(Alliance News) - The UK's highest court on Friday ruled "substantially" in favour of the Financial Conduct Authority and policyholders in a GBP1.2 billion legal battle over insurance claims for Covid-19-related business disruption.
The FCA last year brought a test case, which could affect around 370,000 businesses, over the wording of business interruption insurance policies, which some insurers - including London-listed Hiscox Ltd and RSA Insurance Group PLC - argued did not cover the Covid-19 pandemic.
Hiscox said Friday the judgement will result in a USD48 million hit. Hiscox and RSA previously had said the ruling would result in extra costs of around GBP100 million each. Hiscox made no reference to that GBP100 million figure on Friday, and RSA didn't immediately issue a response to the ruling.
Hiscox shares were 1.1% higher at 976.98 pence each in London on Friday morning, having been sharply lower prior to the court decision. RSA shares remained down 0.1% at 678.00p but also were rebounding.
"The Supreme Court has substantially allowed the FCA's appeal on behalf of policyholders. This completes the legal process for impacted policies and means that many thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid," the FCA said.
The FCA said it was acting on behalf of 370,000 policyholders. They had 70 different types of policies issued by 60 insurers, the watchdog added.
The legal wrangling largely concerned wording on policies. The FCA argued that "disease" and "prevention of access" clauses should cover losses as a result of Covid-19.
"The FCA's decision to bring the test case has removed the need for policyholders to resolve many key issues individually with their insurers. It enabled them to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market," the regulator said.
Hiscox welcomed the ruling's clarity, it said in a statement on Friday, adding that the settlement process has started. It said that the court decision confirms that fewer than one-third of its 34,000 UK business interruption policies may respond.
The company said the judgement, as well as new UK government restrictions, will result in a USD48 million hit, net of reinsurance.
Back in September, Hiscox earmarked additional Covid-19-related claims of around GBP100 million net of reinsurance after a similar verdict from the High Court of England & Wales.
In addition, a previously announced USD40 million hit from event cancellations if restrictions continued through to 2021, will be recognised in its 2020 results.
"As previously stated, Hiscox's exposure to potential business interruption claims arising from further UK government restrictions to contain the spread of Covid-19 has been running off at approximately 8% per month from June 2020, with residual exposure to be fully run off by the end of June 2021. Following the judgment, the group estimates exposure to restrictions already announced in 2021 at less than USD20 million if restrictions extend to the end of March," the company added.
Also in September, RSA estimated a GBP104 million additional financial hit as a result of the same verdict.
By Eric Cunha; ericcunha@alliancenews.com
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