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Business Interruption insurance – Financial Conduct Authority (FCA) “Test Case”

Why the need for a test case?

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.

What is the purpose?

The 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.

Which Insurers and wordings are affected?

Following a 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 website.

What will the test case achieve?

For those 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.”

What’s 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 insurers defences)
  • 26 Jun – Further case management conference, at which the court will deal with any outstanding procedural matters to ensure the case is ready for trial
  • 3 July – FCA files Reply
  • 1st half July – Skeleton arguments and replies served and also the Defendants’ joint skeleton argument on the principles of contractual construction (interpretation) and Defendants’ joint skeleton argument on causation (of loss).
  • Published 17th July Agreed List of Issues and Common Ground summarises what is and is not in dispute between the parties. This supersedes the Questions for Determination.
  • 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.

Arlington 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 us.

Post Covid-19 start-up –what property owners need to consider

As property owners you will be responsible for a varied range of building types such as shopping centres, individual industrial units, industrial/business parks, office blocks, high street units etc.  The degree of direct control and responsibility you or your managing agent need to exercise will vary so it is advisable to agree between you who will be responsible for what and when.  Tenants also have a responsibility to ensure they resume their operations safely and so you should involve them in any plans.

Each premises will need to be individually risk assessed due to the differing type of property and occupation to establish specific needs.

Remember that all applicable health & safety legislation and regulations remain fully in force such as: –

  • Health & Safety at Work Act 1974
  • Management of Health & Safety at Work Regulations 1999
  • Workplace (Health, Safety & Welfare) Regulations 1992
  • Fire Safety Regulatory Reform Order

Reopening premises

Planning

Inspections and reinstating the utilities and services may be the sole responsibility of the tenant or may involve the landlord or managing agent. This process should be carefully planned to ensure the building utilities and services are brought back into operation in a controlled and safe manner. It is important to initiate and keep regular communication with all tenants and to co-ordinate responsibilities. This is especially pertinent for multi-tenanted buildings and high-rise offices, to agree a strategy and maintain social distancing in communal areas.

Consultation

As a property owner or managing agent you should consult with tenants about the return to the premises. Keep up to date with the latest government guidance to help them plan.

Tenants must consult with staff and employee representatives and consider the risks of anyone being harmed in the workplace and carry out a suitable and adequate risk assessment.

Some may be anxious about their safety when returning to the premises, and all tenants/managing agents should talk about any concerns and try to resolve them together.

Risk Management

Considerations will vary depending on the site layout, equipment and processes involved, and should have been assessed in the planning stage.

These are some things you should consider and manage:

  • Update risk assessments and working procedures in respect of the Covid-19 amendment.
  • For multi-tenanted buildings how to maintain social distancing in communal areas under your responsibility such entrances, lifts, toilets, changing/showers facilities.
  • Confirm that your employees have had training refreshed in respect of Covid-19 for risk assessments and method statements.
  • The supply and provision of PPE where this is required for work-related activities.

Document

Keep records your assessments and update to reflect any changes. Communications with your employees and tenants about what the new changes may mean, ensuring that they fully understand and above all document and record all training and information going forward. All actions, systems and procedures must be documented – you may be required to produce evidence of compliance to a regulator.

Cleaning

Consider the layout of your premises and areas you are responsible for, prior to opening for business. For those areas you are responsible for prepare a schedule of cleaning steps covering and communicate with tenants of the building.

For multi-tenanted buildings where you have responsibility for common areas this will include the “effective management” of welfare arrangements such as reception lobbies, plant rooms, elevators, changing areas, locker rooms, shower/washrooms and toilet facilities, welfare etc.

Water systems checks

Legionella checks are very important because standing water can generate Legionella bacteria growth and the generally accepted advice is that temperature control is the traditional strategy for reducing the risk of legionella in hot and cold-water systems.

  • Cold water systems should be maintained, where possible, at a temperature below 20°C.
  • Hot water should be stored at least at 60°C and distributed so that it reaches a temperature of 50°C (55°C in healthcare premises) within one minute at the outlets.

