The Financial Conduct Authority has confirmed that eight insurers will take part in a test case to clarify wording in claims relating to Covid-19.
Insurers including Hiscox and RSA Group were due to take part, with 17 business interruption policy wordings due to be addressed.
The FCA said that since 1 May it had approached 56 insurers and reviewed over 500 relevant policies from 40 insurers. The regulator said: “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.”
Christopher Woolard, interim CEO, FCA said: “The court action we are taking is aimed at providing clarity and certainty for everyone involved in these business interruption disputes, policyholder and insurer alike. 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.
“The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court.”
Insurers were set to to file their defences by 23 June and the FCA expects a five to 10-day court hearing to go ahead in the second half of July.
In a statement to the stock exchange, Hiscox said it was “committed to seeking expedited resolution of any contract dispute” and that the test case would "provide certainty for businesses and brokers... as quickly as possible".
RSA Group said: "It remains the case that the great majority of business interruption claims are not expected to be eligible under their coverage terms for Covid-19, and the court proceedings seek to address the legal interpretation of just a small minority of policies and schemes. RSA continues to treat claims in line with legal advice, precedent and case law."
Neil Baylis, partner, Mishcon de Reya (which is acting for a group of claimants against Hiscox and for the hospitality sector action group), told us: “I can understand insurers trying to preserve cash flow but it seems to us that the policy wording is very clear in most cases. There was a court case in France where the insurer lost and I am sure that is what will happen here eventually - the trouble is that by that time a lot of insured businesses may have gone under.”
Insight: The hope for the hospitality sector is that insurance is a real thing. The concern is that the test case is more about putting speed bumps in the process to get a judgement to favour the insurers. The likelihood if that happens? As Baylis noted, many businesses will not be around to chit chat about the vagaries of policy wording and the moment will have passed. Those who remain will look gimlet-eyed at their insurer and the world will remain much the same.
If the problem becomes too immense, it is likely that the government will have to step in and resolve the broken market. In April Richard Bursby, partner, Taylor Wessing, saw a larger role in the future for government, commenting: “Insurance is often seen as a solution, but insurers are rapidly excluding COVID-19 risk from their policies. In the past, governments have stepped in to offer cover (terrorism for example) where insurers have withdrawn and this is the most likely solution here in our view.”
Bursby was referring to Pool Re, which was set up in 1993 by the insurance industry in cooperation with the UK government in the wake of the IRA bombing of the Baltic Exchange in 1992. Syndicates which offer commercial property insurance in the UK, with membership of the scheme affording them a guarantee which ensures that they can provide cover for losses resulting from acts of terrorism, regardless of the scale of the claims.
Insurance, meanwhile, is likely to cost more because, well, that’s how that goes. And who will pay? Owners. Will this make the sector less attractive to investors? The new catchphrase in the sector is ‘it could be worse, you could be in offices’. So the hope is not.