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FCA warns insurers to act fairly when paying small business COVID-19 related claims

Earlier this week, the FCA warned that it would get tough on against insurers that it finds are acting unfairly in paying COVID-19 related insurance claims. This was in response to complaints from small business groups that insurers are deducting the costs of Government grants from insurance pay-outs.

During Lockdown, the Government provided small businesses with £10,000 grants and hospitality businesses with grants of £25,000. It also paid 80% of staff salaries under the furlough scheme.

In July, insurers admitted to deducting any money a company receives from the Government in the form of grants when calculating pay-outs under a business interruption insurance policy. The Association of British Insurers (“ABI“) commented that businesses would effectively be compensated for losses they had not suffered unless grants were deducted.

When challenged by the Night Time Industries Association that this was effectively “using the public purse to reduce their payments on claims“, the Director General of the ABI, Hugh Evans, responded by stating that the industry is “avoiding double-compensating the claimant.”

Noting that the FCA’s High Court BI test case (which concluded last week – judgment expected in mid September) did not directly address how any resulting claims payments should be calculated, the FCA has voiced its position on policyholder concerns in this respect. The FCA stated that where “insurers have accepted liability, they should continue to handle and assess non-damage BI claims promptly and fairly, and to treat their customers fairly.”

In response to the specific concerns, the FCA advised that insurers should make a “case-by-case assessment” that considers:

1. the exact type and nature of the Government support;
2. how the policyholder used this support; and
3. the type of policy and its precise terms, including any set methodology for calculating the value of a claim set out under the relevant section of the policy.

The FCA expects insurers to reflect these matters appropriately in their communications with policyholders when making settlement offers and agreeing settlement on relevant BI claims. The watchdog has also warned that further actions may be pursued where they feel firms do not appear to be treating customers fairly on these points.

This post was also written by Natasha Somi.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 219



About this Author

Garon Anthony Litigation Attorney Squire Patton Boggs Birmingham, UK

Garon is a partner in the Litigation Practice Group. He advises clients across the full range of commercial dispute issues, including cyber liability/data breach, professional negligence, banking, pensions and insurance.

Garon regularly acts for clients who are subject to investigations or disciplinary proceedings by national and international regulators, including most recently the Financial Conduct Authority, the Financial Reporting Council and the Dubai Financial Services Authority.

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Mariyam Harunah Financial Services Litigation Attorney Squire Patton Boggs Birmingham, UK

Mariyam regularly acts for a diverse client base, including, SMEs, FTSE 100 and 250 corporations, public bodies, developers, insurers and individuals.

Mariyam has experience advising on a wide range of matters of both a contractual and tortious nature, including breach of contract, breach of warranty, misrepresentation, defamation, professional negligence, debt recovery and insurance.

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