Hiscox accuses FCA of ‘extreme’ support for policyholders

Hiscox has delivered a withering attack on the UK Financial Conduct Authority’s (FCA) arguments in favour of business interruption (BI) policyholders in its coming test case. It accuses the body of blatantly ignoring the facts and contract law in order to build a spurious case and seek redress for small and medium retail enterprises (SMEs) hit by the Covid-19 pandemic. The FCA published the skeleton arguments of Hiscox and other leading insurance groups – Arch, Argenta, Ecclesiastical, MS Amlin, QBE UK, RSA and Zurich – that have been dragged into the test case that takes place 20 to 23 July and 27 to 30 July. Hiscox has been under the media spotlight because the outspoken Hiscox Action Group (HAG), organised by law firm Mishcon de Reya that represents over 600 Hiscox policyholders, has managed to attract much attention as the UK’s SMEs struggle to deal with the pandemic’s economic consequences. There has understandably been a lot of sympathy for retail outlets such as restaurants and bars that have been forced to close because of the lockdown. Interestingly though, HAG is led by film company Media Zoo. It is a perfect example of the kind of professional services firm that accounts for some 65% of Hiscox’s policyholders under review and that have usually been able to trade through the lockdown using video-conferencing, email and even the old fashioned telephone, Hiscox’s argument stresses. “Category 5 [professional services] businesses comprise around 65%, some two thirds, of the Hiscox insureds. Many professional businesses have, of course, been able to continue trading, but many have nonetheless submitted claims. The fact that Category 5 businesses can in very many cases be carried on in the present circumstances forms no part of the factual picture which the FCA seeks to paint,” states the Hiscox argument. “The very words (which everyone has become entirely familiar with since March) “Zoom”, “Skype”, “videoconference” and “remote working” are entirely absent from the FCA Skeleton. Even the word “telephone” appears only in the FCA’s description of Category 4 despite it being central to the continuation of Category 5 businesses,” continues the submission. “The FCA does not acknowledge that for very many insureds in Category 5, businesses will have carried on, albeit with adaptations such as working from home where possible, and increased use of the online facilities. The very example of this test case provides an excellent instance of how service providers and professionals have generally been able to cope without interruption in the present circumstances, and it is an example which could be replicated across many other types of business,” adds the Hiscox argument. The 134-page document includes a wealth of evidence that picks holes in the FCA’s arguments, often using colourful language. Any risk manager who needs a break from trying to work out how to secure a reasonable renewal as the market takes a distinct turn for the worse ought to go the FCA website and take a look. The opening point is pretty basic: Hiscox does not provide insurance against loss caused by pandemics. “It ought to be self-evident that none of the Hiscox wordings in the test case provides cover for loss caused by pandemics. It must be common ground that the wordings do not do so explicitly, and it is hard to see how an argument could sensibly be mounted that they do so implicitly,” the insurer argues. “Right at the outset, however, the FCA characterises the losses in this case as arising from the Covid-19 pandemic. This might be thought a somewhat self-defeating start, but its submissions throughout do not shrink from the assertion that losses arising from the Covid-19 pandemic are indeed covered. If the first sentence of this paragraph is correct, the FCA’s case seeks to impose on Hiscox a risk which it never agreed to bear. If it never agreed to bear it, Hiscox is not liable for it,” it adds. Hiscox also argues that the FCA’s role as protector of individual financial consumers has become confused in this case and has been extended to business insurance buyers. The implication is that the FCA has exceeded its remit and is pursuing Hiscox and the other insurers to make a political point and generate some badly needed funds to help with the UK’s recovery, regardless of policy wordings and contract law. “The FCA’s extreme approach is clearly taken because it represents policyholders and has undertaken to put forward their arguments. However, this extreme approach also has to be taken. It is the only path by which the FCA can reach its goal. That it is adopted reflects the difficulty for the FCA of fitting the losses sought to be recovered into any conventional analysis, based on orthodox principles of contractual construction and viewing the facts (as they must be viewed) from the perspective of the parties’ agreement,” states the Hiscox submission. Another point made by Hiscox is that BI is generally a limited form of insurance that covers specified perils and should not be retrospectively extended to other perils, such as a pandemic. “The presumption of coverage and the approach to loss adopted by the FCA, which would not be legitimate in any insurance context, is particularly inapt for BI insurance policies. These typically insure against loss caused by specifically defined events, requiring a distinct trigger, which typically has multiple elements, each of which has to be present. There are usually limiting factors stipulated, historically the most common being the requirement, as a precondition of cover, of material damage,” states Hiscox.

Hiscox accuses FCA of ‘extreme’ support for policyholders

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