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Law360, London (April 22, 2021, 11:15 AM BST) -- The Financial Conduct Authority has said it is considering whether to charge insurers £7.5 million ($10.4 million) to cover its legal costs after it brought a landmark High Court case over disputed cover for businesses forced to close by the coronavirus shutdowns.
The watchdog said the proposed fee would be imposed on 295 general insurers and 50 Lloyd's of London managing general agents in the next financial year starting in July.
The FCA challenged insurers in court in 2020 over their refusal to pay out on business interruption claims to an estimated 370,000 insured companies forced to temporarily close during the COVID-19 lockdown.
The High Court judgment in September and the U.K. Supreme Court appeal ruling in January both went largely in favor of policyholders, and insurers have paid out £600 million in claims following the case.
"The scale, complexity, speed and novel nature of the case meant the FCA needed to engage experienced external insurance litigation solicitors, a team of experienced counsel and additional experts, including loss adjusters," the regulator said on Tuesday.
"Our action in taking the test case is likely to have saved insurers and policyholders significant legal costs, as well as bringing all parties clarity on the issues much more quickly than would otherwise have been the case," it added.
The FCA proposes that general insurers that write non-damage business interruption insurance will be charged a total of £7.4 million, while Lloyd's of London managing agents that also sell such cover will be asked to pay £100,000.
The charges would be imposed on top of the £28.4 million that general insurers pay in their regular levies, and the £200,000 owed by Lloyd's of London managing agents.
The FCA is asking for responses from the sector on the charges in a wider consultation about its annual levy on financial services industries in the 2021-2022 financial year. The consultation will run until May and the regulator will publish a policy statement in July.
The FCA said it would not require the eight insurers that took part in the test case to pay the special £7.5 million levy.
"The eight defendant insurers to the test case have incurred significant internal and external costs on the test case already, so we believe it is appropriate to exclude them, and entities in their wider group, from the fee," the watchdog added.
A spokesman for the Association of British Insurers said the trade body was considering the consultation with its members.
The FCA was represented in the test case by Colin Edelman QC of Devereux Chambers, Peter Ratcliffe and Adam Kramer of 3 Verulam Buildings and Max Evans of Fountain Court Chambers, instructed by Herbert Smith Freehills LLP.
--Editing by Ed Harris.
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