RSA walks back on Marsh criticism in FCA's BI test case

High Court London

As RSA changed its mind on part of its argument that drew criticism from Marsh, the Financial Conduct Authority said insurers were failing to take account of “the true nature of the insurance provided” in its business interruption test case, according to Friday's court filings.

Stating that the insurers’ defences are “in general terms, rejected”, the regulator stressed the fact that the policies in question were bought by “generally unsophisticated purchasers of insurance”.

Insurers have defended their position that their policies do not respond to losses suffered by businesses as a result of Covid-19 by saying coverage was never intended to extend to a pandemic.

Some of the participating insurers have also highlighted the role of brokers, pointing out their responsibility to advise clients as well as the fact that some of the policies in question had been sold through intermediaries. 

However, in its reply to insurers’ defences, the FCA said: “The distribution channel is irrelevant. These are all insurer standard form wordings.

“They were, typically and as the defendants all must have known, sold not to a sophisticated policyholder, but rather […] an SME which is the business equivalent of a consumer, i.e. a business with little experience of the insurance market, potentially limited broker advice and discussion (such as in the case of online sales, which essentially involved the completion of online pro formas), and no knowledge of previous insurance case law.”

The FCA went on to say that “had loss resulting from pandemics been intended to be excluded, then the reasonable person would anticipate that it would have been excluded by clear words.”

Previous filings have laid out that the regulator intends to argue that insurers’ intent with regards to pandemics is “not relevant or admissible” when the test case proceeds to a hearing in July. 

RSA and Marsh

In an amended defence published alongside the FCA’s reply on Friday, RSA u-turned on part of its argument that drew criticism from Marsh.

In a paragraph that has been struck out of the amended filings RSA alleged that, in the case of some of the policies in question, known as the Resilience wording, insureds rather than RSA ought to be treated as the offeror of the contract and therefore be disadvantaged in the application of the contra proferentem principle.

This, it argued, was because some of the wordings it had underwritten were drafted by Marsh, or subsidiary Jelf (now Marsh Commercial) who were acting as agents for insureds.

On RSA’s original defence, which included this argument, in June a spokesperson for Marsh said: “The view of the FCA, which Marsh shares, is that the Resilience wording is clear and there is cover for Covid-19 claims, for which the insurer is liable. 

“The Resilience wording also clearly states that ‘this policy wording is accepted by and adopted as the wording of the insurer, notwithstanding that the policy or part thereof, may in fact, have been put forward in part or full by the insured and/or its brokers or other representatives’.  As such, any ambiguity would be construed in favour of the insured. 

“Marsh continues to support all its clients’ claims and welcomes any process that could bring clarity for policyholders that have had BI claims declined by their insurers.”

Noting RSA’s amendment, the FCA underlined its previously stated intention to apply the contra proferentem principle “to the extent that it may be necessary and appropriate”, stressing that such applications would be to insurers’ disadvantage.

It said: “The wordings are all wordings emanating from the defendants and/or to be treated as such for construction purposes. This means that the defendants are each the proferens for the purposes of contra proferentem construction in cases of ambiguity.”


The FCA also pushed back on parts of Argenta and Zurich’s defences that argued that wordings that have not been included in the sample that the test case will scrutinise were not selected for the reason of the FCA’s accepting that they do not respond to Covid-19.

“The non-selection of policies or cover clauses for inclusion in the test case does not amount to an acknowledgment that those policies or cover clauses are of no application to Covid-19,” the FCA replied.

The FCA is assuming the position of policyholders in the test case and seeking to clarify the validity of business interruption claims arising from the coronavirus.

The defendants in the case are Arch Insurance (UK), Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox Insurance Company, MS Amlin Underwriting, QBE UK, RSA UK, and Zurich Insurance.

Rejected defences

According to the FCA, the eight insurers’ defences “depend upon adopting unduly restrictive meanings of particular words (such as ‘prevention’ and ‘occurrence’) and approaches to proof as to the presence of Covid-19, and causal tests prescribing unrealistic, impractical counterfactuals, depriving the cover clause of much of its apparent and intended scope, none of which reflect what the reasonable person in the position of the parties would understand.”

The regulator in particular pushed back on arguments from insurers’ that government guidance and announcement did not constitute a prohibition on businesses of the sort that would be needed to trigger policies.

For instance, a joint defence statement filed by Ecclesiastical and MS Amlin argued: “The UK government’s guidance and announcements were not as a matter of law capable of prohibiting and did not prohibit any conduct.”

The FCA countered: “Prohibition does not require legal force, it requires that something is forbidden by someone with authority.”

“The government, including through its authority to implement enforcement measures through laws or to direct other action, is able to and did prohibit through guidance and announcements […] and would have been so understood by the reasonable citizen.”

Arguments regarding whether and when holiday letting businesses, schools and places of worship had been compelled to close their doors were countered with snippets of government speeches and announcements.

So too was an argument in Hiscox’s defence that the social distancing “2m rule” had only even been “advice” in England.

The FCA said that “the rule was more than advice, it was mandatory”, citing a speech given by the prime minister as well as “existing employers’ and occupiers’ legal obligations” that “required them to respect the 2m rule in order reasonably to protect employees and occupiers.”

Tracking the spread of Covid-19

The FCA also resisted arguments from insurers that took aim at the regulators’ proposed methodologies for determining the prevalence of Covid-19 at different dates in different parts of the country based on the number of deaths.

The regulator has argued that it is possible to estimate the number of infections by establishing an “undercounting ratio” using methodologies such as those employed by researchers at Imperial College London and Cambridge University.

In its reply published on Friday, the FCA stood by this argument but noted that it had amended earlier filings to say that the undercounting ratio “can reasonably be estimated”, rather than “reliably be estimated” using the Imperial and Cambridge methodologies.

It also highlighted an amendment setting out that “an appropriate undercounting ratio” was one inferred from an analysis that was “publicly available from a suitably qualified institution.”

“A policyholder may reasonably rely on the Imperial analysis as a type of evidence insofar as it is a ‘publicly available analysis’, now published in the journal Nature, and from ‘a suitably qualified institution’, being Imperial College London”, it said.

“The Cambridge analysis was based on a 2009 model that had been addressed in a peer-reviewed publication and was considered suitable by Cambridge itself and [Public Health England] as forming the basis for modelling Covid-19 scenarios, and again therefore a policyholder may reasonably rely on it.”

Insurers are understood to be looking for their own expert evidence on the matter of Covid-19 prevalence over time in the UK and have sought additional hearing time in September to scrutinise the FCA’s proposed analyses

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