Insurers respond to FCA criticism in High Court case

By Emma Olsson | 23 July 2020

Lawyers representing UK insurers began their oral submissions today as the Financial Conduct Authority’s (FCA’s) High Court test case continued.

Representing the insurers, Gavin Kealey QC said the case was “not a question of the insurers escaping liability; it is simply that that which is the peril which is insured against has not actually as a matter of fact caused an insured loss.”

The test case is set to determine the interpretation of policy wordings and insurance claims, serving to decide the extent of payout for coronavirus business interruption losses for small and medium sized enterprises (SMEs) in the UK.

Kealey questioned the FCA’s arguments, presented by lawyers between July 20 and 22.

“There is only one proximate, effective, operate or dominant cause of the assumed losses, namely the nationwide [coronavirus] disease, including its local presence or manifestation, or the restrictions due to an emergency, danger or threat to life due to the harm potentially caused by the disease,” said Kealey of the FCA’s case.

“That is the FCA’s indivisible case on all wordings of all insurers regardless of the specific words in any particular clause. There’s only one proximate cause on everything, in which no distinct and independent causes can be separated out. That is the case that insurers have to meet.”

Kealey argued that claimants cannot ignore the distinctions between contracts provided by different insurers. He referenced the importance of the “but-for test”, a test which determines cause-in-fact of a legal case. The FCA’s legal team has wrongly established a one-size-fits-all approach to the test, he said.

“It is absolutely expected that the counterfactual that one applies in the application of the but-four test will or may be different between and among different insurers who insure on different wordings in different contracts in relation to different perils. The idea that the FCA has that one can apply the same counterfactual in every single case itself suggests that the FCA must have got it wrong,” said Kealey.

On July 21, Colin Edelman QC of the FCA criticised the insurers’ cases for their approach to the insured peril of the pandemic.

“One can’t say that a set of circumstances which is the set of circumstances in which an interruption or interference with the business qualifies for indemnity contains ingredients which can be selected and salami sliced out as being the essence of the peril,” said Edelman during the trial.

“It’s the combination and if one is doing a counterfactual, one takes out the entire combination which includes the emergency and the disease if it’s referenced to a disease … The inconsistency in the insurers’ approach demonstrates the danger and the flaw in trying to identify something in a combination of events which are required as being the so-called essence of the peril or an insured peril in its own right.”

Kealey responded to Edelman’s remarks today, stating “[Mr. Edelman] is absolutely wrong when he suggests that insurers are cherry picking or salami slicing when it comes to the counterfactual … What he is suggesting there is completely fallacious.”

The test case will continue next week with oral submissions from individual insurers, including Hiscox and Amlin on July 27.

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