Last checked at 
* Insurers face hefty claims after Supreme Court ruling
* Insurers, reinsurers left to 'fight it out'-senior source
* Investors fret about further legal battles
By Carolyn Cohn and Kirstin Ridley
LONDON, March 11 (Reuters) - Top insurance companies,
ordered by Britain's highest court to pay thousands of small
businesses millions of pounds in claims for COVID-19 disruption,
are facing a battle with reinsurers over who should foot the
bill, industry sources said.
Bars, beauty parlours, nightclubs and other small companies
in January won the right to business interruption insurance
payments after senior judges ruled many insurance policies
should cover losses caused by lockdowns in a test case brought
by Britain's market watchdog.
But senior insurance executives said the judgment, which
affects 60 insurers, has not helped to clarify whether insurers
or their reinsurers -- companies which provide financial
protection to the industry -- are on the hook for payments.
"We're left to fight it out," one senior insurance executive
told Reuters.
"We'd expect reinsurers to take their share, but there's
always a bit of pushback - that's how (reinsurers) are
programmed."
Britain's handling of this case and any subsequent wrangling
with reinsurers is being watched by investors around the world,
where disputes between insurers and businesses over pandemic-
related claims have in many cases yet to be resolved.
In the United States, for example, pandemic-hit businesses
have filed nearly 1,500 individual lawsuits. Insurers have won a
large chunk of cases so far.
Steve McGill, CEO of insurance broker McGill and Partners,
said interpreting the wording of these complex policies often
boils down to how insurers and reinsurers view "shades of grey".
The Association of British Insurers said insurers are paying
two billion pounds ($2.79 billion) for undisputed business
interruption claims in 2020. But they could face billions more
in claims after the Supreme Court judgment, industry sources
said.
Some reinsurance contract clauses will limit the amount
insurers can claw back from reinsurers, investment management
firm Tangency Capital said in a recent investor letter, meaning
that "business interruption losses will primarily be borne by
insurers."
TAIL RISK?
The British case revolved around leading insurers such as
Hiscox, RSA, QBE, Argenta,
Arch and MS Amlin.
Big reinsurers include Munich Re, Swiss Re
and syndicates in the Lloyd's of London
market.
Hiscox has already raised its 2020 estimate for
pandemic-related business interruption by $48 million net of
reinsurance, bringing total claims to nearly $190 million.
RSA has said that after applying catastrophe reinsurance
protection, it estimates the Supreme Court judgment would cost
it about 85 million pounds -- before applying a further
group-wide aggregate reinsurance programme. Chief
Executive Stephen Hester told Reuters last month that the
company was not in any dispute with reinsurers.
MS Amlin, Argenta, Hiscox and QBE declined to comment. Arch
did not respond to a request for comment.
Reinsurer Munich Re said it would not question
valid claims, while Lloyd's welcomed clarity for policyholders.
Swiss Re declined to comment.
But investors remain concerned about potential disputes with
reinsurers, said Colm Kelly, co-head of European insurance
equity research at UBS.
"...investors have asked the question – is there a tail
risk, however small, that some reinsurers may contest payments?"
he told Reuters. He also said: "There are small reinsurers
operating in Europe that could have a solvency event if they had
to cover claims of that size and nature."
Under European Union solvency rules, insurers have to
maintain certain levels of capital.
DAMAGES
In the meantime, insurers have started to make payments or
settlement offers. While one East London cafe said it had been
offered just 13 pounds, other businesses are expecting tens of
thousands in pay-outs.
Businesses have had to wait for 10 months for many insurance
claims to be declared valid -- piling on debts that have
threatened their futures.
Ralph Fearnhead, legal director at law firm Mishcon de Reya,
which represented some policyholders in the UK case, said
subsequent claims for damages due to late payment of insurance
could dwarf the size of an original claim if businesses had to
make staff redundant or went into liquidation. And reinsurers
are likely to question such claims.
"Where it's a failure of an insurer to act in reasonable
time, it's hard to see that reinsurers would willingly pick up
additional damages," he said.
Disputes may not lead to further open court appearances, as
disagreements between insurers and reinsurers are often settled
in private arbitration hearings.
These types of hearings are already taking place in the
so-called event cancellation market, after global sporting and
music events and conferences were cancelled due to the pandemic.
($1 = 0.7167 pounds)
(Editing by Jane Merriman)
