FCA denies conflict of interest for its lawyers in BI test case

The UK’s Financial Conduct Authority (FCA) has denied there is any conflict of interest for law firms representing the regulator, and therefore companies, in its test case on Covid-19 business interruption (BI) claims. The FCA has began its legal test case against eight insurers in the High Court to resolve a growing number of disputed Covid-19 BI claims in the UK. The eight insurers going to court are: Arch Insurance, Argenta, Ecclesiastical Insurance, Hiscox, MS Amlin, QBE, RSA and Zurich Insurance. The result of the test case will be legally binding on the eight insurers and provide “persuasive guidance” for the interpretation of similar policy wordings and claims by other insurers, the FCA explained. There are 19 wordings being examined in the test case that are used by at least 16 other insurers. The FCA has appointed Herbert Smith Freehills to run the case. Last week, insurance governance firm Mactavish said it believes the law firm has a conflict of interest because of close ties with insurers it is scrutinising. It called on the law firm to disclose if it also represents any of the insurers or brokers with wordings being reviewed. Mactavish believes this would be a conflict of interest and is in the public interest because the FCA, which it presumes will be paying the fees, is funded by the taxpayer and was set up to be an independent body to protect the interests of consumers. But an FCA spokesperson is adamant that no conflict of interest exists. “We are very clear that there is no conflict of interest and the claims made are unfounded. We have engaged three highly respected QCs from a number of different chambers alongside Herbert Smith Freehills. The FCA is seeking to ensure that we can get clarity in this case as soon as possible,” the spokesperson said. Insurers were due to file their defences on 23 June, with the court case set to take place in the second half of July. The FCA said last week there are “genuine doubts” over the appropriate interpretation of the wording in some cases. It added that its test case is not intended to encompass all possible disputes, but resolve “key contractual uncertainties” and “causation issues” to provide clarity for policyholders and insurers. It will not determine how much is payable under individual policies but will provide the basis for doing so. The FCA has said it believes that most SME insurance policies are focused on property damage and only have basic cover for BI losses. This means that in the majority of cases, insurers are not obliged to pay out in relation to the Covid-19 pandemic. “This case is focused on the remainder of policies that are, in the FCA’s view, suitable for consideration within the constraints of the test case procedure and in terms of the most effective use of court time. The fact that a particular issue in relation to a policy is not being tested should not be taken to indicate that the FCA does not consider such issues to be properly arguable,” the FCA said in its submission to the High Court. Mactavish has also reiterated its call for brokers to be put under the spotlight by the FCA for problems over BI cover, and questioned whether the sector has been properly regulated.

FCA denies conflict of interest for its lawyers in BI test case

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