QBE considers appeal after UK court opens door to insurers paying Covid claims

QBE among insurers hit by landmark UK ruling which raises pressure on industry to pay out business interruption claims linked to the pandemic.

The outcome of the UK test case could prove significant for the insurance industry.

A British court has found in favour of the policyholders in the high-profile test case over whether insurers will be on the hook to pay out business interruption claims linked to the coronavirus pandemic, but an appeal is almost certain.

Australian insurer QBE, one of the defendants, is considering an appeal over a ruling which it estimated could cost it $170m.

The High Court of England found in favour of the arguments advanced on behalf of almost 370,000 policyholders by the UK’s Financial Complaints Authority on the majority of the key issues.

The case covered a test of 21 policy wordings from eight insurers including Australia’s QBE, which is a major player in the Lloyds insurance market.

FCA Interim Chief Christopher Woolard, said insurers should reflect on the judgment and start thinking about how they would now progress claims the judgment indicates should be paid.

“As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this,” he 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.”

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.”

The outcome of the test case has removed the need for policyholders to resolve key issues of contractual uncertainty and causation with their insurers.

The eight Defendants in the case were Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office Plc, MS Amlin Underwriting Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance Plc, Zurich Insurance Plc.

QBE set aside $115m earlier in the year to cover potential losses arising from the outcome of the UK test case.

Each policy involved in the test case will now need to be tested against the detailed judgment and insurers have been given the next seven days to contact policyholders.

In some cases, insurers have already accepted liability under policies that offered cover for infectious or notifiable diseases and non-damage denial of access and public authority closures or restrictions.

QBE said in a statement the High Court had ruled its favour with regard to two of three of its coronavirus policy wordings, but that it was considering options to appeal a third decision where the court ruled in favour of the insured.

The company said that based on the claims affected by the UK Financial Conduct Authority test case, it estimated its UK business interruption claims exposure was around $170m before recoveries under its catastrophe reinsurance protections.

FCA and defendants have agreed that they will seek leave to have any appeal heard on an expedited basis given the huge significance of the outcome of the case.

This could include seeing the case sent to the Supreme Court of England rather than having the judgement heard by the Court of Appeals.

Any appeal does not preclude policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known.

The FCA has said it was now seeking a consequentials hearing, as early as possible, to seek costs and determine whether an appeal will be made.

The 150-age judgment found different conclusions for the wordings tested, but in the majority of cases, it found that the business interruption insurance policies triggered most disease or “hybrid” clauses, certain denial of access clauses, and causation and trends clauses.

The judgment found that most, but not all, of the disease clauses in the sample provide cover.

It also found that in some cases where businesses were subject to mandatory closures there was coverage.

The outcome of the case could prove significant given a test case currently underway in Australia over wording around business interruption insurance.

The Australian case does not seek to examine the same issues as the UK case, but the case’s findings of proportionality of impact and forcible closures may be used as part of arguments.

The judgement makes no findings of how much a policyholder can now claim against their business interruption insurance, but provides a basis for them doing so.

Brokerage UBS said Insurance Australia Group is most at risk from an unfavourable ruling in the Australian case.

The UK’s FCA will engage with policyholders, action groups, insurance intermediaries and their legal representative either as individuals or as legal teams on 21 or 22 September.