The Financial Conduct Authority (FCA) has instructed City giant Herbert Smith Freehills for the test cases it intends to run on whether business interruption (BI) insurance covers the coronavirus pandemic.
The regulator last week issued an urgent call for policyholders and brokers to suggest specific policies that could be put before the court.
Earlier this month, the FCA announced that it intended to obtain expedited court declarations aimed at resolving contractual uncertainty in selected BI insurance policies.
“Acting in the public interest, the FCA will put forward policyholders’ arguments to their best advantage,” it said.
“We are aiming to obtain legal guidance in this way more quickly and at a lower cost to policyholders than would be the case if they took their own court actions.”
The intended action will not prevent individuals from pursuing issues through negotiated settlement, arbitration, court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service.
It said that as well as being binding on the insurers that were parties to the test case in respect of the representative sample considered, the ruling would also provide “persuasive guidance” for the interpretation of similar policy wordings and claims, whether before a court or the ombudsman, and by the FCA in looking at whether insurers were handling claims fairly.
The FCA said it and Herbert Smith would engage with action groups and policyholders and their legal representatives during the preparation of the pleadings and submissions.
The regulator’s initial view is that most SME insurance policies are focused on property damage and so, at least in the majority of cases, insurers are unlikely to be obliged to pay out in relation to the pandemic.
But it said the range of wordings and types of coverage were “sufficiently broad in the BI market that it is difficult to determine at a general level the degree to which any one individual customer may be able to claim”.
City firm Mishcon de Reya is representing 400 policyholders in the Hiscox Action Group, created to challenge “the blanket denials of valid BI insurance claims by Hiscox Insurance”, and is also conducting a review of more than 500 policyholder wordings from the Hospitality Insurance Group Action to decide whether claims are likely to be covered.
In a joint statement, Richard Leedham and Sonia Campbell, the partners leading on each case respectively, said: “We broadly support the FCA’s engagement on these issues and we are pleased to see that the FCA is now engaging also with policyholders.
“Whilst we would encourage policyholders to provide the FCA with the information requested if they so wish, our view remains that because the FCA test case will not be determinative of individual policyholders’ claims, policyholders should continue also to pursue their own insurance claims.”
The British Dental Association (BDA), meanwhile, has instructed Brown Rudnick to investigate dentists’ BI insurance policies, given that the vast majority have refused to pay out.
It said: “The BDA has acted following uncertainty over whether the FCA move will help or hinder practices given the breadth of policy wording covering the different sectors of the UK economy and the urgent cash crisis facing businesses.
“This has been made more acute in light of the indication that a court hearing will not take place until July.”
The Brown Rudnick review “will give the BDA a strong foundation upon which to engage with insurers and the FCA”.
With the government not extending the business rates retail discount of 100% offered to leisure and hospitality sectors to dental practices, BDA polling has indicated over 70% of practices report they can only remain financially sustainable for the next three months.
BDA chair Mick Armstrong said: “We’re not prepared to be a passive observer, and wait on a ‘one size fits all’ court determination that could leave the practices that millions of patients depend on dangerously exposed…
“We need to know if there are realistic options to get practices the insurance payments that they desperately need, and that they thought they were signing up to.”