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The Financial Conduct Authority has filed a claim with the High Court against eight insurers in a test case the FCA hopes will establish that the industry is accountable in conflict over business interruption coverage during the coronavirus pandemic.
A 184-page claim filed by the FCA describes why insurers should compensate small businesses forced to shut down during the pandemic.
Hundreds of companies have come together to pursue a group litigation against insurers like Hiscox and Aviva.
The group litigation against Hiscox will use a law that allows policyholders to request extra damages from the insurer, which has dawdled over payment. The test case states that the insurers have refused payment on claims for interrupted business as a result of pandemic lockdowns, which began in March.
The Financial Conduct Authority said it filed the specifics of the claim and drew up a framework agreement May 31. A case management hearing was held June 16. The regulator stated the policy terminology picked for the business interruption test case “respond to the events of COVID-19.”
According to Insurance Business, the claim states: “The claimant contends that, subject to proof of loss and individual policy points such as sub-limits, 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 the governmental action responding to it in the first half of 2020.”
“The claimant, as the conduct regulator of the defendants and other insurers, managing agents and insurance intermediaries in the U.K., seeks 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 in relation to the handling of these claims by the defendants and other insurers.”
Claims for business interruption usually only involve losses stemming from businesses forced to close due to fires or other property damage. The FCA has mentioned that these types of policies do not cover pandemics, but it is interested in nondamage extensions.
These extensions can guard against business interruption from an outbreak of an infectious disease, or due to closure by public authority.
The FCA called for insurance brokers and policyholders to submit the details of their policies on business interruption.
The FCA has looked into more than 500 policies from 40 insurers and simplified a selection down to just 17 policy wordings that are the most concise and representative of the case.
Several of the primary reasons insurers are rejecting claims have been examined by the FCA, which has laid out counterarguments for each.
According to the FCA, the wordings should be “construed objectively,” Law360 UK reported. “The he defendants’ subjective intentions are not relevant or admissible.”
Some insurers claim that policies covering business interruption cover small, local closings due to on-site infectious diseases, but do not cover pandemics.
Hiscox contends that businesses would have experienced extreme financial hardships even if they weren’t forced to close, because the public was ordered to stay home.
The FCA has dismissed the argument as illogical, saying the closure of business and the stay-at-home order were impenetrable as a part of the national pandemic strategy.
The eight insurer defendants—Hiscox, Arch Insurance UK, Argenta Syndicate Management, Ecclesiastical Insurance, MS Amlin Underwriting, QBE UK, RSA and Zurich—have until June 23 to file their defenses.
On July 3, the FCA will file a reply to their defenses.
Do you think insurers should be responsible for paying extra damages for business interruption during the pandemic? Let us know in the comments.
The FCA Business Interruption Insurnace Test Case is The Financial Conduct Authority v. Arch Insurance (UK) Limited et al., Claim No. FL-2020-000018 in the High Court Of Justice, Queen’s Bench Division, Commercial Court, Financial List.
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