Insurers rally after COVID-19 ruling on business insurance

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Shares in insurance companies jumped as the High Court did not rule comprehensively against them in a case over business cover for coronavirus.

Lawyers for the policyholders claimed it as a victory and said the ruling opened the way for GBP1.2bn of compensation claims from 370,000 affected small businesses.

Hiscox PLC (LON:HSX), which was one of the companies cited in the test case brought by financial regulator the FCA, however, saw its share price rocket 14% higher to 859.4p on the judgement.

The FTSE250 group said following the ruling it estimated additional COVID-19 claims arising from business interruption would be less than GBP100mln net of reinsurance.

“The judgement clarifies that fewer than one-third of Hiscox’s 34,000 UK business interruption policies may respond,” it said.

The FCA brought the test case against eight insurers to settle a dispute with policyholders over the cover afforded by business interruption insurance.

Many small businesses said they had been brought to their knees by lockdown restrictions after claims had been rejected but Insurers said the policies did not cover coronavirus and having to cover all costs arising from the pandemic would cripple the industry.

Underlining the complexity of the case, the financial regulator said the court had found in favour of policyholders’ arguments on the majority of key issues, while insurance trade body the Association of British Insurers (ABI) said the judgement was even on the key issues.

According to the FCA, the case could affect more than 60 insurers and 700 different types of policies because many insurance policies have similar wording.

The case was designed to reduce the cost for the plaintiffs, it said, and produce a quick ruling on whether the wording in the policies, many of which had similar phrasing, provided cover for a lockdown ordered by government for a disease or infection, something the insurers say they do not.

Christopher Woolard, interim chief executive of the FCA, said: ‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market.

“We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.

“Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.”

The ruling is subject to appeal, while the judgement said that most, but not all, of the disease clauses in the sample provide cover.

Each policy needs to be considered against the detailed judgement, said the FCA.

Richard Leedham, from Mishcon de Reya which represented the Hiscox Action Group, said the judgement was “one of the most significant in recent years and will provide a lifeline for small businesses across the country”.

“I would hope insurers think long and hard about an appeal,” he added.

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