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Companies have been denied payouts for losses suffered during the coronavirus crisis, during which they have been forced to shut their doors. However insurers argue that most business interruption policies do not cover pandemics and were not designed with pandemics in mind.
These disagreements have led the FCA to bring a High Court test case, involving eight insurance underwriters which have agreed to take part in the case, including Hiscox, Zurich and others, to assess whether insurers should be indemnifying the companies. The FCA, which hopes to end up with a precedent for future claims, will argue on behalf of policyholders.
Sweden is one of the few developed countries that did not impose lockdown measures, unlike the UK. At the case-management conference on 16 June 2020, Jonathan Gaisman, for Hiscox, said Swedish businesses still experienced financial losses as the disease spread. Consumers avoided bars and restaurants there, even though the government implemented no stay-at-home measures, he said. ‘It might be said…[if] businesses in a neighbouring country where there were no restrictions suffered losses despite the absence of such restrictions, [there is] no reason why a proportion of a British business’s losses could not be caused by COVID—19 alone’, Gaisman told Mr Justice Butcher. ‘There is no serious doubt that…businesses in Sweden have suffered financial losses in the absence of lockdown and closures’, he said.
The stakes are high for the test case, as the FCA estimates that 8,500 claims will be affected, worth approximately £1.2bn.
In the FCA’s arguments for the test case published last week, the FCA said it ‘would be absurd to construe’ that there is justification in saying the pandemic would have caused losses regardless of any government-mandated closure of companies.
Colin Edelman QC, for the FCA, said at the hearing that even if there was traction in the argument based on the Sweden experience, the problem is that insurers haven't paid any compensation under the policies in the test case.
The extent of losses felt by Swedish businesses wasn't discussed, with the insurers’ counsel arguing that it is only relevant at this stage to allow for the argument to be considered. However Edelman made the point that if this is being used as a partial defence, it is likely that some compensation at least would be paid.
The FCA wants a ‘fair and just adjudication of these policyholders’ claims’, Edelman said, adding that insurers should know that agreement of evidence will be approached in good faith. ‘There is no partisanship on the FCA wanting to achieve a certain result on any particular policy. We are just here to argue the case for policyholders’, he said.
This article by Fiona Maxwell was first published by MLex, a LexisNexis® company, on 16 June 2020 and is published with permission.
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