FCA business interruption test case: A peek into insurers' defences

Here's a rundown of the key points

FCA business interruption test case: A peek into insurers' defences

Insurance News

By Terry Gangcuangco

All of the defendants in the Financial Conduct Authority’s (FCA) High Court business interruption test case have served their defences, and Insurance Business brings you some of the key points from the documents.

Arch Insurance (UK) Ltd

“The true position is that a number of separate, individual actions were taken and advice given by different bodies, with different aims and different effects on different businesses and sectors of the UK economy,” said Arch in its 22-page defence. “It is only official governmental or local authority actions or advice preventing access to insured premises which are relevant to the government or local authority action clause.

“Access to the premises is not ‘prevented’ if the government or local authority action or advice does not require the closure of the premises, even if such action or advice (a) requires the policyholder to close part only of the premises or (b) requires the policyholder not to carry on certain business activities at the premises.”

Arch argues that actions or advice on social distancing or working from home technically did not prevent access to insured premises, even if they resulted in less or no use being made of the properties.

Argenta Syndicate Management Ltd (ASML)

“The FCA has relied on the fact that the Argenta lead policy does not include an exclusion for loss caused by a pandemic,” noted ASML in its 23-page defence. “Such an exclusion is unnecessary, because the policy wording provides cover only for specific insured perils – which do not include a global or national pandemic.

“In any event, as noted below, there is a specific exclusion attached to Extension 4(d) that excludes any loss arising from premises which have not been ‘directly affected’ by a local occurrence of an infectious disease.”

The Lloyd’s managing agency stressed that the only insured peril within the scope of the abovementioned extension is a local occurrence of an infectious disease – that is, within 25 miles of the insured premises.

ASML said policyholders must establish that the loss claimed has been sustained as a result of the occurrence of COVID-19 within the relevant zone, a requirement that is not satisfied by showing that the loss is a result of any other cause such  as  the  global  or  national  pandemic and/or  governmental/public responses to it.

Ecclesiastical Insurance Office Plc and MS Amlin Underwriting Ltd

“The use of epidemic and pandemic exclusions by some insurers in some contexts, if and insofar as it occurs, is irrelevant,” asserted Ecclesiastical and MS Amlin in their 54-page joint defence. “The issue between the parties is as to the scope of cover created by the wordings.

“It is irrelevant that insurers did not include an epidemic or pandemic exclusion clause if, on the objective construction of the wordings, the cover under the relevant policies did not extend to such perils in the first place.”

They added: “Neither access to nor use of the premises is prevented unless it is rendered physically (in the case of access and use) or legally (in the case of use) impossible.”

Hiscox Insurance Company Ltd

“The FCA starts from the false premise that the policies are to be construed on the presumption that they should provide an indemnity for losses due to COVID-19, and thus approaches the case on the basis of a presumption that there ought to be coverage,” declared Hiscox in its 42-page defence. “This infects all aspects of its case.”

The specialist insurer continued: “Hiscox 1-4 need to be construed, contrary to the FCA’s approach, with no predisposition in favour of (or indeed against) coverage, and without any presumption that they cover pandemics or their consequences.

“The correct questions are, first, whether or not on the facts which occurred there was in principle an insured peril and, secondly, whether that insured peril in principle caused the losses sustained.”


“The clauses of the QBE wordings which fall for consideration in this case provide limited non-damage ‘insured premises-related’ extensions to the cover provided pursuant to the primary insuring clause,” noted QBE in its 35-page defence. “They do not provide, and were not intended to provide, cover in respect of a national pandemic or the government response to an actual or feared national pandemic.

“However, the FCA’s case against QBE appears to be premised on the incorrect assumption that the QBE wordings provide cover against pandemics, which it repeatedly argues throughout its Particulars of Claim have not been excluded. This is a non-sequitur; the fact that something has not been excluded does not mean that it is covered in the first place.”

The company went on to state: “In much the same way, the FCA also incorrectly formulates its proposed ‘but for’ counterfactuals based on the absence of a pandemic (or the government response to it), rather than on the particular insured perils set out in the QBE wordings. The correct analysis is much more straightforward. One simply looks at the language used by the QBE wordings themselves and asks what they actually provide cover for.”

Royal & Sun Alliance Insurance Plc

“The peril insured against is [1] ‘the actions or advice of a competent public authority’ [2] ‘due to’ [3] ‘an emergency likely to endanger life or property in the vicinity of the premises’ [4] ‘which  prevents or hinders the use or access to the premises’ [5] excluding ‘any period other than the actual period when access to the premises was prevented’ [6] and also excluding (for RSA 2.2 only) ‘as a result of any infectious or contagious disease’,” RSA highlighted in its 36-page defence.

“It is admitted that, at all material times from March 12, 2020, to date, the COVID-19 pandemic amounted to a public health emergency. For the avoidance of doubt, a national public health emergency is not the same as an emergency in the vicinity of the premises.”

RSA also explained: “The word ‘vicinity’ is to be given its natural meaning and denotes a requirement for a close spatial proximity to the premises. The word ‘likely’ requires a greater than 50% chance that life (or property) in ‘the vicinity’ of the insured premises would be endangered.”

Zurich Insurance Plc

“The AOCA extension only provides cover where ‘action by the police or other competent local, civil, or military authority’ following a ‘danger or disturbance’ in the ‘vicinity’ of the premises has ‘prevented’ access to such premises and, as a consequence, the business of the policyholder is interrupted or interfered with and, as a result, the policyholder has suffered loss,” clarified Zurich in its 28-page defence.

The insurer stressed: “The UK government is not a ‘civil authority’, and its response pleaded at paragraph 4.1 was not a response to (and, accordingly, it did not ‘follow’) a specific and localised danger, in the vicinity of any particular premises, but rather was a response to a nationwide pandemic that was determined on a national basis irrespective of whether there was a danger in any particular vicinity and irrespective of the number of cases of COVID-19 which might actually have occurred there.

“Accordingly, such response does not give rise to cover under the AOCA extension.”

Like its peers, Zurich also pointed out that none of the government measures prevented access to the premises, saying access prevention requires entry to the premises to be physically obstructed or otherwise impossible.

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