Hiscox, RSA and Zurich involved in coronavirus insurance test case

Business owners’ hopes of making insurance claims for coronavirus disruption will rest on a court case in late July involving eight insurers — including Hiscox, Royal & Sun Alliance and Zurich — the City regulator has announced.

On Monday, the Financial Conduct Authority said it would bring a High Court action to test 17 disputed policy wordings that have prevented payouts to thousands of holders of business interruption insurance, in an attempt to “resolve the contractual uncertainty around the validity of . . . claims”.

Since the Covid-19 pandemic and subsequent lockdown have forced non-essential businesses to close, many have tried to claim on insurance designed to cover disruption from a “notifiable disease”. But a large proportion have found their claims refused, because insurers have said the wordings of their policies do not include wide-ranging government responses to a global crisis.

With angry policyholders facing lengthy and costly court battles, the FCA last month took the unprecedented step of launching a test case itself, to speed up the resolution of disputes. It has now approached 56 insurers and reviewed more than 500 policies, narrowing down the areas of contention to those 17 policy wordings.

A representative sample of insurers that underwrite policies containing these wordings has now been asked to “assist” the regulator by taking part in the High Court action. They are: Arch; Argenta Syndicate Management; Ecclesiastical; Hiscox; MS Amlin; QBE UK; RSA; and Zurich.

However, the regulator said the outcome of the test case would also provide guidance on whether other business interruption policies, not included in this sample, should pay out to customers.

A ruling is expected in late July, after a 5-10 day court hearing in the second half of the month. A short consultation will take place now, before the FCA files its claim form with the court on June 9, and the insurers file their defences on June 23. In early July, the regulator said it would be able to publish a full list of the insurers that the test case outcome will affect.

Chris Woolard, FCA chief executive, said: “The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike. We feel it is also the quickest route to this clarity and by covering multiple policies and insurers.”

He advised policyholders not to assume a favourable outcome, though — noting that most business interruption policies only cover property damage. Consequently, in a majority of cases, insurers will not be obliged to pay claims relating to coronavirus closures. 

Following the FCA announcement, RSA told shareholders that its involvement in the test case did not mean it was among the most exposed to claims. It said its inclusion in the FCA’s list of eight insurers was “not representative of its market share on the relevant policy wordings”. Previously, RSA had estimated that the cost of business interruption claims would be around £25m, net of reinsurance. On Monday, it said: “This estimated cost has not changed materially since then.”

Editor’s note

The Financial Times is making key coronavirus coverage free to read to help everyone stay informed. Find the latest here.

Hiscox said it was “committed to seeking expedited resolution of any contract dispute” but had made no change to any of its estimates. In May, it reported that it had modelled outcomes that put its UK business exposure at between £10m and £250m, net of reinsurance.

Zurich welcomed the FCA’s action. “If it brings finality to the industry and brings confidence back, it must be a good thing,” said Tulsi Naidu, chief executive of Zurich’s UK business. 

The insurer has previously said it expected Covid-19 related claims globally to cost it $750m. It does not believe its UK business policies offer coverage for the costs of the pandemic, but if the High Court rules that the industry’s wordings do provide cover, then Zurich’s costs would rise by $200m. 

Additional reporting by Oliver Ralph

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