Hiscox and RSA among eight insurers named by FCA as BI test case heads to the High Court

The FCA has named eight insurers in the Particulars of Claim it submitted to the High Court as part of a test case that will define the future of business interruption payouts following the Covid-19 outbreak.

The regulator said in its submisstion that the insurers should be liable for paying out for business interruption claims related to the coronavirus crisis and the subsequent government lockdown restrictions placed on UK businesses as it takes the stance of ”adopting the policyholders’ position for the purposes of testing these points” in order to bring clarity to the market.

In its Claim Form relating to the case, the FCA said that “the wordings written by the Defendants which have been selected to be tested in this claim do respond to the events of COVID-19” and that it was asking for “declaratory relief in order to resolve the legal uncertainty in relation to COVID-19 business interruption claims so that it can determine and pursue its regulatory and supervisory policy” relating to the claims handled by the insurers named as defendants and “other insurers”.

A statement from the FCA said: “Policyholders should not assume that simple inclusion of their policy wording in this case will mean their policies are responsive. We are seeking a judgment that will help policyholders and insurers have a much clearer view of which business interruption policies respond to the pandemic, and those that don’t. Therefore, the court may well decide a number of these policies respond to the pandemic and others do not.”

RSA group chief executive Stepen Hester has already cast a light on the clarity of wordings around business interruption, saying that “right across the industry, there are wordings that have not been written as well as they might”. Hester also added that RSA was paying claims where this ambiguity in cover existed, unless the insurer had “strong and clear legal advice” that the claim should be denied.

A stark warning

The FCA also made reference to the “businesses and groups of businesses” that are challenging the rejection of their claims, such as the proposed group action from the British Dental Association and the £52m payout sought by the Hiscox Action Group on behalf of its 397 group members.

And compliance consultant Branko Bjelobaba had some words of warning for insurers expecting a favourable outcome.

“It will be interesting to see what the judges think next month – to say it was not the intention to pay a claim is rather odd considering how clear and unambiguous some of these wordings are,” he said.

“[Some of the wordings say] contagious infections or diseases and denial of access by government are covered even without damage to the premises. Perhaps getting out of a paper bag would be harder?

“This does place brokers and their clients in a very difficult position. More than 25% of businesses have paused or ceased to trade since lockdown, according to an ONS survey of 6,171 businesses.

”A payout under the BI section, even on an interim basis, could have provided a vital lifeline.  If these businesses do actually go under, as it will be four months since lockdown to the hearing, how can anyone have faith in the insurance sector?”

More to follow.