In some instances,
there are doubts over the appropriate interpretation of the wording(s) which has
led to uncertainty and disputes, with many policyholders having what they
believe to be valid claims rejected by their insurer.
intention is to try and help resolve some of the legal uncertainties around
business interruption (BI) insurance policy coverage and how various BI
policies respond to COVID-19 related claims.
Insurers and wordings are affected?
review of 500 relevant policies from 40 insurers, the FCA has invited eight
firms to assist the watchdog by participating in the High Court test case. A
full list of insurers and the wording can be found on the FCA
the test case achieve?
insurers involved in the test case the decision will be legally binding but in
addition it will also provide persuasive guidance for the interpretation of
similar policy wordings and claims that can be considered in other court cases
even if on a different wording.
The FCA have said – “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 policyholders and insurers. It will not determine how much is payable under individual policies but will provide the basis for doing so.”
happened so far and what’s the timetable?
9 June – FCA started claim in the High Court (click here to see the
Particulars of the claim)
16 June – Case management conference, at which the court fixed the
timetable for the case and other procedural matters
23 June – Insurers file Defences (click here to see the
26 Jun – Further case management conference, at which the court will
deal with any outstanding procedural matters to ensure the case is ready for
20-23 July and 27-30 July – 8-day court hearing during which the daily
court transcripts are being published.
Undoubtedly the results of this case could have far reaching consequences and a decision either way will provide a degree of clarity around where coverage may respond. This will enable all involved to better understand their own position.
will continue to closely monitor the situation and provide updates as they are
released, and once the case has concluded we will review what impact the
decision means for our clients. If in
the meantime you wish to discuss this matter please do not hesitate to contact
Last July Arlington wrote about the effects of the hardening PI
insurance market and the impact we were seeing on property and construction
Now, all professions are being impacted by the consequences of
the Covid 19 lockdown: either in a financial sense with increased premiums or by
insurer capacity, with lower limits of indemnity, restrictive wordings or in
some cases, certain professions may not being able to obtain renewal terms at
all. In this article we will look at the reasons and what businesses can do to
For over a decade, most professionals have seen stable (and sometimes decreasing)
PI premiums: obtaining renewal terms was a relatively easy process with firms often
being promised discounts from competing brokers or insurers. However, those firms
who have recently renewed their PI insurance (or who are in the process of
obtaining renewal quotations) may have noticed that things are changing.
Increased premiums and higher excesses
Insurers have reviewed the business they hold and concluded that the
claims that are likely to arise from many professions due to the impact and
after-effects of Covid 19 mean they are no longer target business. This is
particularly true of firms that are exposed to economic recessionary
pressures such as the property, financial and investment sectors.
Whilst some clients may find their 2020 PI premium increase may be
negligible, others may find they are being offered similar premiums for say,
£1,000,000 of cover in 2020 as they did for £2,000,000 in 2019.
Also, where there has been a significant decrease in a practice’s gross
fees, this may no longer equate to any premium reduction whatsoever for 2020.
Policy excesses are also increasing, as insurers seek to protect
themselves from future claims.
Reduced insurer capacity
Many insurers are now quoting lower limits of indemnity to ‘cap’ or
restrict their underwriting exposure. They may only offer a 50% coinsurance share
when quoting renewal terms, meaning that other insurers need to be approached
to write the balance; this not only leads to rises in premium but delays whilst
additional insurer capacity is sought.
This has been particularly true on some Accountants (quoted company
work or historic tax scheme exposure), Asset Managers, Investment Managers,
IFAs etc. where there may now only be a handful of insurers UK-wide able to
offer cover. Architects, Surveyors and many property professionals will see
full cladding and fire safety/combustibility exclusions imposed on their
Insurers asking additional questions
Covid 19 questions are becoming the norm on PI policies with insurers checking whether a
business’s day-to-day operations have been affected by Covid 19 to the
detriment of their clients. For example:
is quality and service being maintained?
is the workload being managed by fewer ‘hands on deck’?
any staff have been furloughed?
there are any immediate plans for staff redundancies and if yes, for what roles.
Why is this
Unqualified staff may have previously been working in an office under
close supervision but are now likely to be working from home without
supervisory controls. This can lead to errors and in turn, PI claims. Mistakes may happen when no one
else is around to observe or notice work processes – which can be difficult if
there isn’t anyone around to refer matters to or give a second opinion. Junior
or administrative staff may have been furloughed, leaving directors who are not
used to administrative functions being responsible for their own diary actions
Where there is interaction with clients via videoconferencing (for
example Zoom or Team meetings), the same standard of vigilance and attention to
detail should be maintained as would be expected in a face to face meeting and
full notes and records kept of such client interactions.
There are also
additional risks to remote working/working from home, which can lead to Cyber
The speed in which lockdown was imposed meant that few firms had the
chance to fully test their Business Continuity Plans (BCPs) and had to set up
remote working practices in very little time. Those firms who had tested their
BCPs would never have envisaged working from home for a 4- month period. Many firms may not have had sufficient time
or resources to provide laptops or webcams for their staff with many employees
having no option but to use their own PCs when working from home. Personal
computers may contain non-audited software and apps which may lead to an
increased risk of hacking or phishing.
Extra security measures are also needed to ensure Cyber security and
safety. Action Fraud (the UK’s national fraud and cyber reporting centre) stated
there had been a 400% increase in coronavirus related fraud reports during
PI insurers may ask businesses about any additional Cyber Security measures they have recently implemented to counter the enhanced risk
posed by remote working, and how businesses ensure data on their
employees’ own PCs is secure and virus free. Employees need to be alert to
phishing scams or unusual emails. Online payments should be thoroughly checked
and preceded by phone calls to verify.
Uncertain times ahead
Unfortunately there is little likelihood of seeing any improvement in
the PI market for remainder of this year and probably into 2021: the PI market
continues to harden, premiums are increasing, insurers are ceasing to write
certain professions whilst the number of insurers is likely to shrink as firms
come under increased financial scrutiny in terms of their liquidity.
What can businesses do to help themselves?
Insurers are taking longer to respond with renewal quotations: you
should therefore return your proposal renewal forms a minimum of 4 weeks prior
to your renewal date.
The proposal form is you ‘selling yourself’ to insurers so please
take extra care in your renewal presentation and provide supplementary
information that explains pertinent issues to insurers.
Be prepared for additional questions from insurers and be patient for
terms to be released. You may not get as much time to consider quotations as
you did in previous years.
Be aware that there may only be one insurer’s renewal quote. Many
insurers no longer have the time to quote business that is ‘non-target’ or that
they know they will be uncompetitive on.
Be prepared for your PI insurance to cost more: forewarn and talk
with your financial director, decision makers and key clients, particularly if
certain levels of PI cover need to be maintained for contractual reasons.
Do not be surprised if policy extensions of 14-30 days are granted
by insurers (this is in line with most professions’ regulatory requirements)
If you are struggling to obtain compliant PI cover, you should
speak to your professional body in good time regarding dispensation, if
If you would like to discuss any issues raised in this article or
are interested in Professional Indemnity or Cyber insurance cover, please
contact our Bristol office: