Insurers’ claims that businesses were not prevented from operating by the coronavirus lockdown — and would still have incurred losses without it — were described as “divorced from reality” and “ridiculous” at the High Court on Thursday.
On the final day of a test case to decide billions of pounds worth of claims on “business interruption” policies, lawyers for the UK financial regulator — acting on behalf of policyholders — suggested some of the arguments used for not paying out defied common sense.
According to some of the eight insurers contesting the case, they are not required to compensate businesses for losses because the ‘insured peril’ in their policies — action taken by the authorities to restrict activities — was separate from the real cause of loss: customers not wanting to do business in a pandemic. Their lawyers argued that this meant businesses would have lost money even if there had been no lockdown.
However, Colin Edelman QC, for the FCA, insisted that the lockdown orders and the reluctance of customers to do business were all part of “one indivisible cause” of interruption — and loss — to the claimants.
“That demonstrates how misleading it can be to start slicing up this clause into sections and having the quantification of loss [split into] individual elements”, he told the court. “What we say is we have one indivisible cause or a collection of jigsaw pieces that make up the picture . . . the court needs to find a common sense answer to this.”
Mr Edelman also attacked insurers’ suggestion that lockdown was not necessarily the result of the local presence of coronavirus because there were a few places in Britain where there were no infections. “They say ‘Ah ha’ . . . look at North Devon and the Scilly Isles — they were subject to the lockdown without the government having information they had any cases, therefore you cannot prove causation,” he said. “That’s how ridiculous it is.”
FCA estimate of policyholders affected
Suggestions that other businesses did not have valid claims because lockdown did not necessarily mean “prevention of access” to their premises were also dismissed by policyholders’ lawyers.
Leigh-Ann Mulcahy QC, for the FCA, said that arguing the restrictions on movement did not cause business to close was “nothing short of a distortion of the meaning of prevention of access”.
She countered that “any reasonable reader” would say there had been a prevention, and the insurers’ position would be “met with incredulity” by restaurant owners forced to close to dine-in business. Similar arguments that offices did not necessarily have to shut were also “divorced from the reality of the situation where thousands of office blocks stood empty,” she added.
Following the closing submissions, the presiding judges, Lord Justice Flaux and Mr Justice Butcher, said they would aim to deliver a draft judgment by mid-September. Based on FCA estimates, their findings will affect as many as 370,000 policyholders — and each successful claim could potentially run to tens of thousands of pounds.
Ben Lynch QC, representing the action group formed by policyholders in dispute with insurer Hiscox, said: “These are simple claims under simple wordings and correctly construed, the policies should respond.”
But one insurance lawyer unconnected to the test case said there was a strong possibility that the judges could agree with the technical arguments put by the insurers. “Insurance is about the most conservative types of contract law,” he said. “Established case law suggests they will carry out the exercise that the insurers are suggesting: and strip out [the causes of loss].”