Did your club or RTC purchase Business Interruption Insurance?

29 Jun 20
Optimists on shoreline at sailing club

If your club/RTC has business interruption insurance (most commonly as an extension to your policy) you may find that your underwriter is refusing to accept your claim. 

As you will be acutely aware, the coronavirus pandemic has meant many businesses have had to close resulting in substantial financial losses. Many policyholders who have made claims for their financial losses under their BI insurance policies, held with a wide variety of underwriters, have had their claims denied. 

Financial Conduct Authority Test Case:

The Financial Conduct Authority (FCA) recognises that businesses have genuine doubts over the basis on which some insurance companies are making decisions and rejecting claims.  The issues on BI policies are complicated and as such they have the potential to create ongoing uncertainty for all concerned, the FCA is determined to help resolve this uncertainty as quickly as possible.  It is therefore seeking a Court Declaration, based on a representative sample of the most common policy wordings, in order to resolve the contractual uncertainty around the validity of many BI claims. 

The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings considered by the court.  It will also provide persuasive guidance for the interpretation of similar policy wordings and claims that can be taken into account in other court cases including in Scotland and Northern Ireland, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.

The test case is not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for both policyholders and insurers. 

The FCA expects that, following final resolution of the test case (including any appeals), insurers will apply the judgment in (re-)assessing all outstanding or rejected claims and complaints which may be affected by the test case (except complaints that have been referred to the Financial Ombudsman Service).  It expects to publish a list in early July of all policies with claims that may be affected.

The court hearing is set to be heard by late July.  However, final determination of the issue may take many months as the parties may make use of their right to appeal the decision through the court structure.  It is also important to appreciate that the outcome of the text case may not be favourable for policyholders. 

You can get further detail on the test case at the FCA website and sign up for email updates on the test case here 

RYA Club, Training Centre and Affiliated Organisations Insurance Scheme:

If your club/RTC insures through the RYA Club, Training Centre and Affiliated Organisations Insurance Scheme (brokered by Gallagher and underwritten by NMU) then you may have taken out an extension to your policy for business interruption.  Underwriters have stated that it is not the intention of the policy to provide cover for losses as a result of an order from a local or national authority where there has not been an outbreak at the premises and where the request is precautionary.

Where cover is operative on the NMU policy extension it is limited to a maximum of 5% of the Loss of Revenue sum insured or £25,000 - whichever is the lesser. We know that underwriters are refusing to accept clubs’ claims and we have therefore been advising them to escalate their claim through the underwriters’ complaints procedure and potentially ultimately to the Financial Ombudsman Service. We have held discussions with Gallagher on this matter involving our Chief Executive and their Managing Director. We have expressed our concern about reputational damage to the insurance industry, Gallagher as a business and the Gallagher//RYA scheme. It is clear that decisions on this are being driven at an underwriter/industry level and therefore despite best endeavours Gallagher have been unable to change the NMU stance which is why we found ourselves in the position of having to advise clubs to pursue a claim through the complaints procedure. 

Several clubs have come together to form a challenge group with a view to contesting underwriters’ position.  If you wish your details to be passed onto the group please contact legal@rya.org.uk. 

The RYA will be submitting details of the NMU policy wording and its impact on our affiliates to the FCA.  Whilst a representative sample of the most common BI policy wordings has been selected by the FCA, the FCA has confirmed that clubs/RTC’s can submit their policy wording to them. You should email both of the following addresses - biinsurancetestcase@fca.org.uk and consumer.queries@fca.org.uk 

It is unlikely the policy wording itself will form part of the test case (as proceedings have already been issued based on 17 representative samples taken from over 500 different policies), however, it will mean the FCA is aware of the specific policy wording with a view to ensuring it forms part of its’ lawyers overall understanding of the interpretational issues. 

We will continue follow the FCA test case closely.

If your club/RTC has any questions regarding insurance, then please contact the Legal Team on 023 8060 4223 or legal@rya.org.uk. You can also find further legal guidance on the Legal Advice hub page.