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Liberty Specialty Markets
Liberty Specialty Markets

UK court case will test QBEs policy wordings

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QBE will be among eight insurers drawn into a UK High Court test case initiated by the financial regulator to help resolve disputes over business interruption (BI) policy wordings.

The Financial Conduct Authority (FCA) plans to file court proceedings next week ahead of an expected hearing lasting 5-10 days in the second half of July.

“The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike,” FCA Interim CEO Christopher Woolard said.

“We feel it is also the quickest route to this clarity, and by covering multiple policies and insurers it will also be of most use across the market.”

The FCA has selected a representative sample of 17 policy wordings and has asked some of the insurers who underwrite policies in the sample to take part in the case.

Other participants are Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox Insurance Company, MS Amlin Underwriting, Royal & SunAlliance and Zurich.

“The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court,” Mr Woolard said.

The FCA says most SME policies have only basic cover for business interruption resulting from property damage, and insurers are generally not obliged to pay out for the coronavirus pandemic in those cases.

The court case is focussed on the remainder of policies that could be argued to include cover, and aims to also provide guidance for the interpretation of many other BI policies that are not in the representative sample.

The FCA plans to “put forward policyholder arguments to their best advantage in the public interest” while the participating insurers will respond with defences.

UK hospitality and SME business groups have been highly critical of insurers over the lack of BI cover for pandemic impacts, with some firms looking to join class actions.

Legal firm Mishcon de Reya has focussed its Hospitality Insurance Group Action on QBE and Aviva.

QBE last week said its BI policies do not typically cover losses arising from COVID-19, but it noted, in response to queries, that reinsurance would limit net UK claims cost to $US75 million ($111 million). The insurer has not commented on the FCA’s latest announcement.

Zurich says that it would face $US200 million ($296 million) in claims, net of reinsurance “in the unlikely event” that the UK court case judged all the wordings provided cover.

“Based on our own review of wordings and the advice from legal counsel, we remain confident in our interpretation of our policy wordings,” Zurich UK CEO Tulsi Naidu said. “To date we have received limited claims in relation to the policies being tested by the FCA.”