Angry Hiscox policyholders have formed an action group in the UK to fight Hiscox’s pandemic exclusions to its commercial business interruption policies. More than 300 UK policyholders have joined the Hiscox Action Group, which has retained counsel and this week appointed a litigation funder to support a legal action against the insurer.

Hiscox, however, holds to the view that pandemic-related disruptions are excluded from business interruption policies. “Like others in the industry, Hiscox UK’s core small commercial package policies do not provide cover for business interruption as a result of the general measures taken by the UK government in response to a pandemic,” said Hiscox in a statement issued on April 22.

“Hiscox thought they could get away without paying, but that is not going to happen,” said Mark Killick of Media Zoo, a steering group member, in a press release issued by the Hiscox Action Group on April 23, which announced the choice of London-based Mishcon de Reya as lead counsel in its legal battle against Hiscox.

“We have appointed top legal counsel. We will be fully funded, and we are going to force Hiscox to do the right thing and honour its obligations,” Killick continued.

“Hiscox behaviour has been disgraceful. The policy wording is clear and unambigious, and the insurance has clearly been triggered. In refusing to pay out in a shoddy attempt to preserve its own balance sheet, Hiscox is putting the future of hundreds of British businesses at risk,” said Simon Ager of the Pinnacle Centre, another steering group member, in an April 28 press release announcing the action group is working with London-headquartered Harbour Litigation Funding.

Harbour’s initial funding will pay for Mishcon de Reya to review the claims of the action group’s members.

If Mishcon’s initial review finds enough good claims to support a case, Harbour would then “look to commit sufficient funds to take the case through to trial,” said the action group, describing Harbour as the largest privately owned litigation funder, having raised over $1 billion of third-party capital since its 2007 inception.

Harbour has funded 120 claims and litigation in 14 jurisdictions, the group continued.

Sufficient Capital

Hiscox issued a market statement on April 28 that it has sufficient capital to meet expected liabilities from pandemic-related exposures. The insurer was responding to recent press speculation suggesting that a capital raise would be necessary.

“Whilst Hiscox’s capital, liquidity and funding positions remain robust, Hiscox is evaluating possible sources of capital to respond in an appropriate way to these market dynamics, which could include raising new equity,” said the company, noting that no decision has been made about whether it will proceed with a capital raise or the timing or size of any such capital raise.

The uncertainty arising from the pandemic and consequent capital contraction will result in rates hardening across U.S., wholesale and reinsurance markets, added Hiscox.

Over the past two weeks, Hiscox has issued a series of market updates about its COVID-19 exposures. On April 22, it reaffirmed its expectation that it would pay net claims totaling up to $150 million related to the pandemic, which could rise by an additional $25 million if disruption caused by the coronavirus lockdowns continues for a six-month period from March 2020.

Hiscox said it is actively settling claims for event cancellation and abandonment, media and entertainment, and other segments including travel, but its core policy wordings do not provide cover for business interruption during the UK’s pandemic lockdown.

Approximately 10 percent of Hiscox UK’s small commercial package customers purchase cover for business interruption, Hiscox said on April 15, noting that of those policyholders who did buy BI cover, approximately 10,000 have been directly affected by the lockdown.

Contract Wording Is ‘Broad’

“Hiscox have said that they did not intend to cover what has happened. This is irrelevant. We are looking at what is in the contract. They have provided a very broad form of wording and its natural meaning would cover someone whose business was interrupted by the lockdown,” said Richard Leedham, the Mishcon de Raya partner leading the Hiscox action, in a statement.

Stephen O’Dowd, senior director of Litigation Funding at Harbour, noted that “seeking legal redress seems to be the only option remaining for hundreds of small businesses across the UK.”

Legal disputes notwithstanding, the UK regulator, the Financial Conduct Authority, recently acknowledged that most insurance policies for small and medium sized companies (SMEs) only provide basic cover and are unlikely to cover the disruptions caused by the coronavirus crisis.

Market research published by Wells Fargo Securities indicated that the COVID-19 crisis could bring an industry loss of $50 billion, which is above the $40 billion cost of Hurricane Katrina. The industry should be mostly insulated from BI claims, as policy wording require property damage to trigger a loss, said the report.

However, some legal engineering is under way to get insurers to pay up. At least seven U.S. states are proposing legislation that would require insurers to cover COVID-19-related losses under their business interruption policies.

Chubb Chief Executive Officer Evan Greenberg has warned policymakers against forcing insurers to pay out excluded business interruption claims, which could “bankrupt the industry.”

*This story ran previously in our sister publication Insurance Journal.