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The FCA issue a wide ranging ‘Dear CEO’ letter in the wake of their Supreme Court triumph in the COVID-19 Business Interruption Insurance litigation

  • United Kingdom
  • Financial services disputes and investigations
  • Insurance and reinsurance - E-briefings
  • Litigation and dispute management


The Financial Conduct Authority ("FCA") has published a Dear CEO letter following the handing down of judgment by the Supreme Court in the business interruption test case on 15 January 2021 (the "Judgment").

The letter follows on from the Finalised Guidance issued by the FCA in June 2020 ( the “Guidance”), which had set out the FCA’s expectations for insurers and insurance intermediaries when handling business interruption claims and complaints affected by the test case.

The FCA’s letter provides further clarity on how insurers are expected to handle affected claims now that a final outcome in the test case has been reached.  The very clear message of this communication is that the FCA is expecting insurers to settle valid affected claims  as soon as is reasonably possible.  We summarise each aspect of the letter below for your ease of reference.

1.   The FCA’s Objective and Interim Payments

The introductory part of the letter clarifies that the FCA’s objective remains to ensure that “slow payment” does not continue to exacerbate financial pressures on policyholders. 

It further states that it is “essential” that insurers now reassess and settle claims quickly in light of the Judgment, “including making interim payments on policies where the claim has been accepted (either in full or in part) but elements of the calculation or agreement on the final settlement remain outstanding”.

2.    Claims Handling

In order to ensure that customers are treated fairly and that firms act in customers’ best interests, insurers are required to:

  • inform policyholders promptly of the outcomes of any reassessments;  
  • make necessary adjustments to any settlement offers that were made but not accepted by customers prior to 15 January 2021;
  • not include the period between 17 June 2020 and the date of issue of the Supreme Court’s declarations (yet to be published, but expected imminently) when relying on any time limits for the making of claims compliance with policy terms, or in order to restrict indemnity payments in any way;
  • take a pragmatic, transparent and consistent approach to interactions with policyholders over loss adjusting processes to avoid creating additional barriers or delays to payment – this includes in relation to evidence for proving the presence of COVID-19[1]; and
  • review information provided to customers as the basis for agreed settlements to ensure that it was clear, fair and not misleading – residual payments should be made where this was not the case. 

3.   Government Support

Insurers are reminded to consider the FCA’s August 2020 statement when considering the appropriateness of deductions from claim payments for some types of Government support received by policyholders during the COVID-19 pandemic.

The FCA expects insurers to have considered the treatment of Government support at Board level and for this consideration and the conclusions reached to be appropriately documented.  In many cases it will not be appropriate to reduce indemnity payments to reflect Government support received by a policyholder.

4.   Complaints

The FCA states that insurers should reassess all complaints related to policy wordings affected by the test case, save for complaints that have been properly settled on a full and final settlement basis.

Policyholders should be informed promptly of the outcome of any reassessment and insurers should issue revised final responses and inform the policyholder that they have a further 6 months to refer the complaint to the Ombudsman.

5.   Communicating with policyholders

The FCA requires insurers to communicate with policyholders who have made claims or complaints in the clearest possible terms, directly, and as soon as possible, to explain the next steps in relation to the handling of their matter.

6.   Providing the FCA with information on all affected policies

The FCA states that it will shortly be issuing a new data request for updated details of all business interruption policies that respond to the COVID-19 pandemic following the Judgment (in lieu of information updates required by the Guidance).  The data, which the FCA may published, will include:

  • numbers of COVID-19 business interruption claims related complaints received, resolved and outstanding;
  • total numbers and values of non-damage business interruption claims received;
  • numbers and value of initial/interim payments;
  • number of final settlement offers made; and
  • the total value of settlements made and reserves. 

7.   Further legal proceedings

Where further proceedings are required to resolve remaining areas of uncertainty, the FCA encourages firms to seek to narrow the issues in dispute to ensure that litigation can proceed as inexpensively and quickly as possible.

Significantly, if a firm obtains the “benefit” of a court’s interpretation in any such further proceedings the FCA states that firms should (i) agree to pay the reasonable costs of such policyholders (to be assessed in default of agreement) and (ii) should not seek its costs against these policyholders.

8.   Policies and perils outside the scope of the test case

The FCA acknowledges the potential impact of the Judgment on the interpretation of policies outside of the scope of the test case while appreciating that the wider implications of the Judgment will take some time to determine. In this regard, the FCA has confirmed that it intends to engage with firms over the coming months to discuss specific impacts on individual business and the wider insurance sector.


This letter shows that the FCA is clearly committed to maintaining the impressive momentum of the business interruption test case in order to ensure that affected businesses (mainly SMEs) are not prejudiced by “slow payment”.  Insurers who fail to adhere to the principles set out in this letter could well find themselves subject to regulatory scrutiny.  It is therefore important that firms create, implement and document clear actions plans reflecting this guidance.

[1]   Further guidance for policyholders and insurers on proving the presence of COVID-19 will be provided in due course following the closure of the extended  consultation period on 22 January 2021.