City watch­dog squares up to the in­sur­ance big guns in pay­out fight

Up to 370,000 busi­nesses could be af­fected by the ground­break­ing test case, re­ports Michael O’Dwyer

The Daily Telegraph - Business - - Business -

Aground­break­ing le­gal ac­tion kicks off to­day to test in­sur­ers’ claims that they are not li­able for pay­outs de­manded by busi­nesses dur­ing the pan­demic.

The Financial Con­duct Au­thor­ity will face off against eight in­sur­ers, in­clud­ing His­cox, QBE, RSA and Zurich to clar­ify whether busi­ness in­ter­rup­tion cover sold by the firms should com­pen­sate them for losses suf­fered due to Covid-19 and the na­tional lock­down.

The out­come of the test case could af­fect more than 50 in­sur­ers and 370,000 busi­nesses with policies sim­i­lar to those be­ing con­sid­ered by the court.

Judges will re­view a sam­ple of the most con­tro­ver­sial in­sur­ance con­tracts but many cus­tomers be­lieve in­sur­ers should have al­ready paid out.

“His­cox are on the hook for all of it,” says one in­sur­ance boss. “These are just black and white. There’s no wrig­gle room. That cover is very much in place and what sur­prises me is that this is a busi­ness that spent the last 10 years spend­ing a huge amount of money on mar­ket­ing and get­ting a brand that is all about [say­ing] ‘we pay all claims’.”

His­cox and other in­sur­ers are sup­port­ive of the FCA’s test case and say they are pay­ing out on valid claims as quickly as pos­si­ble. How­ever, the FCA ac­cepts in­sur­ers’ view that most busi­ness in­ter­rup­tion policies clearly ex­clude cover for losses caused by pan­demics.

Most policies were never in­tended to cover a pan­demic and if they did, the in­crease in cost would make them un­af­ford­able for most busi­nesses, in­sur­ers ar­gue.

The eight-day court hear­ing will fo­cus on policies where there is am­bi­gu­ity or dis­pute over whether losses caused by the pan­demic should be cov­ered or not.

“My over­all hope is that it pro­vides con­trac­tual clar­ity as quickly as pos­si­ble,” says Huw Evans, di­rec­tor gen­eral of the As­so­ci­a­tion of Bri­tish In­sur­ers.

“We haven’t been dragged there. The FCA couldn’t ac­tu­ally have run this process if in­sur­ers didn’t agree to it,” he says. The court’s de­ci­sion can’t come quickly enough for busi­nesses wait­ing for pay­outs they be­lieve should have ar­rived months ago.

Ar­ros QD, a Span­ish res­tau­rant in the West End boast­ing Miche­lin­starred chef Quique Da­costa, is one of the busi­nesses whose fate may hang on the out­come of the le­gal claim.

The res­tau­rant has been bat­tling RSA to pay out af­ter re­ceiv­ing as­sur­ances that losses caused by Covid-19 would be cov­ered when it bought cover through a bro­ker in Fe­bru­ary.

“We’ve made sure that we are in­sured for this and now they don’t care,” says Sarah Win­ter, Ar­ros QD’s fi­nance di­rec­tor.

With­out a pay­out, the res­tau­rant is re­liant on landlords not de­mand­ing full ren­tal pay­ments when the mora­to­rium on en­forc­ing com­mer­cial rents ex­pires at the end of Septem­ber. De­spite the un­usu­ally speedy le­gal process agreed by the FCA, in­sur­ers and the courts, Win­ter is one of many who feel the im­pend­ing lit­i­ga­tion has been used by in­sur­ers to de­lay pay­ing out. “It’s now harder to get an­swers from RSA be­cause they’re wait­ing to see what the High Court rules be­fore dis­cussing it fur­ther with us,” she says. RSA de­clined to com­ment on Ar­ros QD’s claim.

If the judges rule in favour of pol­i­cy­hold­ers, the speedy pay­ment of claims will be crit­i­cal for strug­gling busi­nesses, which fear fur­ther wran­gling over the size of any pay­ments will mean the money ar­rives too late to save them.

“I don’t re­ally want [a pay­out] be­ing wrapped up in an ad­min­is­tra­tion,” says Win­ter. Sources on both sides of the case agree that the High Court’s rul­ing could ar­rive as soon as Au­gust or Septem­ber but it is likely to be sub­ject to an ap­peal.

The FCA and in­sur­ers have agreed to try and leapfrog the Court of Ap­peal and go straight to the Supreme Court to pre­vent the case drag­ging on for even longer but lawyers in­volved say this could still take un­til Christ­mas.

A swifter res­o­lu­tion would be a feather in the cap of the FCA’s in­terim boss Chris Woolard who has found him­self in the reg­u­la­tory hot seat for a tu­mul­tuous few months af­ter An­drew Bai­ley’s move to the Bank of Eng­land.

The real win­ners, how­ever, may be the lawyers. About 30 bar­ris­ters, in­structed by seven firms of solic­i­tors, will ap­pear in the court case.

Asked at a pre­lim­i­nary hear­ing whether he would like an in­tro­duc­tion to the full cast, Lord Jus­tice Flaux de­clined wearily. “I think it would be com­pletely ex­haust­ing for all of us,” he said.

Quique Da­costa, the Miche­lin chef who runs Ar­ros QD, has been bat­tling for a pay­out

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