Court case to rule on covid insurance payments to businesses gets underway

Businesses have struggled to receive payouts from insurers after being hit by the lockdown.

Watchdog the Financial Conduct Authority has taken the action after 400 companies complained that they had not received payouts from their insurers they believed they were entitled to.

The FCA has selected 17 examples from business interruption insurance policies used by 16 insurers, eight of whom were asked to take part in the court case. However, it said that it expected many companies would not be covered, as most small business insurance would be mainly intended for things like property damage and only have basic cover for business interruption.

Many insurers have claimed that their Business Interruption (BI) policies were not intended to cover widespread closures caused by national lockdowns.

Although the case is being heard in England, it is regarded as a test case for businesses across the UK, with a “substantial number” of policyholders who contacted the FCA believed to be based in Scotland.

Overall, the FCA expects the case to affect the outcome on claims for over 500 policy wordings, held by around 370,000 policyholders UK-wide.

Eight insurers have agreed to assist the FCA by taking part in the test case, which the regulator has said it hopes will provide “clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike”.They are: Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office plc, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Limited, Royal & Sun Alliance Insurance plc and Zurich Insurance plc.

In the first day of the case, the FCA’s lawyer Leigh-Ann Mulcahy QC, said the outbreak of Covid-19 had triggered a “national response” driven by “the danger and the emergency” of the disease.

She suggested all businesses had to follow the Government’s advice, guidance and lockdown requirements, whether or not these were specifically legislated for.

Businesses had “legal duties” to employees, customers, contractors and visitors, including health and safety requirements, she said.

“It wasn’t up to policyholders to breach the UK Government’s advice and guidance without breaching their legal duties regarding the health and safety of employees and as occupiers in relation to the public,” she said.

This covered advice such as avoiding unnecessary travel and isolation and social distancing requirements, which made it “impractical for businesses to function” even if they were allowed to remain open or partially open, she argued.

The FCA said: “The coronavirus pandemic has led to widespread disruption and business closures resulting in substantial financial loss. Many customers have made claims for these losses under their BI insurance policies. There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims.

“The issues surrounding BI policies are complex and have the potential to create ongoing uncertainty for both customers and firms. The variation in the types of cover provided and wordings used mean it can be difficult to determine whether customers have cover and can make a valid claim. There are genuine doubts over the appropriate interpretation of the wording in some cases. This has led to uncertainty and disputes, with many customers who believe they have valid claims having these rejected by their insurer.”

It added: “We believe the circumstances of the current coronavirus emergency, and its effect on businesses holding BI policies means this uncertainty needs to be resolved as quickly as possible. We intend to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims.”

The case is expected to take eight days.