Insurance companies admit liability over pandemic interruption

Insurance companies have backed down and admitted they may be liable to pay out under business interruption insurance policies, after the Financial Conduct Authority (FCA) challenged them to prove in court that their policies did not apply to the coronavirus pandemic.

The regulator is seeking court clarification on whether insurers’ policies allow them to refuse business claims related to the coronavirus pandemic, with a hearing is scheduled for late July.

The majority of small businesses were not covered for the pandemic, as their policies mainly related to property damage, the regulator said.

However, after the FCA asked 56 insurers for information on 1 May, an undisclosed number changed tack and said they would pay out, after previously insisting they were not liable.

In a statement on Monday the FCA said: “A number of the relevant insurers decided to accept claims from policyholders with certain policies which included particular wordings which had previously been in dispute.”

The test case in the high court will look at 17 representative policy wordings, while eight insurers will be defendants. They are Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin Underwriting, QBE, Royal & Sun Alliance, and Zurich.

Insurers’ refusal to pay out claims after years of expensive premiums has prompted anger from businesses, although the Association of British Insurers (ABI) estimated that the industry will still pay out £900m in business disruption claims.

A group of nightclubs, bars and clubs is suing Hiscox over its non-payment. Michael Kill, the chief executive of the Night Time Industries Association, said in April insurers were using “contrived arguments to avoid sharing the financial burden during the Covid-19 crisis”.