Insurers Say FCA Victory in Business Interruption Test Case Would Lead to ‘Injustice’

The Financial Conduct Authority has claimed the approach to causation by insurers in the business interruption test case is “legally flawed” and the defendants have “overlooked” legal conditions.

The FCA’s allegations against insurers are on behalf of businesses that have experienced interruption caused by the COVID-19 pandemic.

In joint arguments ordered in the High Court, the defendants state the FCA’s argument regarding business interruption caused by the pandemic could have “far-reaching and unpredictable results” in future cases if it succeeds, Insurance Age reported. 

In June, the FCA filed a claim against eight insurers to authenticate that the industry is accountable for conflict over businesses interruption during the pandemic. The 184-page claim outlines why insurers should be forced to pay for small businesses interruption due to the mandated shutdowns. 

The FCA is arguing on behalf of insurance policyholders throughout the trial.

In the its skeleton argument, the regulator presented that insurers’ defences have a prevailing theme on causation, contending that the coronavirus was not the insured peril, “… namely that the proximate cause or ‘but for’ cause was not the insured ‘insured peril’ but something else and that something else is the nationwide outbreak of COVID-19 and the impact of it and/or of the government response to it,” according to Insurance Age.

The defendants in the case are eight insurers — Arch, Argenta, Ecclesiastical, Hiscox, MS Amlin, QBE, RSA and Zurich. The outcome of the case is predicted to affect at least 16 insurers.

The defendants argued their case is “an orthodox application of core principles which themselves exist to avoid unfairness.” 

The insurers added: “The court should reject the FCA’s invitation to embrace what amounts to a set of heterodox, unprincipled propositions with potentially far-reaching and unpredictable results (“knock-on consequences which we are not in a position to predict or take into account”).”

The defendants said in making its claim, the FCA had tried to bypass principles of law by making its claim, according to Law360. The FCA published the insurance companies’ joint skeleton arguments 15 July to establish the final step in the case before the trial begins on 20 July.

With its test case, the FCA is welcoming the High Court to determine the liability for coronavirus-related business interruption in 17 policy wordings. The ruling in the case will decide whether thousands of small businesses can be compensated for financial losses after the government mandated the shutdown of nonessential companies in March.

Each defendants has filed a separate skeleton argument; together, they also have published two joint skeleton arguments regarding contracts and the legal definition of causation. 

The insurers argued in the skeleton argument on causation that the regulator’s case would lead to injustice, saying: “It is the FCA’s case that would lead to injustice, by commanding the defendants’ liability for losses they never complied to cover. 

“The court should reject the FCA’s invitation to embrace what amounts to a set of heterodox, unprincipled propositions with potentially far-reaching and unpredictable results.”

The insurers say the FCA’s attempt use a common-sense approach rather than established legal principles of causation to determine losses is “heretical,” according to Law360.

The regulator said that in the midst of thousands of businesses’ interruption, the small businesses that bought insurance to protect against public health authority shutdowns during a disease outbreak, such as with COVID-19, are unsophisticated buyers that can’t be expected to understand complex legal concepts.

However, the eight defendants said many businesses that obtained insurance policies did so at the recommendation of insurance brokers, who were likely to be “reasonably aware of the operation of insurance law,” Law360 reported.

Judge Christopher Butcher of the Commercial Court and Judge Julian Flaux from the Court of Appeal will hear the trial, which begins Monday and is expected to last eight days. 

If the FCA wins the case, do you think it will be an injustice? Why or why not? Let us know in the comments.

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