The ruling following the test case appeal at the Supreme Court will see insurers pay claims to businesses, as well as review policy wordings - but how have insurers reacted to the decision?

Last week’s ruling from the Supreme Court on the business interruption (BI) insurance test case is a ”a rude awakening for both insurers and [the] broking fraternity” as judges dismissed insurers’ appeals to favour the FCA’s arguments in support of claims payouts for businesses that have been financially affected by the coronavirus pandemic. 

Six commercial insurers - Hiscox, RSA, QBE, Argenta, Arch and MS Amlin - appealed the High Court’s initial judgment in the business interruption insurance test case, as did the FCA and policyholder lobby group the Hiscox Action Group (HAG). The appeal hearing was conducted virtually by the Supreme Court in November last year, where insurers argued that BI policy wordings did not cover the widespread disruption caused by the pandemic

However, the Supreme Court ruling last week put insurers on the back foot as the UK’s highest court confirmed that businesses would be able to claim on their insurance policy for business interruption caused by Covid-19 and the government’s intervening measures.

Ashwin Mistry, chairman at Brokerbility, told Insurance Times: “The judgment has a read across all relevant insurers and not just those involved in the appeals process.

“They have an obligation to write to all claimants who have submitted a claim and communicate with them as soon as possible. Most insurers had budgeted for this scenario, so not so much of a surprise for them.

“It is absolutely imperative that the entire insurance sector is committed to working together, as we are very much in the public eye. This includes the FCA, ABI, CII and Biba, as clarity and transparency of detail is vital [because] we all have to manage stakeholder expectations and ensure equity in resolution.”

Mistry said that insurers will have to empower their claims teams to “just get on with it” and ensure they are well resourced to act swiftly.

In addition to this, insurers need to engage with broker partners, work collaboratively with the FCA and revisit policy wordings.

“If nothing else, it has been a rude awakening for both insurers and [the] broking fraternity,” he added.

However Mistry believes it is still too early to predict the potential impact on reinsurers.

Remaining focused

The ruling covered 30,000 Hiscox insureds, who were wrongly denied cover, as well as a total of 370,000 SMEs which the FCA said were impacted by the insurance industry’s refusal to pay out on Covid cover.

Upon publication of the judgment, Hiscox confirmed that less than one-third of its 34,000 UK BI policies may respond to claims notifications.

However, the insurer added that it welcomed the clarity of the final judgment and stated that it has started the claims settlement process.

Hiscox said: “As a result of the judgment, as well as further government restrictions announced during 2020, the total Hiscox Group 2020 Covid-19 estimate for business interruption increased by $48m net of reinsurance.

”In addition, the previously disclosed additional loss estimates of up to $40m for event cancellation if government restrictions continued into 2021 will now be recognised in our 2020 financial result, due to the expectation that covered events will be cancelled.

“As previously stated, Hiscox’s exposure to potential business interruption claims arising from further UK government restrictions to contain the spread of Covid-19 has been running off at approximately 8% per month from June 2020, with residual exposure to be fully run off by the end of June 2021.

”Following the judgment, the group estimates exposure to restrictions already announced in 2021 at less than $20m if restrictions extend to the end of March.”

Hiscox said that it remains focused in supporting its customers and employees through this challenging period.

While it continues to deploy capital for growth in an improving market, Hiscox’s capital position remains strong and the group maintains an ‘A’ rating for financial strength from S&P.

The group will provide a comprehensive update of its performance in its preliminary results announcement on 3 March 2021.

No change

Meanwhile, a Zurich spokesperson said: “[The] announcement does not change the decision of the UK High Court. This confirmed that the wordings represented by Zurich, including the ‘Action of Competent Authority’ clause, do not provide cover for business interruption in relation to the Covid-19 outbreak.

“In relation to the wordings represented by other insurers and those which were not specifically tested in the FCA test case, we are considering whether there are any implications for a small number of our customers insured on relevant policies.

“We understand these are very worrying times for firms of all sizes and we are committed to supporting them where we can. Throughout the current crisis, we have provided a wide range of support and relief to customers, including the prompt payment of claims where coverage exists.”

Zurich is currently reviewing the implications of the judgment.

An online statement from Arch’s website signalled it was doing the same. This said: “Arch will now review all outstanding claims and complaints in order to give effect to the judgment of the Supreme Court. Policyholders with affected claims should expect to hear from us very shortly.”

For QBE, a statement released on 18 January said: “While the gross cost of UK insurance business interruption claims will increase as a result of the ruling, the net cost remains unchanged at $70m (and was allowed for in the group’s 1H20 result and revised FY20 result expectations as announced on 18 December 2020).

“Although the UK Supreme Court ruling does not directly impact QBE’s net profit, the increase in gross UK insurance business interruption claims has the effect of utilising additional aggregate reinsurance limit, thereby reducing downside protection with respect to potential Australian business interruption claims.”

QBE said that to restore that downside protection and to add a significant buffer, the financial year result 2020 will include an additional $185m risk margin.

Welcome clarity

A spokesperson for Argenta said: “Argenta Syndicate Management Limited respects [the] Supreme Court judgment and welcomes the clarity it has brought in this unprecedented situation.

“The process for settling claims is underway.”

Much to the same note, an RSA spokesperson said: “We welcome the clarity that [the] judgment brings for both customers and the insurance industry.

“We are continuing to evaluate the court judgment, but do not currently expect the net loss estimates in relation to the policies before the court to change materially from those previously reported. Reinsurance protection is expected to apply.

“RSA continues to communicate regularly with our customers to update them on the status of individual business interruption claims, including those impacted by the court case, and is committed to paying claims as quickly as possible, including issuing interim payments where appropriate.”

Meanwhile, a spokesperson for MS Amlin added: “MS Amlin’s decision to voluntarily take part in the FCA’s BI test case was driven by our desire to bring greater clarity to policyholders and the industry regarding a series of diverse and complex business interruption claims triggered by an unprecedented, ongoing event.

”Whilst the Supreme Court’s judgment has a number of complex implications, we will assess them as quickly as we can. We are pleased the legal process has reached its conclusion.

”We take our responsibility to support our policyholders extremely seriously and understand the challenges and uncertainties they face during these extraordinary times.

”We remain committed to providing an outcome for all affected policyholders as quickly as possible, by assessing all eligible claims in light of this judgment.

”We will be communicating with all policyholders affected by this judgment.”