwise consider they are liable to do so, based upon the policy language. That legislation would only affect those states, and whilst many similar terms are being adopted, the content and extent of the legislation being proposed varies from state to state. In some cases it is proposed that insurers would be indemnified by the state for meeting such claims but in most cases the loss would rest with the insurers concerned.
Any legislation with retrospective effect (as would be the case here) is always going to prove controversial, no matter how well intended. Insurers and reinsurers would resist any such action. The issue is not just confined to these US states. The question of Government intervention is far from closed. Insureds with operations spread across multiple jurisdictions will no-doubt be following developments closely, with an eye on where to bring claims as trade bodies continue to lobby their relevant ministers/governors/senators, and central banks are being asked to find the funds to cover increasingly ambitious programmes.