Hiscox sees potential £175m in Covid payouts as legal threat looms

Hiscox said it could pay out $175m in coronavirus-related claims if lockdowns and travel bans were extended beyond six months as it faced a potential class action from angry business customers over rejected applications.

The insurer on Wednesday said that “a number” of UK policyholders had disputed the application of their policy in relation to business interruption cover.

Bermuda-based Hiscox said it had about 10,000 customers with cover for business interruption that had been “directly impacted by mandated government premises closure”.

The company's policy documents state it would cover financial losses for businesses which were unable to use their premises following "an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority".

However, the company has incurred the wrath of policyholders over a separate clause which says losses would only be covered if an incident within a mile of an insured business meant the government refused access to that firm's premises.

The insurer argues that as Covid-19 is nationwide any claims under this clause are invalid.

Celebrity chef Raymond Blanc has reportedly enlisted lawyers after being denied a payout by Hiscox.

Blanc, chef patron at Brasserie Bar Co, has been forced to close all 37 of his pubs and restaurants due to Covid-19. The chain, which employs 1,400 staff, took out business interruption insurance from the company.

More than 130 businesses have joined the 'Hiscox Action Group' to fight the firm and are now preparing to engage lawyers to mount a challenge.

The Financial Conduct Authority last week wrote to insurance companies setting out how they should handle business interruption claims and ordering insurers to explain themselves to the regulator if they disagree with its approach.

“Hiscox recognises these are extremely difficult times for businesses and is determined to help provide greater certainty for customers. As a priority it will therefore work with the UK insurance industry, its regulators and its customers to seek means of expediting resolution through the range of independent mechanisms available,” the company said.

Hiscox said it was “actively settling claims for event cancellation and abandonment, media and entertainment and other segments including travel” and forecast a net payout of $150m if restrictions lasted six months with an extra £25m if they were extended.