UK Supreme Court Rules Against QBE on Policy Wording




More bad news on Monday from QBE after another COVID-19 court ruling went against it - this time in the UK.

The NSW Court of Appeal in November ruled that QBE, IAG and other insurers in Australia were liable for up to $2 billion in claims from the use of a wrong definition of the world ‘pandemic’ because their business interruption insurance policies did not use an updated meaning (contained in a new Biosecurity Act passed by Federal Parliament) of what a ‘pandemic’ was.

Yesterday the shares fell 5.7% (to end at $8.08) after it was on the wrong end of a UK court ruling relating to business interruption policy wordings during COVID.

The UK Supreme Court handed down its decision on Friday night, Sydney time, on an appeal against the country’s High Court’s September 2020 ruling in a test case run by the key UK regulator, the Financial Conduct Authority (FCA).

The test case was undertaken by the UK regulator to resolve legal issues concerning the interpretation of common business interruption policy wordings, including some policy wordings of QBE’s UK policies, in the context of whether those policy wordings respond to COVID-19 and related government-mandated lockdowns.

QBE and five other insurers had been in a legal battle with the UK’s Financial Conduct Authority (FCA) over definitions in business interruption insurance and the pandemic.

QBE will now put more money aside in what it calls “risk margin strengthening” for to meet the cost of any potential claims.

QBE told investors that its forecasts given last month of a $US1.5 billion statutory loss for the year ended December 31 should not be “materially” different after the latest decision.

That is because the red ink will be offset by “higher than anticipated investment income” and boosts from better results in its other insurance portfolios, QBE said.

The UK Supreme Court judges firstly upheld the September ruling in the High Court which found QBE was liable for some claims for COVID-related losses.

But it also overturned other parts of the September ruling that had backed QBE’s argument against paying some other claims.

QBE said on Monday the ruling was one that  “overturning established case law precedent” with the court reversing “the ruling in favour of QBE with respect to the other two of QBE’s three notifiable disease policy wordings examined”.

“All other insurers were unsuccessful on their main grounds of appeal while the FCA was successful on its grounds of appeal,” QBE said.

The FCA said the Supreme Court had “ruled that cover may be available for partial closure of premises [as well as full closure] and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover”.

“This will mean that more policyholders will have valid claims and some pay-outs will be higher,” the FCA said.

While the decision means QBE could cop a larger gross level of claims in the UK, the company’s stuck by its own forecasts of the “net cost remains unchanged at $US70 million”.

But this comes at a cost in its reinsurance arrangements as any extra claims in the UK will eat up some of  into reinsurance protection.

That in turn will reduce the amount of reinsurance cover for other COVID claims in Australia, of which QBE could have a lot.

“The increase in gross UK insurance business interruption claims has the effect of utilising additional aggregate reinsurance limit thereby reducing downside protection with respect to potential Australian business interruption claims,” QBE said on Monday.

Total COVID-19 related claims for 2020 were to be $US655 million after the extra $US185 million hit. The total COVID-19 impact is expected to be $US785 million.