London:
The UK insurance industry expects to pay out over £1.8bn in Covid-19 related claims across a range of products, including business interruption policies after the UK Supreme Court ruled on Friday that thousands of businesses should be insured for some losses amassed after a national lockdown to curb the coronavirus pandemic in a test case that pitched the markets regulator against major insurers, said Association of British Insurers(ABI).
Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim. All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun. Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling, '' said Huw Evans, Director General, ABI. . .
The UK Supreme Court has today delivered its verdict on the appeals heard in the business interruption insurance test case.
The appeals were brought by the FCA, Hiscox Action Group and six of the eight insurers involved in the test case, following the High Court judgment which was handed down in September 2020.
:“Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues. Today’s judgment represents the final step in the appeal process.We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers. We will continue to work together as an industry to ensure customers have the clarity they need when it comes to what they can expect from their business insurance policies,” he added..
The UK's Financial Conduct Authority (FCA) took insurers to court last June in a case that has been expected to have ramifications for 370,000 policyholders, 60 insurers and billions of pounds in claims because many policies have similar wordings.
A UK Supreme Court insurance judgment substantially in favor of policyholders will be a “massive boost” for British businesses currently suffering from a third government lockdown, the Hiscox Action Group policyholder group said on Friday.
“The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid,” said Richard Leedham, a partner at law firm Mishcon de Reya who represents the Hiscox Action Group adding that the hope and expectation of our clients is that the claim adjustment process starts immediately and that insurers will not continue to cause further distress by further unnecessary delay.”
Six of the world’s largest commercial insurers — Hiscox, RSA, QBE, Argenta, Arch and MS Amlin — said many business interruption policies did not cover widespread disruption after Britain’s first national lockdown last March.
But senior judges said payouts should be triggered after scrutinising 14 non-damage insurance policy clauses — which cover disease, denial of access to business premises and hybrid clauses — in a resounding victory for policyholders and the regulator.
UK insurers' ratings unaffected by BI Ruling"Fitch
The ratings of UK non-life insurers are likely to be unaffected by today's Supreme Court ruling on the validity of business interruption (BI) claims related to the coronavirus pandemic, Fitch Ratings says.
The ruling largely went in favour of policyholders but the ultimate claims costs should still be within Fitch's rating sensitivities for the insurers affected. The Court considered various appeals from insurers, policyholders and the Financial Conduct Authority (FCA), following a High Court judgement in September 2020 on a test case brought by the FCA to clarify the validity of claims.
Updated claims estimates published by insurers in response to today's ruling suggest modest increases to previous estimates.
For example, Hiscox will add USD48 million of reserves (net of reinsurance) to the USD130 million it had in place at end-3Q20 for BI claims. Its total BI reserves, net of reinsurance, will now equate to 7% of its total end-1H20 equity of USD 2.4 billion.
The Court overturning a ruling dating back to 2010, which insurers had relied on in the test case, could have far-reaching ramifications. The 2010 ruling was on a dispute between insurer Generali and Orient-Express Hotels, and related to a BI claim for damage to a hotel in New Orleans caused by Hurricanes Katrina and Rita, said a Fitch note..
The court ruled that Orient-Express Hotels should only be compensated for lost business up to the amount of business it could have expected with lower post-storm visitor levels, rather than up to the amount it would expect with normal visitor levels.
Insurers have relied on this decision for the past ten years to reduce payouts for BI claims.
In the FCA test case, insurers argued that businesses forced to close during the pandemic would have suffered reduced earnings even had they been allowed to stay open, due to other restrictions and changing public behaviour. They believed that compensation should be reduced to reflect the lower trading activity rather than being based on pre-pandemic business levels, explained Fitch..
UK non-life insurers could face a substantial increase in BI claims costs – and not just those related to the pandemic – following the Court's decision to overturn the 2010 ruling, unless their contract wording specifically defines the reference point against which to assess losses.
Today's ruling had other bad news for insurers. Under the original judgement, cover for BI losses due to business closures during lockdown would have been based on a strict definition of lockdown, when closures were mandatory. The Court decided that this interpretation was too narrow and that cover should include closure instructions from a public authority, even if not backed by the force of law.
Similarly, under the original judgement, businesses that continued to operate with reduced services, such as restaurants switching to a takeaway service, would generally not have been eligible for BI claims.
However, the Supreme Court opined that the policy wording provided for cover where the policyholder is unable to use the premises for a discrete business activity or is unable to use a discrete part of the premises for its business activities. On that basis, a restaurant having to limit itself to takeaway service should still be able to claim for the lost restaurant earnings.
BI claims are likely to be one of the main costs from the pandemic for the UK non-life sector, along with claims for event cancellation. Since the onset of the pandemic, insurers have amended policy wordings to exclude pandemic cover. Exposure is therefore gradually running off as annual policies are renewed, and insurers have much lower BI and event cancellation exposure to the current UK lockdown than to the first one in spring 2020.