Monday 1 June 2020 12:58 pm

FCA gears up for business interruption insurance court battle

City watchdog the Financial Conduct Authority (FCA) today said it had selected samples of insurance wording for a July case on whether insurers should pay out on business interruption policies for covid-19.

The FCA said it has selected 17 examples from business interruption insurance policies used by 16 insurers who have entered into a framework agreement with the watchdog for governing the process and timetable for the test case.

“Given the representative nature of the policies and wordings we have selected, we expect the test case to provide guidance for the interpretation of many other business insurance policies that are not in the representative sample,” the FCA said.

“This means that other insurers will also be affected by the test case and its conclusions. In early July, we expect to publish a comprehensive list of other insurers and many other BI policies in the market that we expect the test case to affect, based on firm submissions.”

The FCA said it expects the court case will happen in the second half of July, lasting five-to-10 days.

Hiscox today said it welcomed the FCA’s announcement,

Hiscox said it “recognises these are extremely difficult times for businesses and is committed to seeking expedited resolution of any contract dispute.

“Hiscox has agreed to assist the FCA by participating alongside other insurers in the test case in order to provide certainty for businesses and brokers on the application of policies as quickly as possible.”

Hiscox has been targeted by an action group who are building a group claim against the insurer for not paying out on business interruption claims.

The action group today said: “Despite naming Hiscox in almost half of the policies under investigation, the FCA has not instructed the insurer to make any interim payments.

Because of this and whilst this court case goes on, many good British businesses holding Hiscox business interruption policies are likely to go bust.

This is why the Hiscox Action Group will continue to pursue its own legal remedies in the belief that it may be able to get justice for its members more swiftly than the FCA.”

Similar groups have sprung up to target other insurers or represent industries such as hospitality that have been hit hard by the lockdown.

Tulsi Naidu, Zurich’s UK chief executive, said: “This review tests a wide range of standard industry scenarios common to many insurers across the market. We agreed to assist in this process when we were asked by the FCA in relation to our versions of a standard industry wording. Ultimately, the entire industry will benefit from the legal analysis of a small number of test cases. Our ethos is about paying claims and we believe this action will reduce ambiguity and restore confidence in the industry.

“We note that the FCA is clear in its statement that it does not expect all wordings to respond and that policyholders should not expect that the inclusion of a wording implies that their policy will be responsive. Where our policies do cover losses related to the outbreak, we are paying claims as quickly as we can. Based on our own review of wordings and the advice from external legal counsel, we remain confident in our interpretation of our policy wordings. To date, we have received limited claims in relation to the policies being tested by the FCA.”

Lloyd’s of London estimated that the covid-19 crisis would cost the insurance industry more than $100bn (£80bn)