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Insurers ‘should not seek test case costs’

The Central Bank has said it expects insurance companies to adopt a “customer first” approach to settling issues related to business interruption policies.

The issue has sparked disputes between businesses and insurance companies over whether such policies cover disruption caused by the COVID-19 pandemic.

The regulator has now published a framework setting out how insurers should handle business interruption insurance claims, saying its aim is to bring clarity for affected businesses as quickly as possible.

Intervene

It also warns insurance companies that it will look at all options and intervene, if appropriate, if insurers do not meet its expectations under the framework.

The bank says some business interruption policies do provide cover for circumstances related to the outbreak of COVID-19, while others “clearly do not”.

It adds that in some cases the position is unclear “but a strong or reasonable argument can be made that they do provide cover”.

Obligation

The Central Bank says insurance firms have an obligation to act honestly, fairly and professionally in the best interest of customers.

It says that where customers have an entitlement to claim under a business interruption insurance policy, it expects that claims will be processed and paid promptly and fully.

“Where cover and related issues are disputed, the Central Bank expects firms to pay the reasonable costs of customer plaintiffs in agreed test case litigation,” its framework says.

Insurer FBD recently set aside €30m to cover uncertainty surrounding business interruption claims, as it faces a test case on the issue which is scheduled for hearing in the Commercial Court in October.

Legal action

The bank’s director general of financial conduct, Derville Rowland (pictured), said that where businesses had taken legal action, insurers should be aware of the significant costs to their customers.

“We therefore expect that in circumstances where the firm obtains the benefit of a court’s interpretation of issues at hand, a firm should agree to pay the reasonable costs of customer plaintiffs in agreed test case litigation and should not seek its costs against these plaintiffs,” she said.