A disputed £30 million insurance claim made by failed U.K. steel producer British Steel Corp. Ltd. "could rise significantly" if the 18 insurers involved in the claim continue to fight its payment, according to the CEO of the company representing British Steel in the dispute.
Insurance governance consultancy Mactavish alleged in a statement May 22, the day British Steel was placed into compulsory liquidation, that the claim payment "would have made a major contribution to securing the survival" of the steelmaker.
British Steel was seeking £30 million in crisis funding from the U.K. government. The company's insurance claim, made following the shutdown of a blast furnace in June 2017, was for the same amount, but Mactavish CEO Bruce Hepburn said in an interview that the policy had a £10 million deductible, leaving insurers on the hook for £20 million.
Hepburn said there are 18 insurers on the claim. Mactavish disclosed in its statement that the lead underwriter is Zurich Insurance Group AG, and another participant is Liberty Mutual Holding Co. Inc.'s London-based Liberty Specialty Markets Ltd. operation. Hepburn said the list of insurers also includes American International Group Inc., Aviva PLC, Axa XL and RSA Insurance Group PLC.
Zurich said in an emailed statement: "We are currently in the process of working with British Steel to progress a complex property claim. We are reviewing all the evidence related to this claim, including additional information that has only recently been provided, and remain focused on resolving it as quickly as possible."
Liberty Specialty Markets said: "We are working closely with British Steel to review a property claim in the light of further information recently provided by management. We look forward to resolving this matter promptly."
AIG, Aviva, Axa XL and RSA all declined to comment.
British Steel drafted in Mactavish after the insurers denied the claim in May 2018, following a nine-month investigation. Hepburn said Mactavish found that the insurers' investigation of the claim "was incomplete and it was wrong," as they did not identify a blowout of the blast furnace as the trigger for the claim.
He also alleged that insurers had argued that operational errors and omissions exclusions in the policy can be triggered by nonnegligent errors. Mactavish is arguing that in law they cannot, "because if they did, you might as well not buy the policy," Hepburn said.
He said the insurers had yet to respond to the findings Mactavish had submitted from its investigation in early February 2019. He said the lack of response from the insurers since February "is the bit that I find the most unforgivable."
Hepburn said his company had put out the statement because "we want the insurers to come to the table immediately," adding: "We have got a company in crisis here. We've got jobs to save. They need to come to the table."
He noted that the Enterprise Act 2016, which came into force May 4, 2017, amended the Insurance Act 2015 to allow policyholders to pursue insurers for damage if they do not pay claims in a reasonable time.
"That is a point that will now be looked at," Hepburn said. As a result, "the claim could rise significantly now," meaning that "it could be a lot bigger and could be part of the whole way the business is rescued now it's in administration."
He added: "This will be one of the first and the biggest, and for the insurance industry unfortunately probably one of the most high-profile tests of [the Enterprise Act amendment] you could ever imagine."
Hepburn also suggested that the claim dispute would not help the insurance industry's image.
He said: "If you conclude that this claim is covered in a couple of weeks, and then you conclude that had that £20 million been on the table a month ago, a rescue package might have been attainable, then this industry has some serious questions to answer."