Accor­ding to a recent article publi­shed by S&P, “Bro­ker law­suits are inevi­table in virus claims war, but their suc­cess is not”. The coro­na­vi­rus pan­de­mic has led to wides­pread dis­rup­tion and busi­ness clo­sures resul­ting in sub­stan­tial finan­cial loss. Many cus­to­mers have made claims for these losses under their BI insu­rance poli­cies. For this type of claim, many Euro­pean insu­rers have so far decli­ned cover, lea­ding poli­cy­hol­ders to sue their bro­ker in order to be indem­ni­fied. Howe­ver, it will be dif­fi­cult for them to prove that their insu­rance bro­ker has not met his duties

A major pro­blem ari­sing from the Covid-19 pan­de­mic is that of the poli­cy wor­dings in place. Indeed, most SME poli­cies only cover pro­per­ty damage and have basic cover for BI as a conse­quence of pro­per­ty damage. Never­the­less, some poli­cies also offer cover for BI ari­sing from infec­tious or noti­fiable diseases (a noti­fiable disease is any disease that is requi­red by law to be repor­ted to govern­ment autho­ri­ties) and non-damage denial of access and public autho­ri­ty clo­sures or res­tric­tions. In some cases, insu­rance com­pa­nies have accep­ted lia­bi­li­ty under these poli­cies, but others have refu­sed to do so, lea­ding to wides­pread concern about this lack of clarity.

In France and the UK, local super­vi­sors under­took various ini­tia­tives to remove doubt as to whe­ther insu­rance poli­cies were inten­ded to pro­vide cove­rage for finan­cial losses resul­ting from the Covid-19 pandemic :

  • In the UK, the High Court has deli­ve­red its judg­ment in the Finan­cial Conduct Autho­ri­ty’s (FCA) test case over dis­pu­ted UK Busi­ness Insu­rance cove­rage in light of the Covid-19 (coro­na­vi­rus) pan­de­mic. This test case marks an attempt to pro­vide more cla­ri­ty and reduce the amount of liti­ga­tion around this issue. The test case is not inten­ded to encom­pass all pos­sible dis­putes, but to resolve some key contrac­tual uncer­tain­ties. The FCA’s role was to put for­ward poli­cy­hol­ders’ argu­ments to their best advan­tage, and the regu­la­tor selec­ted a repre­sen­ta­tive sample of poli­cy wor­dings writ­ten by eight insu­rers. The Court found in favour of the argu­ments rai­sed by the FCA on most of the key issues. That’s the rea­son why most of the test case’s par­ti­ci­pants deci­ded to file for an appeal. On 2 Octo­ber, the High Court appro­ved an appeal to be heard at the Supreme Court directly.
  • In France, on 6 May, the Auto­ri­té de contrôle pru­den­tiel et de réso­lu­tion (ACPR) – the French Super­vi­so­ry Autho­ri­ty — ini­tia­ted a the­ma­tic sur­vey on Busi­ness Inter­rup­tion cove­rage due to the pan­de­mic cri­sis and its conse­quences. On May 23rd, the ACPR made public the fin­dings of its inves­ti­ga­tion : Covid-19 is, for 93.3% of poli­cy­hol­ders, not cove­red by their insu­rance poli­cy, either because they only cover busi­ness inter­rup­tion in the event of direct mate­rial damage (fire, water damage), or “more rare­ly” because insu­rance com­pa­nies have expli­cit­ly exclu­ded the pan­de­mic from their contracts. The ACPR thus iden­ti­fied doubts about the appli­ca­tion of poli­cy gua­ran­tees for 4% of the poli­cy­hol­ders : “In this case, only a jud­ge’s inter­pre­ta­tion would remove any uncer­tain­ty if the insu­rers concer­ned do not inter­pret the contract in favour of the insu­red”, it points out.

The­re­fore, num­ber of poli­cy­hol­ders will be temp­ted to sue their insu­rance bro­ker, in order to obtain an indem­ni­ty when a poli­cy wor­ding does not pro­vide cover or does not pay out enough. Aaron Le Mar­quer, a part­ner at Fen­church Law, said in an inter­view quo­ted by S&P’s article that there would “inevi­ta­bly” be legal claims against bro­kers, because “whe­re­ver poli­cy­hol­ders are left with no cove­rage and don’t get their claims paid, bro­kers are always next in the firing line and the tar­get for poten­tial reco­ve­ry.” One can easi­ly ima­gine the case of an insu­red sta­ting that the bro­ker should have recom­men­ded a poli­cy that could have enabled him to be indem­ni­fied, while the poli­cy in place is not inten­ded to do so.

Never­the­less, it might be dif­fi­cult for poli­cy­hol­ders to prove that the bro­ker acted negli­gent­ly. Indeed, S&P’s article high­lights the fact that in the UK, “To find a bro­ker liable, poli­cy­hol­ders have to show not only that the bro­ker brea­ched its duty of care, but also that this breach cau­sed them a loss. Bro­kers could not have known which of the poli­cy wor­dings the High Court would deem res­pon­sive to the coro­na­vi­rus pan­de­mic, given insu­rers’ conten­tion that such poli­cies were not desi­gned to cover pan­de­mics at all”. Ben Har­di­man, a part­ner at law firm Mil­ls & Reeve, said in S&P’s article that : “The fact that these par­ti­cu­lar insu­rers are before the High Court with the FCA is because their wor­dings are poor, not because they ever inten­ded to pro­vide cover”.

This article under­lines the fact that in rea­li­ty, claims num­bers are so far small in Europe, and quotes Eric Evian, chair­man at CGPA Europe, explai­ning that busi­ness inter­rup­tion dis­putes were main­ly confi­ned to the U.K, Ire­land, France, Ger­ma­ny and Swit­zer­land. In Ire­land, CGPA Europe has recei­ved nine cir­cum­stance noti­fi­ca­tions that were “nothing serious for the time being,” while in France there were 35 cases “that we are fol­lo­wing very clo­se­ly,” of which a third were tur­ning into liti­ga­tion, but where insu­rance agents were “not the main tar­gets of the liti­ga­tion.” In Ger­ma­ny and Swit­zer­land, he added, there were no cases where inter­me­dia­ries were invol­ved. But he stres­sed that this was the situa­tion “as of today” and that there could be “a total­ly dif­ferent reac­tion,” if courts reject most poli­cy­hol­der claims.

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