Building Inspection

The following are some of the main checks that you may need to make on general building condition and the fire & security protection:

  • perimeter security including fences, gates, doors, windows, shutters etc.
  • internally for signs of damage or deterioration
  • Fire alarm systems, access control, CCTV systems, intruder alarms, fire doors, fire extinguishers, emergency lighting/signage and emergency exits.
  • Review the alarm keyholders to ensure adequate coverage is provided and ensure the intruder and fire alarm system Alarm Receiving Centres are informed of any changes.
  • When reinstating water supplies that have been isolated check for any leaks.
  •  Where automatic fire sprinklers systems are installed, please click here for a separate detailed guidance note.

To read more on this subject click here for detailed guidance sheet “Post-coronavirus start-up guidance – Property owners” issued by AXA Insurance. 

For the UK Gov Coronavirus (COVID‑19) guidance and support website click here.

If we can help you regarding any of the issues mentioned, or if you need any further information or advice on this subject please don’t hesitate to contact us.

Unoccupied or Temporarily Closed premises

Due to the current situation many businesses have had to temporarily leave their premises unoccupied due to the Covid-19 outbreak. Some have even become permanently vacant as the occupier has gone with no intention of returning.

As a result of this we are frequently being asked: –

“What action should we be taking as the premises is temporarily closed?”

“What if the premises were previously unoccupied before the COVID-19 situation?”

“What if the unoccupancy of the premises is now permanent and not just a temporary measure?”

Most insurance companies have issued statements outlining their position and have said that they are committed to treating customers fairly and so we would expect that where businesses are making appropriate provisions to mitigate their unoccupied risk as a result of Coronavirus, the temporary closure of the building should not prejudice any claim made.

The specific details and requirements relating to unoccupancy conditions do vary between insurance companies, so the following is intended only as a general guide and if you want to know what applies to your policy and any particular insurer then please get in touch with your usual contact at Arlington.

“What action should we be taking as the premises is temporarily closed?”

Insurers have said that full cover will be maintained for a period. Some for 45 days, others for 60 and one without a specific period.  All insurers do expect the Insured (or whoever is responsible) to take the appropriate actions and provisions (in compliance with existing government guidance and social distancing requirements) to mitigate the risk and have issued guidance as to what they expect.

In summary this consists of but is not limited to: –

Waste: Remove all external waste, pallets and empty skips ahead of closing.

Waste bins: Empty all waste bins and relocate to a secure area, ideally at least 10 metres from the building. If this is not possible and bins and skips are within 10m, these should have lockable lids.

Fire Systems: Ensure that any fire and/or sprinkler systems are fully operational

Fire Doors: Carry out a check to ensure that internal fire doors are closed

Building Utilities: Shutdown any non-essential electrical devices and building utilities

Inspections: Arrange for a weekly inspection of the building both internally and externally.

Physical Security: Carry out a check to ensure physical security measures are in place e.g. fences are in good repair, windows are locked, shutters are in place, gates are locked.

Intruder Alarm: Make sure your intruder alarm is set and that the remote signalling is in place. Ensure sufficient numbers of keyholders are available to respond to an alarm activation within 20 minutes.

Maintenance: essential maintenance should continue with any remedial measures completed. Premises that have Building Management Systems (BMS) with remote alerts should continue to be responded to.

Hot Works: No Hot Works should currently be permitted.            

“What if the premises were previously unoccupied before the COVID-19 situation?”

Where a premises was previously unoccupied, then the specific requirements and cover, that was agreed with your insurer will continue to apply, although as with the above, they recognise the challenges and require that these are complied with as closely as is permitted during this time. In the event of specific concerns or difficulties regarding compliance, then please notify us so that the issues can be considered by Insurers.

Please also notify us as soon as practicable of any circumstances where existing security provisions (e.g. manned guarding) that were stipulated by insurers are downgraded or removed due to changes in government guidance and / or the ability of clients or their suppliers to maintain support.

“What if the unoccupancy of the premises is now permanent and not just a temporary measure?”

When a premise that was previously occupied has now become permanently unoccupied, whether due the Coronavirus or not, you need to let us know this. We will then notify your insurer and arrange cover and advise them of the risk management actions that you have or intend to put in place to protect the premises.