FCA Trying To Cram Pandemic Into Biz Policies, Insurers Say

By Christopher Crosby
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Law360, London (July 27, 2020, 2:18 PM BST) -- The Financial Conduct Authority has conflated the COVID-19 pandemic into an ongoing emergency and a single incident to allow small businesses to make claims for losses during the crisis, insurers said Monday in a major legal case testing cover for business interruption.

The FCA is trying to squeeze the events that led to the lockdown into a single "occurrence" to trigger payouts to policyholders, the court was told. (AP)

Jonathan Gaisman QC, speaking for eight insurance companies at a hearing at the High Court, said the regulator is trying to shoehorn the chain of events that led to the nationwide lockdown into one "occurrence" to trigger payouts to policyholders. 

The trial, taking place under the financial markets test case scheme, could decide whether insurers pay out on claims to an estimated 370,000 businesses forced to close during the U.K. lockdown, which began in March.

But Gaisman said the FCA's case is a contradiction. It assumes that an insurable "occurrence" happened as soon as the virus became recognizable — but also when a nationwide emergency was declared, prompting the government to impose a lockdown.

"Can the pandemic or emergency really have been said to have been an incident that occurred in a one-mile radius?" Gaisman asked. "Surely it was the antithesis of something that happened in a particular way, in a particular place, at a particular time."

The pandemic has been "extraordinary," and the FCA is trying to "cram" events too large and "amorphous" into its case to fit the wording of the insurers' policies, Gaisman said.

The regulator claims the pandemic is both an incident and an emergency, and "Hiscox doesn't insure emergencies," Gaisman added. An ongoing pandemic cannot be defined as an "incident" under the policy, which makes no mention of disease, he said. 

Counsel for the insurers criticized the FCA's "heretical" claims last week, saying the regulator was "throwing out the most basic concepts of factual causation under English law." 

The FCA has argued that the presence of COVID-19 and the lockdown that followed the outbreak are indivisible causes as part of the "but for" test. There would be no virus and no lockdown in the regulator's "counterfactual" scenario. Insurers say they are "independent concurrent causes" and that it is possible to have the virus without the lockdown, which has been the case in Sweden. 

Insurers also claim people would have stayed home even without the lockdown. 

The eight-day trial is expected to resume on Tuesday.

The trial is being heard by Judge Christopher Butcher, who sits in the Commercial Court, and Judge Julian Flaux from the Court of Appeal.

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 hospitality group policyholders are represented by Philip Edey QC of Twenty Essex chambers.

Hiscox policyholders are represented by Ben Lynch QC of Fountain Court Chambers, instructed by Mishcon de Reya LLP.

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 and Michelle Menashy of One Essex Court, instructed by Clyde and Co LLP.

QBE UK Ltd. is represented by Mark Howard QC of Brick Court Chambers and Rachel Ansell QC of 4 Pump Court, 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, instructed by Allen & Overy LLP.

RSA is represented by David Turner of 4 New Square, instructed by DWF Law 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 Martin Croucher. Editing by Ed Harris.

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

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