On 19 June 2020, the Financial Sector Conduct Authority ("FSCA") has published FSCA Communication 34 of 2020 (INS) ("Communication") which sets out the position of the FSCA in respect of certain aspects of Business Interruption ("BI") insurance cover, in particular how BI claims identified into six broad categories should be dealt with.
Following extensive concerns raised by many affected stakeholders, which concerns mainly centre around the numerous policy wordings in the market and the different interpretations of such wordings and requirements to prove a valid claim, the FSCA requested the industry to provide it with copies of BI insurance wordings with extensions for infectious and/or localised diseases, for the FSCA to analyse and to classify such wordings.
In the Communication the FSCA indicates that it found no evidence in support of the view that the National lockdown could be a trigger for a valid BI claim and is thus of the firm view that the National lockdown was not intended and cannot reasonably be interpreted to be a trigger for BI insurance claims.
In addition, the FSCA has now broadly grouped the BI wordings into six different categories, namely:
- Radius and Notification - policy wordings which indicate that the trigger for a valid BI claim is if the business were to be interrupted as a result of a contagious disease at the premises or within a certain radius, provided the local authority has formally declared that a disease exists within the area and/or it has imposed quarantine regulations or restricted access to the area.
- Radius - policy wordings which indicate that the trigger for a valid claim by a policyholder is interruption of the business by a contagious or infectious disease at the premises or within a specified radius of the premises to which the insurance relates, where insurers do not require the policyholder to evidence that there was a notification by a competent authority but rather evidence that the contagious disease is within the specified radius only.
- Notifiable disease - policy wordings which indicate that the insured's business must have been interrupted by a notifiable disease where "Notifiable disease" is defined in the wording to mean "an illness sustained by any person, resulting from an outbreak of which the competent local authority has stipulated to be notified to it (the competent authority)". In this category, the competent authority should have been notified of the disease, presumably by the policyholder, or someone on behalf of the policyholder.
- General Exclusion - the General Exclusion clause overrides the extension which indemnifies the insured against losses resulting from the insured's business being interrupted by a contagious or infectious disease at the premises, or a contagious or infectious disease within a specified radius of the premises.
- Closure or Restriction - policy wordings which indicate that the insured's business must have been interrupted by a closure or restrictions placed on the premises by the authorities as a result of a contagious disease occurring at the premises.
- Closure by Order - policy wordings which indicate that the trigger for a valid BI claim would be the interruption of business by the outbreak of a notifiable disease or illness, or disease occurring at the premises of the insured, resulting in the closing or partial closing or other interference with the business by order of the state or government, local authority or any other competent authority.
Further, the Communication sets out the burden of proof for each of the categories identified. In this regard, the FSCA provides the following guidance to insurers in respect of the burden of proof, namely, insurers should:
- carefully consider whether the burden of proof amounts to a barrier for the policyholder to claim
- consider reasonable and practical alternatives to satisfy the burden of proof; and
- consider obtaining the proof itself (e.g. in respect of confirmation from a Health Authority mentioned above) as opposed to placing that burden on the policyholder, especially where such information is not in the public domain and easily accessible by a policyholder.
The Communication is merely a communication and is not binding on insurers.
However the FSCA has encouraged all insurers affected to deal with BI insurance claims in line with this Communication and has stated that to the extent any insurers do not deal with BI claims in accordance with the Communication, the FSCA will issue a binding directive to such insurers in terms of section 144(1)(b) of the Financial Sector Regulation Act, 9 of 2017 ("FSR Act") to comply with the Communication.
Any insurers who are directed by the FSCA to deal with BI claims in terms of section 144(1)(b) of the FSR Act, may appeal to the Financial Services Tribunal and take any decision of the Financial Services Tribunal on review to the High Court.
The Communication notably states that any insurer which holds a view contrary to that expressed by the FSCA in the Communication, should inform the FSCA of its view and the basis upon which this view was formed as a matter of urgency.
We suggest that insurers consider their policy wordings for purposes of categorisation thereof, assess the requirements as set out by the FSCA and the burden of proof in respect of each.
A copy of the Communication can be accessed here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.