Public Statement - Business Interruption Insurance and Covid-19

The Financial Services Authority (‘the Authority’) is aware of current developments around business interruption insurance (‘BI’) and the extent to which individual policies may cover interruption to Isle of Man businesses due to the Covid-19 pandemic. The Covid-19 pandemic is a unique situation and as such the extent to which BI covers business closures due to the pandemic has to be determined under contract law against each specific policy wording.

At this point in time and similar to many other regulators, the Authority has taken the position that it will not intervene in this matter as it is a contract law issue between the policyholder and the insurer.   However we note that the UK Financial Conduct Authority (‘UK FCA’) is seeking to help insurers and policyholders in the UK gain clarity around the coverage of different policy wordings. To do this the UK FCA is participating in a test case in the UK High Court to determine whether certain standard policy clauses, used by many UK insurers, extend to cover the Covid-19 pandemic.  The test case involves 17 different types of wording. Further details about the UK action and the policy wordings included in the test case can be found in the UK FCA press release issued 1 June 2020. The court hearing is expected to take place in the second half of July 2020.

It is worth noting that, in providing details about the forthcoming test case, the UK FCA made clear their “view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic. This case is focused on the remainder of policies that could be argued to include cover.”

Currently there is only one Authority regulated insurer who writes local BI cover and we understand that many local businesses obtain their BI policy through UK regulated insurance companies.  The outcome of the UK test case may inform how this matter is ultimately settled in the Isle of Man.   It is understood that the final UK ruling (post any appeals) will be legally binding for those firms whose policy wording was included in the test case and legally persuasive for other firms that utilise similar policy wording.  English High Court rulings are persuasive to the Isle of Man Courts and as such it is likely that the treatment of any policy written on the Island with similar wordings to those in the UK test case would have a similar treatment locally.

The Authority will continue to monitor the outcome of the UK test case.