Insurers under fire on ‘5-a-day’ lockdown claim

A BLOCKBUSTER legal battle against eight insurers kicked off yesterday over their refusal to pay out business interruption claims to thousands of small firms.

In the first day of the High Court case, which is being brought by the City watchdog against some of the industry’s largest firms, lawyers for the Financial Conduct Authority (FCA) ridiculed insurers for comparing the Government’s lockdown order to its guidance on eating your ‘five a day’.

Insurers had been seeking to claim that some businesses were not forced to shut down during the pandemic, and instead did so voluntarily so should not receive business interruption payments. They said that the Government’s stay-athome advice was similar to its guidance to the public to eat five portions of fruit and vegetables every day.

But Colin Edelman QC, for the FCA, said: ‘In times of emergency and crisis, the Government and the public understand the difference between what the Government was telling them to do in March of this year and exhortations to eat more fruit and vegetables and to drink less alcohol.’

The case, which is being held online, was watched by several small businesses who claim they are at risk of going bust if their claims are not honoured.

Mark Killick, who founded the

Hiscox Action Group to stand up for Hiscox policyholders, said that a handful of the group’s members – including an arts centre in southwest London – had already collapsed.

The urgency of the test case cannot be understated, he added.

The first day of the trial saw Edelman begin to lay out the FCA’s claims as to why certain policies should pay out.

The FCA is challenging a select number of policies offered by Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin, QBE, Royal & Sun Alliance and Zurich.

But the findings of the case will be applied across the insurance industry, and could potentially affect more than 50 insurers and 370,000 policyholders. The FCA’s opening submissions are set to continue until tomorrow. Edelman and Leigh-Ann Mulcahy QC will argue that insurers were wrong to deny claims because there had not been a medically diagnosed case within the policyholders’ premises. The barristers will also claim that insurers were wrong to expect some businesses to remain open throughout lockdown.

Thousands of businesses were relying on the payout under their business interruption policy – which is designed to reimburse a firm for lost income if it is forced to close its doors – to cover rent and loan repayments.

But companies from restaurants to record labels were left horrified when their insurers claimed the pandemic did not trigger their business interruption clause.

If the two judges – Lord Justice Flaux and Mr Justice Butcher – find in the FCA’s favour, the insurers could be on the hook for more than £1bn of payouts. Killick, who is creative director of PR agency Mediazoo and was himself denied a payout by Hiscox, said: ‘We set up the Hiscox Action Group at the beginning of March and we went to 700 members in two months.

‘The desperation from business owners is extraordinary. There are hundreds hanging on by a thread.’