Brokers and insurers will be keenly awaiting the outcome of the FCA’s test case brought against eight insurers which begins today.

The case was brought after the financial ombudsman received numerous complains from businesses who were denied business interruption payouts by their insurers after being forced to close due to the Covid-19 pandemic.

The FCA has chosen 17 business interruption policies as has asked eight insurers to take part.

The insurers are Arch Insurance (UK), Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox Insurance Company, MS Amlin Underwriting, QBE UK, RSA UK, and Zurich Insurance.

The case - which is expected to last eight days - will focus on policy wording ambiguities specifically, rather than whether business interruption policies are designed to cover non-damage losses to premises.

Shedding additional light

The Hiscox Action Group, which represents 700 businesses who are collectively seeking losses of £47m, will submit evidence to the case, and is also launching its own action. 

The law firm Mishcon de Reya, which is acting on its behalf, said: “The FCA is already making a strong argument against Hiscox but we can shed additional light on the matter and explain exactly why these policies should pay out and show the damage this refusal is doing to hundreds if not thousands of British businesses.”

“The policyholders are the victims here and it was clearly unacceptable for this case to come to court and for us not to be represented, the HAG’s Mark Killick said.

”Our lawyers have put together a powerful submission and we are looking forward to the judges hearing our case.”

The HAG has claimed that Hiscox has been “dragging its feet” in dealing with the claims, leading policyholders to incur further losses.

HAG steering group member Daniel Duckett the delays have forced it ”to go to extraordinary lengths to get settlement for our members.

”We have intervened in the FCA case, we are going to court to start the expedited arbitration claim and we are looking to claim additional damages through the new provisions of the Insurance Act.

”We are determined to do whatever it takes for our members get justice.”

Broker exposure

Last week, Insurance Times reported that if insurers win it could be a death knell for brokers’ PI cover.

Charles Manchester, chief executive at Manchester Underwriting Management, said that if brokers are found liable in relation to Covid-19 BI claims, then brokers’ PI could become uninsurable.

“If [clients] don’t get their claims paid by insurers then they’re going to look to the broker. It’s human nature.”

Earlier this month, the FCA published its skeleton argument against insurers.

In the 322-page document, the FCA said that insurers “have been adopting an unduly narrow approach” and have been “misguided” in how they establish claim causation.

The FCA berated the fact that the individual merits of each claim are not even considered when insurers are deciding whether policyholders are covered or not.

It said the case had been brought ”to remove the uncertainty that had been created by the insurers’ reliance on reasons for denying cover which were of general application to policyholders under the policies in question and their refusal to even countenance consideration of the claims affected by such reasons on their individual merits.

“Although these submissions have necessarily had to delve into the detail of the individual policies (and some of them have their own individual quirks which the court will need to address), what should be clear is that the insurers have been adopting an unduly narrow approach to the application of their insuring clauses and a misguided approach to causation and the application of any relevant ‘trends’ clauses.”

However, the FCA has said that “in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic” and most businesses only have a basic level of business interruption cover.

The eight insurers involved published their defence documentation on 24 June.