Financial Conduct Authority (FCA) of the UK has rejected the defences of eight insurers for not paying claims on business interruption (BI) policies for COVID-19 losses.
According to a report published on the website www.commercialriskonline.com, FCA in the test case brought by it in the high court, has said the defences fail to account for the true nature of the insurance sold to buyers, often small businesses and unsophisticated buyers of insurance with low limits of indemnity for BI cover.
FCA said insurers had been ‘unduly restrictive’ in their interpretation of policy terms. The regulator had received submissions from about 90 buyers in response to the insurers’ defences.
FCA said, “The defences are, in general terms, rejected. They depend upon adopting unduly restrictive meanings of particular words (such as ‘prevention’ and ‘occurrence’) and approaches to proof as to the presence of COVID-19, and causal tests prescribing unrealistic, impractical counterfactuals, depriving the cover clause of much of its apparent and intended scope, none of which reflects what the reasonable person in the position of the parties would understand.”
In June this year, the group of insurers including Hiscox, Arch Insurance, Argenta Syndicate, Ecclesiastical, QBE UK, Royal & Sun Alliance and Zurich Insurance had submitted detailed defences of their stance on BI COVID-19 claims following the government-ordered lockdown on non-essential UK shops and services.
Most of the insurers claimed the policies were not designed to cover pandemics and used proximate cause, where policies cover closure in response to an infectious disease within a certain distance of the business that directly caused the business interruption, rather than a global outbreak. Insurers also argued that businesses would have suffered the same losses if they had remained open as the nation locked down.