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Law360, London (June 1, 2020, 1:52 PM BST ) The Financial Conduct Authority said Monday it has selected eight insurers to participate in a High Court test case scheduled for July that will determine whether business interruption insurance covers losses from the U.K.-wide lockdown during the COVID-19 pandemic.
The FCA's plan for a test case came after hundreds of small companies vowed group litigation against insurers that refused to pay business interruption claims from the U.K. lockdown. (Chris Ratcliffe/Bloomberg via Getty Images)
The test case came after hundreds of small companies vowed group litigation against insurers like Hiscox and Aviva over refusal to pay business interruption claims from the U.K. lockdown, which began in late March.
"The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike," said Christopher Woolard, interim chief executive at the FCA.
"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," Woolard added.
The FCA said it would file the particulars of the claim on June 9. The eight insurers — Hiscox, Arch Insurance UK, Argenta Syndicate Management, Ecclesiastical Insurance, MS Amlin Underwriting, QBE UK, RSA and Zurich — will file their defenses on June 23.
The FCA's reply will come on July 3, with the case being heard in court in the second half of the month, for five to 10 days.
Colin Edelman QC of Devereux Chambers, Leigh-Ann Mulcahy QC and Richard Coleman QC of Fountain Court Chambers will represent the FCA in the case, instructed by Herbert Smith Freehills LLP.
Business interruption insurance generally only covers losses where a company is forced to close temporarily from property damage, like a fire. The FCA said those types of policies did not offer protection from pandemics, but it was interested in the minority that have so-called nondamage extensions.
Those extensions can protect against the closure of a property either from the outbreak of an infectious disease or by the denial of access by a public authority.
The FCA said it had examined more than 500 policies from 40 insurers and narrowed down its selection to just 17 policy wordings it felt were both the most contentious and representative.
"Given the representative nature of the policies and wordings we have selected, we expect the test case to provide guidance for the interpretation of many other BI policies that are not in the representative sample," the FCA said in a statement. "This means that other insurers will also be affected by the test case and its conclusions."
The regulator has published a list of the wordings it plans to take to court and has asked all the insurers it regulates to assess whether they also use similar wordings. Based on that, it will publish a list of the insurers that will be affected by the test case in early July.
The FCA has also asked insurers who have previously denied claims, to write to policyholders again, telling them about the FCA court case and how it could affect their claim.
Insurers that offer to settle early with policyholders also have to tell their customers about the case and how it can affect their level of compensation.
--Editing by Rebecca Flanagan.
For a reprint of this article, please contact reprints@law360.com.
