Major insurance companies told the UK Supreme Court on Monday it was wrong to assume there could be unlimited cover during a pandemic in an appeal closely watched by thousands of British businesses devastated by the coronavirus crisis.
Opening a fast-tracked, four-day hearing into what Britain’s Financial Conduct Authority (FCA) has called the most important insurance decision of the last decade, a lawyer for insurance company QBE said a British lockdown to curb a virus was once unthinkable.
“A year ago, it was utterly inconceivable that the UK devolved governments closed down almost the entire national economy and consigned healthy citizens to their homes to prevent further transmission of a disease,” Michael Crane told a live-streamed hearing.
But he added: .”..it is a fallacy to assume from the fact that a particular risk might have been foreseen as a possibility at the time of (insurance) contract, that the parties agree … to cover it without relevant limits.”
Thousands of small firms, from wedding planners to night clubs, had to shut down or restrict trading during the pandemic and say they face ruin after insurers rejected claims for business interruption.
The FCA brought a test case on behalf of policyholders against insurers in a widely-praised move to offer clarity as businesses started forming group actions to take on the insurance industry.
A lower court in September found largely in favor of the FCA and the Hiscox Action Group, a policyholder action group that has joined the lawsuit, when judges ruled some insurers were wrong to reject the claims.
Six insurers — Arch, Argenta, Hiscox , MS Amlin, RSA and QBE are appealing elements of the ruling they lost.
The FCA is also challenging the ruling on whether some policies only covered local disease outbreaks, whether businesses have a valid claim if they are only partially closed and when insurers can reduce payments. The Hiscox Action Group is also appealing.
Insurers say they are paying valid claims but that paying out all claims could be catastrophic for the industry.
The case revolves around whether 21 policy wordings, affecting potentially 700 types of policies, 60 insurers, 370,000 policyholders and billions of pounds in claims, should cover disruption caused by the virus.
The wordings cover business interruption when insured premises cannot be accessed because of public authority restrictions, in the event of a notifiable disease within a specified radius and hybrid wordings.
Insurers argue “prevention of access” clauses do not apply to government restrictions, that pay-outs should reflect the broader economic downturn caused by the pandemic and that disease clauses do not cover a nationwide epidemic.
“The fact that we accept that there are 50 outbreaks in a 25 mile radius … does not mean that we accept we are insuring those 50 plus another 100,000 from somewhere else,” said Simon Salzedo, a lawyer representing Argenta, told the court.
The UK Supreme Court case is attracting a lot of attention as companies from countries around the world, including South Africa and the United States, lock horns with insurers over pandemic-related claims.