Judges in the U.K.'s coronavirus business interruption test case have found in favor of policyholders' arguments "on the majority of the key issues," the country's Financial Conduct Authority, or FCA, said Sept. 15.
The FCA launched the test case in the U.K.'s High Court in a bid to resolve coverage disputes about non-damage business interruption cover for the coronavirus pandemic. The judgment was handed down Sept. 15.
The FCA took the policyholders' position for the purposes of the case, arguing that disease and denial of access clauses in the sample wordings considered in the case provide cover for the pandemic. It said the judgment found that "most, but not all" of the sample of disease clauses considered in the case provide cover for COVID-19-related business interruption, and that "certain" denial of access clauses provide cover, but that "this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic," including whether the business was ordered to close.
The FCA said the judges also found that the pandemic and the government response were together a single cause of the covered loss, one of the regulator's key arguments in the case, which the defendant insurers had sought to dismantle in the hearings.
Although the FCA the judgment will "bring welcome news for many policyholders," it did not say all eight defendant insurers are liable across all 21 policy types considered by the court. "Each policy needs to be considered against the detailed judgment to work out what it means for that policy," the regulator said, adding that policyholders with affected claims would hear from insurers within the next seven days.
RSA Insurance Group PLC, whose Royal & Sun Alliance Insurance PLC division was one of the eight defendants in the test case, estimated that the judgment will result in an additional gross hit of £104 million, or £85 million net of catastrophe reinsurance. The insurer booked £57 million for coronavirus-related claims and reserves in the first half of 2020.
Hiscox Ltd., whose Hiscox Insurance Co. Ltd. was also a defendant in the case, estimated that business interruption claims arising as a result of the judgment will be "less than £100 million" net of reinsurance. It said the estimate "encompasses claims from all divisions including Hiscox Re and is a reduction of £150 million from the upper end of the group's previously published risk scenario."
Law firm Mishcon de Reya, which acted for policyholder groups Hiscox Action Group and Hospitality Insurance Group Action, called the case "a resounding victory for policyholders." However, the Association of British Insurers said the judgment "divides evenly between insurers and policyholders on the main issues."
Shares in RSA and Hiscox initially fell sharply after the verdict was released, but by midday London time, RSA was up more than 4% and Hiscox had risen over 16%.
In addition to RSA and Hiscox, the defendants included Arch Insurance (UK) Ltd., Argenta Syndicate Management Ltd., Ecclesiastical Insurance Office PLC, MS Amlin Underwriting Ltd., QBE UK Ltd. and Zurich Insurance PLC.