Insurers Say Lockdown Didn't Cause Losses In FCA Test Case

By Martin Croucher
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Law360, London (June 25, 2020, 5:10 PM BST) -- Hiscox, RSA and six other insurers have hit back at suggestions they should pay out on claims for business interruption from the pandemic, arguing that financial losses would have occurred even without a nationwide lockdown.

In a High Court test case brought by the Financial Conduct Authority, the eight insurers said in defense filings published Wednesday that they are not liable to pay claims from their business interruption policies.

The companies are Hiscox, Arch Insurance UK, Argenta Syndicate Management, Ecclesiastical Insurance, MS Amlin Underwriting, QBE UK, RSA and Zurich.

The test case, which focuses on 17 disputed policy wordings, will have a wide impact on whether insurers are responsible for paying compensation for hundreds of businesses forced to close during the U.K.-wide lockdown, which began in March.

It will look specifically at so-called non-damage extensions to business interruption policies, which offer cover if a premises was forced to close because of an infectious disease outbreak. Other extensions being tested offer cover if access to a premises is blocked or denied by a public authority.

Many of the insurers share policy wordings that restrict cover when a disease outbreak occurs outside a certain geographical radius from the business, which ranges between one mile and 25 miles.

Several insurers filed a so-called proximate clause defense to the FCA's suggestion that it should be possible to determine if there was a single case of COVID-19 within that radius, and therefore ascertaining liability.

A joint defense by insurers MS Amlin and Ecclesiastical said that even if there was a single case of the disease within that area, the national lockdown was not with "reference to or reliance upon the specific case or cases within the relevant area."

Separately, insurers have sought to argue that losses would have occurred even without the lockdown. Hiscox said in its defense that in the "counterfactual scenario," where there was the presence of COVID-19 but no government lockdown, businesses would have still faced an economic hit as people avoided going out for fear of catching the disease.

The company said that in Sweden, where there has been no lockdown, many companies "may have experienced business or trading losses." The argument was also used by the company's counsel, Jonathan Gaisman, at a case management hearing last Friday.

The Financial Conduct Authority is giving policyholders until June 29 to respond to the defenses of the eight insurers. It said it would use feedback to help its legal team form a response, which is due by July 3.

It added that responses might include "correspondence you have received from a defendant, perhaps because they are inconsistent with the interpretation put forward in a defence."

The next step will be a hearing on Friday, in which the court will likely consider an application by Mishcon de Reya LLP for Hiscox policyholders to intervene in the case.

The trial will take place on July 20 and will last for eight days. It will be heard by Judge Christopher Butcher, who sits in the Commercial Court, and Judge Julian Flaux from the Court of Appeal.

Arch Insurance UK is represented by John Lockey QC and Jeremy Brier of Essex Court Chambers, instructed by Clyde and Co LLP.

Zurich Insurance PLC is represented by Andrew Rigney QC and Caroline McColgan of Crown Office Chambers and Craig Orr QC of One Essex Court, instructed by Clyde and Co LLP.

QBE UK Ltd. is represented by Rachel Ansell QC of 4 Pump Court Chambers and Sarah Bousfield of Brick Court Chambers, instructed by Clyde and Co. LLP.

Argenta Syndicate Management Ltd. is represented by Simon Salzedo QC and Michael Bolding of Brick Court Chambers, instructed by Simmons & Simmons LLP.

Ecclesiastical Insurance Office PLC and MS Amlin Underwriting Ltd. are represented by Gavin Kealey QC and Andrew Wales QC of 7 King's Bench Walk, instructed by DAC Beachcroft LLP.

Hiscox is represented by Jonathan Gaisman QC of 7 King's Bench Walk.

RSA is represented by David Turner of 4 New Square, instructed by DWF Law LLP.

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.

The case is The Financial Conduct Authority v. Arch Insurance and others, case number FL-2020-000018, in the High Court of Justice of England and Wales.

--Additional reporting by Paige Long. Editing by Alyssa Miller.

For a reprint of this article, please contact reprints@law360.com.

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