Thousands of small businesses fear they will go to the wall before the conclusion of a landmark legal battle over vital insurance payouts for Covid-19 closures, campaigners have warned.
Sixteen insurers were this week named in a High Court action brought by the financial regulator over the refusal to provide payouts to desperate companies, in what critics allege is a £1 billion ‘coronavirus cover con’.
Money Mail has previously revealed how tens of thousands of small and medium-sized businesses face ruin — and hundreds of thousands of their staff redundancy — after insurers failed to provide the financial lifeline.
© Provided by This Is Money Court battle: Sixteen insurers were this week named in a High Court (pictured) action brought by the financial regulator over the refusal to provide a financial lifeline to desperate companies
This was despite spending years paying for business interruption policies, which promised protection against closures caused by outbreaks of a ‘human contagious disease’.
Following huge outcry from businesses on the brink — including family-run shops, pubs, hairdressers and IT firms — the Financial Conduct Authority (FCA) stepped in.
But campaigners have warned that by the time the case is concluded it might be too late for many of them.
Simon Ager, who leads a group demanding the payouts from Lloyds of London-listed Hiscox, warns that even if the insurer lost the initial hearing planned for the end of next month, it would have the right to appeal.
‘It means the legal action could drag on for months or even years,’ he says. ‘By the time it’s resolved, many of the businesses the insurance is supposed to cover could already be bust. But despite naming Hiscox in almost half of the policies under investigation, the FCA has not instructed the insurer to make any interim payments.’
Most of the more than 500 companies in the Hiscox Action Group, some of which had spent more than £10,000 on premiums over several years, had expected payouts of around £100,000.
After receiving 1,200 submissions from policyholders and brokers, the FCA has identified 17 disputed sample policy wordings to go before the judge in a test case.
These are used in at least 79 policies by 16 insurers named in the case.
The FCA said the list was a ‘representative sample’ and ‘many other’ policies may be added.
Some insurers have agreed to pay out on claims as the threat of legal action looms. But Hiscox, which has 34 policies named in the case, is fighting the payouts.
Instead, it has offered some small businesses ‘goodwill’ payments to apologise for failing to make it clear that pandemics were not covered.’
However, Leicestershire web designing firm Lowaire Digital says the £500 it was offered would only be enough to buy ‘three months’ worth of coffee’.
© Provided by This Is Money Most of the more than 500 firms in the Hiscox Action Group, some of which had spent more than £10,000 on premiums over several years, had expected payouts of around £100,000
Hiscox is one of eight insurers named as defendants in the FCA test case.
The others are Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, MS Amlin Underwriting, QBE, Royal & Sun Alliance, and Zurich.
Chris McColl’s NY Slice pizzeria in Glasgow hasn’t made a penny since March. He was told he would not get a payout because Covid-19 had not been discovered when he bought the £1,200-a-year policy from Argo Group in November, so it was not included in its list of covered diseases.
He is still fighting for a payout from Axis after the pizzeria had to close due to a fire at the Glasgow School of Art nearby. He is now preparing to take his case to the ombudsman.
Huw Evans, director general of the Association of British Insurers (ABI) told Money Mail last week that the policies were ‘never intended’ to cover global pandemics as ‘no insurance industry in the Western world’ provides cover for pandemics as standard.
The FCA expects to publish a list of all the relevant policies involved in the dispute in early July.
Christopher Woolard, the FCA’s interim chief executive, says: ‘The court action we are taking is aimed at providing clarity and certainty.
‘We feel, by covering multiple policies and insurers, it will also be of most use across the market.
‘The identification of a representative sample of policies and the agreement of insurers to participate in these proceedings is a major step forward in progressing to court.’
Hiscox says it welcomes the FCA announcement. A spokesman adds: ‘Hiscox has agreed to assist the FCA by participating, alongside other insurers, in the test case in order to provide certainty as quickly as possible.’