Eight insurance companies agreed to participate in a test case that Britain’s financial regulator is bringing to its High Court in an attempt to bring clarity to a slew of disputes over whether business interruption policies cover coronavirus-induced claims.
The Financial Conduct Authority said Monday the companies are Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office plc (EIO), Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Ltd, Royal & Sun Alliance Insurance plc and Zurich Insurance plc.
The insurers underwrote business interruption policies with wording that could be argued to provide coverage for COVID-19-related claims, the FCA said.
The regulator’s position — shared by insurers slammed with claims worldwide — has been that most small-business policies only have basic coverage for interruption as a consequence of property damage and don’t require insurers to pay out claims stemming from the pandemic. But after reviewing over 500 policies from 40 insurers, the FCA zeroed in on 17 policy wordings used by 16 insurers. Half were asked to participate in the case.
“Rather than select firms by market share, we have identified policies which are representative of the key arguable issues and invited insurers to participate on the basis of securing the maximum relevant coverage for relevant policies whilst minimising the number of parties engaged before the court in order to make the process as swift as possible for the court,” the FCA said.
Other insurers will still be watching closely, as the FCA expects the case to produce guidance for interpreting “many other” business interruption policies. The regulator plans to release a comprehensive list of affected insurers and policies in July, when a court hearing is expected to take place.
“The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike,” Interim FCA CEO Christopher Woolard said in a statement. “We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market.”
Several participants issued statements Monday welcoming the case.
“EIO has agreed that some of our relevant wordings are included in the test case and the FCA have made clear that simple inclusion does not mean cover responds to pandemics or imply blame,” an EIO spokesman said in an email.
Arch said in an emailed statement that it “has worked closely with brokers and insureds since the onset of the pandemic to assess and pay valid COVID-19 related claims, and will continue to do so.”
Zurich Insurance Group AG, which has estimated that it will need to pay out roughly $750 million for property and casualty claims in 2020, maintained that its policies do not include coverage for business interruption claims stemming from the pandemic. However, it said that in the “unlikely event” that the court deemed all the wordings to be reviewed in the case as providing coverage, it would mean approximately $200 million of additional claims net of reinsurance.
Meanwhile, litigious policyholders are bringing their own cases as the industry continues to grapple with business owners who thought their policies covered interruptions triggered by pandemic-related shutdowns.
QBE, along with Aviva, is also being targeted in a potential class-action lawsuit whose organizers took issue with four specific policies — three of which the FCA called out Monday. Another group is working to bring action against Hiscox.
The Association of British Insurers estimates COVID-19 will result in 900 million pounds ($1.1 billion) being paid to businesses for interruption, part of 1.7 billion in payouts in the U.K. from ABI members and Lloyd’s of London.