FCA-insurer stoush over BI payout erupts in UK High Court

A stoush between UK’s Financial Conduct Authority (FCA) and insurers over cover for business interruption (BI) during the covid-19 pandemic has erupted before Lord Justice Julian Flaux and Justice Christopher Butcher, who are hearing a test case in the British High Court to find clarity on the issue.

QBE is one of eight insurers defending FCA’s action to make insurers pay out to BI policyholders affected by the crisis. The other seven include Royal & Sun Alliance, Arch, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin and Zurich.

The court heard there were more than 60 insurers with 700 policy types and about 370,000 policyholders, who could potentially be affected by the litigation.

Colin Edelman QC, representing FCA argued in court last week the pandemic and the UK govt measures should be treated as a single cause of lost income, triggering BI policy payouts.

Edelman accused the insurers of cherry picking. “You can’t pick and choose,” he said. “If the ‘insured peril’ is the appropriate term to use and your appropriate reference point, and it is, we say, it is not an entirely inapposite label to use for these sorts of covers with composite elements, because one could say that the insured peril is just the interruption or interference from which the loss has to result.”

He said QBE was “clutching at straws”. “Their premise is someone caught [covid-19] in March, within the same month recovered from it in hospital and then died from something entirely unconnected; and for that reason, they say that this data is unreliable as to date.”

It was enough to show there was a case of covid-19 at some point in the recent past, the limited time frame in question being March, for BI policy triggers.

According to UK’s Financial Times, Jonathan Gaisman QC, acting for Hiscox, firmly rejected FCA’s case.

“The FCA seeks to characterise everything that happened as one indivisible peril…But nowhere has the FCA sought to explain why this extreme aggregation of separate facts in different categories is an appropriate standpoint,” he said.

The insurers’ case is that the events after the UK’s covid-19 outbreak, had to be split between the pandemic; public reaction to it; govt restrictions; and govt advice and not all those causes would lead to BI payouts. Gasman said interpreting BI policies any other way would amount to rewriting the contracts.

The High Court hearings will conclude this week. According to FT, lawyers do not expect a ruling until September and even after that, there could be a Supreme Court appeal, which would delay further any decision whether policyholders should be paid or not.

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