Briefing: It’s been a bad week for insurers, but lose the FCA test case and things could get a lot worse

It’s been a bad week so far for insurers as the FCA’s legal team have gone about systematically taking apart their skeleton defences.

At times, the judges have also revealed some of their thoughts, saying they remain “thoroughly unconvinced” by Zurich’s defence that the government is not a “competent public authority”.

They also described insurers’ arguments around government death data not being reliable as “clutching at straws”.

And that was just day one!

Of course, we are yet to hear fully from the insurers directly in this test case, but as it stands their case does seem to be on shaky ground.

And should the High Court’s decision go against insurers, they could be facing colossal costs that go way beyond the original claims lodged towards the beginning of the lockdown.

Not only would insurers be liable for the claims due under the policy, they may also have to pay interest as a result of the delay to payments and, if businesses have gone under as a result of this delay, subsequent claims for damages could come in as well.

Under such a scenario, insurers may even find that policy limits that would normally cap liability do not apply, and damages payments akin to loss of future earnings in an unfair dismissal case could arise.

And figures involved here could be truly eye-watering.

Of course, all of this creates additional legal uncertainty and the only thing we know for sure is that there will be appeals, challenges and further cases down the line.

This will only serve to drag the whole scandal out further, increasing legal costs and dragging insurers’ reputations through even more mud.

In some cases, the damage caused both financially and reputationally could prove irreparable, both for insurers and the business interruption market more widely.

Things need to change regardless of the outcome of this case, only time will tell who will be around to make them.