Major insurance companies told the UK Supreme Court on Monday that thousands of small companies battered by the coronavirus pandemic were not eligible for business interruption payouts and to suggest differently was “reverse engineering”.
On the first day of a four-day appeal of a test case brought by Britain’s Financial Conduct Authority (FCA) against insurers, industry lawyers told top judges that businesses could not claim for losses stemming from nationwide lockdowns to curb the virus.
Gavin Kealey, a lawyer for insurer MS Amlin, said that only business losses related to COVID-19 infections within a 25-mile radius of insured properties were covered.
“If these insureds wanted pandemic cover or epidemic cover on a national scale, then they didn’t get it,” he said “… You can’t reverse engineer those cases … No, FCA, insureds, we are awfully sorry, but no.”
Thousands of small firms from holiday cottage firms to restaurants and night clubs had to shut down or restrict trading during the pandemic and say they face ruin after insurers rejected claims for business interruption cover.
The case revolves around whether 21 policy wordings, affecting potentially 700 types of policies, 60 insurers, 370,000 policyholders and billions of pounds in claims, should cover disruption caused by the virus.
The wordings cover business interruption when insured premises cannot be accessed because of public authority restrictions, in the event of a notifiable disease within a specified radius and hybrid wordings.
Michael Crane, a lawyer for insurance company QBE, told the live-streamed hearing that QBE had foreseen a possible pandemic – but that a government response that closed down almost the entire national economy and consigned healthy citizens to their homes was “inconceivable” last year.
But he added: “The fact that a contingency may have been foreseeable does not mean that an underwriter agreed to cover that contingency without limits.”
A lower court in September found largely in favour of the FCA and the Hiscox Action Group, a policyholder action group that has joined the lawsuit, when judges ruled some insurers were wrong to reject the claims.
But the FCA – and the action group – are challenging elements of the ruling, including whether businesses have a valid claim if they are partially closed and when insurers can reduce payments.
Six insurers – Arch, Argenta, Hiscox, MS Amlin, RSA and QBE – are also appealing.
Insurers say they are paying valid claims but that paying out all claims could be catastrophic for the industry.
They argue that “prevention of access” clauses do not apply to government restrictions, that pay-outs should reflect the broader economic downturn caused by the pandemic and that disease clauses do not cover a nationwide epidemic.
Companies in countries from South Africa to the United States are locking horns with insurers over pandemic-related claims.
Briefing: Customers will face more agony despite test case ruling
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UK businesses not covered for pandemic, insurers tell Supreme Court