Hiscox lawyer slams FCA in pandemic business interruption test case

The Financial Conduct Authority (FCA) has been slammed for “legally startling” claims about business interruption policies during the UK High Court test case over disputed COVID-19 related payouts.

The comments came from Jonathan Gaisman, QC, representing insurer Hiscox, as he criticised the FCA’s stance that the pandemic and the government’s reaction to it should be treated as a single cause of lost income and therefore insurance policies should payout.

Gaisman described the FCA’s approach as “a big leap” and “legally startling”. He said that the FCA’s policy interpretation would block any loss adjustments that differentiated between losses caused by the insured peril and losses that would have occurred anyway.

“The FCA seeks to characterise everything that happened as one indivisible peril . . . But nowhere has the FCA sought to explain why this extreme aggregation of separate facts in different categories is an appropriate standpoint . . . It is wrong,” he reportedly said.

The test case is based on a sample of 17 representative policy wordings from 16 insurers which are said to be broadly representative. The legal action, which involves eight major insurers including Hiscox, aims to bring about an industry-wide resolution on which policies should pay claims for BI related to pandemic claims.

The thrust of the defence from the group of insurers is that BI claims are not one aggregated whole that can be assessed under the pandemic umbrella. The insurers argue that the claims can be divided and that some of the causes of loss are not covered by the policy wordings. Gaisman warned that a blanket interpretation of polices was equivalent to rewriting the contracts. “It cannot be right to recast the bargain on the basis of an assertion — which is all that it is — that everything is inextricably interlinked.”

Hiscox has come under particular pressure from businesses that believe their business interruption claims are valid. But the insurer has always maintained that its policies cover property damage and do not respond to pandemics.

The test case is expected to end this week, but a ruling is not expected until at least September.

Insurers which use at least one of the sample policy wordings
Allianz Insurance (part of Allianz)
American International Group UK (part of American International Group)
Arch Insurance (UK) (part of Arch Capital Group)
Argenta Syndicate Management (part of Hannover Re)
Aspen Insurance UK (part of Aspen Insurance Holdings)
Aviva Insurance (part of Aviva)
AXA Insurance UK (part of AXA)
Chubb European Group (part of Chubb)

Ecclesiastical Insurance Office
Hiscox Insurance Company (part of Hiscox)
Liberty Mutual Insurance Europe (part of Liberty Mutual Group)
MS Amlin Underwriting (part of MS&AD Insurance Group Holdings)
Protector Insurance UK (part of Protector Forsikring)
QBE UK (part of QBE Insurance Group)
Royal & Sun Alliance Insurance (part of RSA Insurance Group)
Zurich Insurance (part of Zurich Insurance Group)

Insurers participating in the High Court hearing
Arch Insurance (UK)
Argenta Syndicate Management
Ecclesiastical Insurance Office
Hiscox Insurance Company
MS Amlin Underwriting
QBE UK
Royal & Sun Alliance Insurance
Zurich Insurance