The Financial Conduct Authority (FCA) has fired its opening salvo in its business interruption (BI) test case against QBE and seven other insurers in the UK High Court.

FCA lawyers, who presented first on the opening day of the trial on Monday, accused the eight insurers of trying to “cherry-pick” from clauses contained in BI policies to avoid indemnifying clients who have suffered losses caused by the virus pandemic.

Colin Edelman QC, counsel for FCA, told the court the insurers “are not always consistent in what they cherry-pick”.

“You can’t pick and choose,” Mr Edelman said. “If the ‘insured peril’ is the appropriate term to use and your appropriate reference point, and it is, we say, it is not an entirely inapposite label to use for these sorts of covers with composite elements, because one could say that the insured peril is just the interruption or interference from which the loss has to result.

“But if one is going to treat it as encompassing the cause of the interruption or the interference, it must cover, and have been intended to encompass, all of the ingredients, without being susceptible to insurers choosing which ingredients from the combination to leave behind for the purposes of a counterfactual.”

He said the disease clauses in the BI policies insure against the risk of outbreaks of infections and contagious diseases, and that there are two aspects of the nature of the risk they are insuring against.

One of them deals with something that is not necessarily occurring at the insured premise but is affecting the business.

“So we are talking about an insuring provision that is contemplating the indirect effects of the outbreak of the disease through its effects on the authorities or on third parties in terms of their reaction to it,” Mr Edelman said.

“Because [if] the outbreak of the disease causes something else to happen, this must be what the policy is contemplating, something 25 miles away or even a mile away. I say contemplating something else happening which then causes the interruption or loss to the insured.”

Leigh-Ann Mulcahy QC, the other FCA counsel who also presented on the first day, told the court about 370,000 policyholders could potentially be affected by this test case litigation.

She says there was no doubt that businesses had to comply with the lockdown measures imposed by the UK Government despite arguments from insurers in their skeleton submissions questioning if it was enforceable and legally binding.

“It has to be remembered that there was a legal underpinning to all of the Government’s requirements whether or not they were specifically legislated for, and this is also relevant to the businesses which remained even partially open, of which there were very few,” Ms Mulcahy said.

“So we would say it wasn’t open to policyholders to breach the UK Government’s advice and guidance without risking a breach of their legal duties regarding the health and safety of employees, and as occupiers in relation to the public.”

Insurers are set to make their responses later today at the High Court with Royal & SunAlliance first to present. QBE is scheduled to make its defence arguments next Wednesday.

The other six insurer defendants are Arch, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin and Zurich.

As insuranceNEWS.com.au has reported, the Australian Financial Complaints Authority is also working on a test case, expected to be launched in the Federal Court or Supreme Court of NSW soon.