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FCA offers latest in COVID-19 business interruption test case

FCA offers latest in COVID-19 business interruption test case | Insurance Business UK

FCA offers latest in COVID-19 business interruption test case

The ball has started rolling in the Financial Conduct Authority’s (FCA) business interruption (BI) test case, with proceedings having commenced in the High Court of Justice in London.

“The claimant contends that, subject to proof of loss and individual policy points such as sub-limits, the wordings written by the defendants which have been selected to be tested in this claim do respond to the events of COVID-19 and the governmental action responding to it in the first half of 2020,” reads the claim form seen by Insurance Business.

“The claimant, as the conduct regulator of the defendants and other insurers, managing agents and insurance intermediaries in the UK, seeks declaratory relief in order to resolve the legal uncertainty in relation to COVID-19 business interruption claims so that it can determine and pursue its regulatory and supervisory policy in relation to the handling of these claims by the defendants and other insurers.”

The defendants in the High Court test case are Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office Plc, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Limited, Royal & Sun Alliance Insurance Plc, and Zurich Insurance Plc.  

In an update, the FCA published on its website the documents related to the BI case. These include the particulars of claim and questions for determination by the court, as well as a representative sample of policy wordings, or a selection of wordings, which the watchdog believes captures the majority of the key issues that could be in dispute.

The regulator, which is advised by Herbert Smith Freehills, has also submitted an application for the High Court test case to be heard urgently. According to the FCA, the first case management conference before a judge is expected to take place on June 16.

“The judge will be invited to consider our application for expedition and admission to the Financial Markets Test Case Scheme, fix the timetable for the case (including the date for the court hearing in the second half of July), and deal with other procedural matters,” noted the watchdog.

“We intend to ask the judge to agree to live-stream this hearing, and will provide a further update on this as soon as we can.”

The insurer parties, meanwhile, are slated to file their defences on June 23.

Read more: Insurance industry reaction: FCA moves forward in business interruption test case

Commenting on the development, specialist insurance buyer Mactavish highlighted its views on the test case’s scope.

“Brokers sit between these parties (insurers and policyholders) and play a critical role in helping clients understand the complex technicalities of insurance policies,” said Mactavish in an emailed statement. “It is, therefore, essential for the FCA to look at the quality and accuracy of the advice they have provided – both when the policies were bought and when claims were discussed.

“If clients were told that they had pandemic cover in place, only to later find that insurers took a very different view, then they may well seek indemnification from brokers.”

Last month, the British Insurance Brokers’ Association (BIBA) strongly refuted assertions by Mactavish which pointed to alleged conflicts of interest surrounding brokers’ commissions.

BIBA declared in late May: “Conflicts of interests will always exist in any intermediated sector which is why the FCA requires and monitors that these be managed, which they are. The FCA examined conflicts within a thematic review quite recently and taking their findings into consideration we wholeheartedly dispute the issues raised by Mactavish in their report.

“Brokers have helped clients receive millions of pounds in claims payments since the beginning of the COVID-19 pandemic and continue to act for their clients to get fair claims settlements.”