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Law360, London (June 10, 2020, 5:11 PM BST) -- The Financial Conduct Authority said Wednesday it has filed a High Court claim against eight insurers in a test case it hopes will establish that the industry is liable in disputes over business interruption cover during the COVID-19 pandemic.
The regulator has published a 184-page claim setting out why insurers should pay compensation to small businesses forced to close under the lockdown.
The City regulator has brought the test case after hundreds of small companies got together to pursue group litigation against insurers including Hiscox and Aviva over their refusal to pay out on claims for interrupted business as a result of the nationwide lockdown, which began in March.
The FCA said that it filed particulars of the claim, which it drew up following a "framework agreement" with insurers on May 31, with the court on Tuesday. The regulator said the policy wordings it has picked for the case "respond to the events of COVID-19." It believes they are representative of most disputes over liability.
"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," the claim states.
Cover for business interruption generally covers only losses in which a company is forced to close temporarily from property damage, such as a fire. The FCA said those types of policies do not offer protection from pandemics, but it is interested in the minority that have so-called non-damage extensions.
Such extensions can protect against the closure of a property either from the outbreak of an infectious disease or through denial of access to the premises by a public authority.
The FCA said it had examined more than 500 policies from 40 insurers. It narrowed its selection to just 17 policy wordings it felt were the most contentious and also most representative.
The regulator set out several of the main reasons that insurers were rejecting claims, and set out counter-arguments for each.
Some insurers said the policies were intended to cover specific and highly local outbreaks on site of infectious diseases rather than a pandemic. The FCA said the wordings should be "construed objectively," adding that "the defendants' subjective intentions are not relevant or admissible."
Some insurers have also argued that business would have suffered financial loss in any case, even if it was not required to close, because people were advised to stay at home and not go to public places. But the FCA dismissed such arguments as "absurd," saying that the order to stay at home and to close businesses were "indivisible" as part of a national pandemic strategy.
The eight 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. The FCA will file a reply to those defenses on July 3.
The FCA is represented by Colin Edelman QC of Devereux Chambers and Leigh-Ann Mulcahy QC and Richard Coleman QC of Fountain Court Chambers, instructed by Herbert Smith Freehills LLP.
Full counsel details were not available.
The case is the Financial Conduct Authority v Arch Insurance (UK) Ltd. and seven others, case number FL-2020-000018 in the High Court of Justice of England and Wales.
--Editing by Ed Harris.
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