Business Interruption Insurance – Supervisory Framework Published by the Central Bank

Business owners, particularly those operating in the hospitality and tourism sectors, have taken significant issue with the approach adopted by insurers to coverage under Business Interruption (“BI”) insurance policies. 

Representative bodies such as the Vintners Federation of Ireland have called on the Government to:-

“engage with the insurance providers on this matter and to publicly outline their perspective on the role of insurers in supporting businesses and their staff" ¹

The Government has responded to these requests with the publication, on 5 August 2020, of the Central Bank of Ireland’s ("Central Bank") Business Interruption Supervisory Framework. This Framework outlines the Central Bank’s approach to identifying issues of customer harm, its expectations of insurers to address those issues, and the escalation strategy for intervention by the Central Bank where necessary. 

The approach adopted in Ireland can be compared with that in the UK where the Financial Conduct Authority has undertaken a test case in the High Court to seek legal clarity on BI insurance policy wordings which have given rise to dispute and uncertainty between insurers and policyholders. A judgment is expected from Lord Justice Flaux and Mr Justice Butcher in September 2020² . 

We summarise below the key aspects of the Framework as well as the Central Bank’s monitoring and assessment strategy.  The Framework unequivocally sets out the Central Bank’s requirements of insurers and the customer-focus required for COVID-19 related BI claims. 

It is clear the Central Bank intends to adopt a robust supervisory role and it is expected this Framework will encourage the insurance industry to process COVID-19 BI related claims fairly and expeditiously. 

1. KEY ISSUES IDENTIFIED IN THE FRAMEWORK

• Government Direction/Mandate/Order: The Central Bank reaffirms that where a BI insurance policy provides that cover is dependent on there being an imposed closure of a business, by reason of an order of Government, it is the Central Bank’s “firm view"  that the Government's communication should be treated as an order and/or direction and/or mandate for the purposes of determining the issue of cover;

• Unclear Policy Wording: Where there is doubt about the meaning of a term, the interpretation most favourable to the customer should prevail. The Framework sets out clear steps for insurers to follow in assessing whether or not policy wording is unclear;

• Claims Handling: Insurers must ensure claims are handled effectively, properly and they must offer assistance (where appropriate) to their customers in the process of making a claim. This includes, alerting the customer to policy terms and conditions that may be of benefit to the customer.

Further, any claim settlement offer made to a claimant must be fair and reflective of the case-specific facts. The Framework states this may include the terms of the policy and any representations made to the policyholder and must represent the insurer’s best estimate of the claimant's reasonable entitlement under the policy.

2. ASSESSMENT AND MONITORING OF BI INSURANCE POLICIES

The Framework also sets out the Central Bank’s Monitoring and Analysis Strategy to assess whether a BI insurance policy is responsive to the outbreak of COVID-19 and interference and/or interruption to an insured’s business. 

The Central Bank will monitor and assess three broad issues in this regard:-

• Cover and Causation: where the policy wording of BI insurance policies are clearly in favour of the customer, the Central Bank will endeavour to ensure that all customers’ claims are accepted in accordance with its expectations i.e. where a policy clearly provides cover for COVID-19 related business interruption and where causation can be established;

• Quantum and Claims Handling: once cover and causation are established under a BI insurance policy the Central Bank shall ensure that any customer claims are processed and handled effectively and that losses are calculated in line with the insurer’s legal and regulatory obligations; and

• Legal Actions: The Central Bank will monitor ongoing litigation, arbitrations, Financial Services and Pensions Ombudsman (“FSPO”) complaints and settlements in relation to BI insurance policies concerning COVID-19 related claims. Where the outcome of a particular claim has the potential to beneficially impact on other customers, the Central Bank will require the insurer to address this with any affected customers.  
  

For further information on this Framework or on how we can assist businesses bringing COVID-19 BI claims, please contact Mark O’Shaughnessy, Partner, Helen Gibbons, Partner or Tanya Cotterell, Solicitor or your usual contact in the ByrneWallace Litigation Team. 

Please note that the content of this summary does not amount to professional advice. Legal and tax advice should be sought in respect of specific queries. The COVID-19 situation is evolving rapidly and this update is provided on the basis of information available as at 7 August 2020.

[1] https://vfipubs.ie/news/latest-news/vfi-lva-slam-insurers-refusal-to-cover-members/