Multiple insurers have admitted they are liable to pay company owners under business interruption insurance policies after the City regulator challenged them to prove in court that their policies did not apply to the coronavirus pandemic.
The Financial Conduct Authority (FCA) is seeking court clarification on whether insurers’ policies allow them to refuse business claims related to the coronavirus pandemic. The hearing is scheduled for late July.
The majority of small businesses were not covered for the pandemic, as their policies mainly related to property damage, the regulator believes.
However, after the regulator asked 56 insurers for information on 1 May, an undisclosed number quickly gave in and said they would pay out, after previously insisting they were not liable.
In a statement on Monday the FCA said: “A number of the relevant insurers decided to accept claims from policyholders with certain policies which included particular wordings which had previously been in dispute.”
The test case in the high court will look at 17 representative policy wordings, while eight insurers will be defendants. They are Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin Underwriting, QBE, Royal & Sun Alliance, and Zurich.
Policies from Allianz, American International Group (AIG), Aspen, Aviva, Axa, Chubb, Liberty Mutual and Protector also include the wording to be tested in court. The FCA will detail in early July which other companies will also be covered by the eventual ruling.
Insurers’ refusal to pay out claims after years of expensive premiums has prompted anger from businesses, although the Association of British Insurers (ABI) estimated that the industry will still pay out £900m in business disruption claims.
A group of nightclubs, bars and clubs is suing Hiscox over its non-payment. Michael Kill, the chief executive of the Night Time Industries Association, said in April insurers were using “contrived arguments to avoid sharing the financial burden during the Covid-19 crisis”.
The ABI declined to comment on Monday.
Christopher Woolard, the interim chief executive of the FCA, said identifying the test policies was “a major step forward in progressing the matter to court”.
“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,” he said.