Throughout the COVID-19 pandemic, the approach by the insurance industry to business interruption (BI) insurance coverage has proven controversial. In the UK, the Financial Conduct Authority (FCA) is currently seeking a number of court declarations with a view to bringing clarity to disputed BI claims with eight separate insurers. In Ireland, the Central Bank of Ireland (Central Bank) appears to have adopted an alternative course of action by publishing its COVID-19 and Business Interruption Insurance Supervisory Framework (the Supervisory Framework) on 5 August 2020. The Supervisory Framework sets out the Central Bank’s expectations of Irish regulated financial service providers (RFSPs) in terms of how they address COVID-19-related BI claims. It is certain that the Supervisory Framework will be key to defining how Irish insurers deal with contentious BI claims over the coming months.
According to the Central Bank, the objective of the Supervisory Framework is to identify and resolve issues that have the potential to cause customer harm, and so provide clarity for affected businesses as quickly as possible. The Central Bank makes it clear at the outset of the Supervisory Framework that it expects RFSPs to assess the relevant issues in line with their obligations to act honestly, fairly and professionally in the best interests of customers and with due skill, care and diligence. Citing the Consumer Protection Code 2012, the Insurance Distribution Regulations 2018 and other regulatory requirements, the Central Bank emphasises that RFSPs must take immediate remedial action in line with its expectations where issues of concern are identified relating to customer treatment and/or issues of interpretation of BI policies. Like its previous industry letter of 27 March 2020 (Dear CEO Letter), the Central Bank indicates that the full co-operation of the senior management and boards of directors of RFSPs is expected when implementing its Supervisory Framework.
Key Features of Supervisory Framework
Here is a summary of the main points in the Supervisory Framework:
- Interpretation of government’s order to close – the Central Bank’s view is that the government’s communication in March 2020 that businesses should close should be treated as a direction or mandate for the purpose of determining whether BI cover exists.
- Unclear Policy Wordings – the Central Bank reiterates its view expressed in the Dear CEO Letter that unclear BI policy wordings should be afforded the interpretation which is most favourable to customers and sets out the steps which RFSPs should undertake when assessing if a policy wording is unclear.
- Litigation costs – in circumstances where litigation proceedings are agreed to be a ‘test case’ (as is the case with a number of high-profile proceedings involving Irish pubs), the Central Bank expects the relevant defendant RFSPs to be cognisant of the significant costs burden on plaintiffs. Furthermore, RFSPs should consider how the scope of the issues in dispute can be narrowed to reduce costs. In addition, where an RFSP obtains a favourable court interpretation of a BI policy wording, the Central Bank expects the RFSP not to seek costs against the plaintiff in recognition of the burdensome litigation costs involved. Most notably, the Central Bank also states that RFSPs should pay the reasonable costs of such plaintiffs in ‘agreed test case’ litigation.
- Coverage Assessment & Escalation Strategy – the Supervisory Framework sets out in detail how the Central Bank will monitor and analyse the approach taken by relevant RFSPs in the areas of (i) cover (ii) causation and (iii) quantum and claims handling. It also explains the Central Bank’s expectations and outlines how matters will be escalated where its expectations are not met. For example, in circumstances where the issues of cover and causation are clear but the RFSP does not accept this, the Central Bank will inform the RFSP of its view that it should accept that the issues are established. Where cover and causation are disputed, and an RFSP is denying cover and/or causation or both, the Central Bank may intervene by communicating its view. In these situations, if the RFSP does not respond in line with the Central Bank’s expectations, it may then take “such further measures as may be appropriate to the circumstances”. Once a resolution is reached, the Central Bank then expects the RFSP to carry out an impact assessment to identify if there are any beneficial impacts that could be applied to other customers with similar policies. The wider impact assessment is a recurring theme in the Supervisory Framework and applies equally to RFSPs on the conclusion of any litigation proceedings.
A Robust Supervisory Approach
It is clear from the Supervisory Framework that the Central Bank intends to adopt a robust supervisory approach in its engagement with RFSPs relating to their handling of COVID-19-related BI claims. The way this contentious issue has played out in the public domain during COVID-19 has inevitably ensured that the Central Bank is motivated to apply the full rigour of its supervisory powers to address this matter in as proactive a manner as possible.
We will continue to monitor developments on this topic and provide updates. Please contact a member of our Insurance team, or your usual William Fry contact, if you wish to discuss further.
Catherine Carrigy and James Grogan