FCA declares victory for business interruption policyholders

The High Court has backed policyholders in the business interruption test case brought against insurers that refused to honour Covid-19 claims earlier this year.

Policyholders won the majority of the key issues, according to the Financial Conduct Authority (FCA). The full judgment can be found here.

The FCA filed the test case against Hiscox, Arch Insurance UK, Argenta Syndicate Management, Ecclesiastical Insurance, MS Amlin Underwriting, QBE UK, RSA and Zurich, after identifying their business interruption policy wordings as capturing the majority of the key issues that could be at dispute in the legal proceedings brought in response to rejections of Covid-19 claims.

Hearings took place in July and the insurance sector has waited anxiously for the result, with numerous groups threatening class action suits for a perceived failure to cover legitimate claims on business interruption policies arising from a pandemic.

Commenting on the result, Christopher Woolard, interim chief executive of the FCA, commented: “We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.”

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.”

Woolard advised insurers to “reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid”.

Woolard continued: “They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

He called on any appeals to be “done in as rapid a manner as possible”, in line with an agreement struck with insurers at the beginning of the process.

In response to the High Court’s ruling, the British Insurance Brokers’ Association (BIBA) said: “We recognise how important this case is for customers and the insurance industry alike and we will study the judgement in detail over the coming days while waiting to see if any of the parties appeal.”

“Meanwhile, the outcomes do not prevent individual policyholders from pursuing issues through the courts, or eligible complainants from taking a complaint to the Financial Ombudsman Service.”

BIBA called on the government and the insurance sector to form a public-private partnership that it described as “the best means” to protect policyholders in the event of another pandemic.

BIBA’s statement continued: “Already in the UK we have been looking at a model called Pandemic Re and many other nations are also considering these types of shared risk models.”

“Pool Re, which is the UK’s answer to terrorism risk, provides a working example of how such a partnership could work in practice.”

Huw Evans, director general of the Association of British Insurers, said in a statement: “The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.”

“Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events. We recognise this continues to be a difficult time for many businesses, small and large, and for society as a whole. That is why insurers have made a range of commitments to help both businesses and individual customers through the crisis and why the industry expects to pay out over £1.7 billion in Covid-19 claims.”

Evans continued: “This is a complex judgment spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals. Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”

Mark Dugdale