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The FSCA’s position on BI Claims

25 June 2020 Fasken partner Deanne Wood, Associate Catherine Stark, and Candidate Attorney Emma Alimohammadi

At the beginning of June 2020, the Financial Sector Conduct Authority (“FSCA”) requested that insurers submit their business interruption (“BI”) policy wordings in order to provide certainty on how insurers should handle BI claims which are COVID-19 related. 

The FSCA has since reviewed the policy wordings and issued a communication on 18 June 2020 (“the Communication”) providing clear direction on how insurers should handle BI claims.

Six categories of policy wordings have been created by the FSCA:

1. Radius and notification
2. Radius
3. Notifiable disease
4. General exclusion
5. Closure or Restriction
6. Closure by Order

In order to prove a valid BI claim, the FSCA directed that certain requirements must be met under each category:

1. Radius and notification
The two main requirements that must be proven for a valid BI claim under this category are that:
a. the insured’s business must have been interrupted by a contagious or infectious disease, either at the insured’s premises (leg one) or within a specific radius of the premises as specified in the policy (leg two); and
b. a competent authority must have declared that the particular disease exists within the specified radius of the insured’s premises.
To overcome leg one of the first requirement, the policyholder must prove that its business has been interrupted due to an employee testing positive for COVID-19, and as a result, the business had to close for a period of time. In overcoming leg two of the second requirement, sufficient proof thereof would be demonstrating that a hospital or large retail store, within a specified radius of the insured’s premises, has closed due to a positive case of COVID-19, or that a metro or district has been declared a “COVID-19” hotspot by government.
The second requirement is that a competent authority has to declare that COVID-19 exists within the specified radius of an insured’s premises (despite well-known cases being reported in the media). The FSCA is of the view that this requirement is unfair as proof thereof is dependent on a declaration not within the policyholder’s control. Accordingly, where a policyholder is able to prove the first requirement above, the insurer should pay the claim.

2. Radius
The insured must prove that its business was interrupted by a contagious or infectious disease either at the business premises or within the specified radius. The same view outlined above applies – this requirement is unfair as proof thereof is dependent on a declaration not within the policyholder’s control. The FSCA has directed insurers to pay these BI claims provided that interruption to the business has been proven.

3. Notifiable disease
To prove a claim in this category, two requirements must be met: there must be a notifiable disease and a competent authority must have declared that it shall be notified of the disease. If the policyholder can prove that it was infected with COVID-19, a claim must be paid (regardless of whether or not a competent authority has been notified of a COVID-19 infection).

4. General exclusion
This is the only category where cover for COVID-19 is explicitly excluded. The FSCA records that policyholders who had cover for infectious or contagious diseases prior to the outbreak of COVID-19 will not have a valid BI claim.

5. Closure or Restriction
This category excludes the closure of the business as a result of the lockdown imposed by government to curb the spread of COVID-19. Unless a policyholder can prove that the insured’s business was closed as a result of COVID-19 at its premises, the FSCA records that a policyholder will not have a valid BI claim.

6. Closure by Order
Under this category, a policyholder’s business must have been interrupted by a notifiable infectious disease at the premises, resulting in the closure or partial closure of the business by government order. While the national lockdown may qualify as such an order, a policyholder must prove that the lockdown was imposed because of a person contracting COVID-19 at its premises.

Submission of information by policyholders

The FSCA has provided insurers with the guidance when requesting the submission of information by policyholders. Insurers must:

• carefully consider whether the submission of information and/or documents amount to a barrier to claiming;
• consider reasonable and practical alternatives for policyholders to satisfy the burden of proof in proving their claim/s; and
• consider obtaining the proof itself (especially when such information is not in the public domain and easily accessible by a policyholder).

FSCA directions to insurers on the six BI Categories

All insurers are requested to handle BI claims in accordance with the Communication. In summary:

• Claims which fall under the radius and notification, radius and notifiable disease categories must, provided that all relevant information has been received by the insurer from the policyholder, be paid without delay.
• The FSCA has found no basis for insurers to pay claims which fall under the general exclusion category.
• In respect of the closure or restriction and closure by order categories, the trigger for a valid claim is the contagious disease at the premises of a policyholder and not the national lockdown. A policyholder does not have a valid claim unless a policyholder can prove that the insured’s business was interrupted by the presence of COVID-19 at its business premises.

 

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QUESTION

Brokers are frequently credited with ‘going to war’ for their clients at claims stage. Brokers will push the insurer to get an equitable and fair outcome. Is this still the case today, or do you find that insurers are pushing back too?

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