Canadian Underwriter

Intact’s take on UK business interruption test case

March 9, 2021   by Greg Meckbach

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A recent British court ruling on business interruption does not change the economics of Intact Financial Corp.’s agreement to acquire a large part of London-based RSA, a senior Intact official confirmed Tuesday.

In 2020, the Financial Conduct Authority brought eight insurers, including RSA, to the High Court of England and Wales over 21 business interruption wordings. Insurers said those wordings do not provide coverage to income lost due to the COVID-19 pandemic. But the Supreme Court of the United Kingdom ruled largely in favour of clients in its decision released Jan. 15. That ruling resulted from both sides appealing the High Court ruling from September 2020.

While all of this was going on in the British courts, Intact announced this past November it was forming a consortium with Danish insurer Tryg A/S to acquire RSA. Assuming the deal closes as scheduled in 2021 Q2, Intact will acquire RSA’s operations in Canada, Britain, Ireland and the Middle East. Tryg will get RSA’s Swedish and Norwegian operations while Intact and Tryg will split RSA’s Danish operation 50-50.

During a fireside chat Mar. 9, RBC Capital Markets research analyst Geoffrey Kwan asked Intact chief financial officer Louis Marcotte about the impact of the FCA test case decision on the RSA deal.

“It does not change the economics of the deal whatsoever,” Marcotte replied.

Intact has previously said about 99.5% of its business interruption policies only provide coverage if there is physical damage to the client’s premises.

None of the 21 wordings in the FCA test case require physical damage. Those policy wordings fall into one or both of two categories:

  • coverage for income loss if the client’s operations are curtailed because of a “notifiable” disease within a certain distance (one mile or 25 miles) of the client’s premises
  • coverage for BI arising from action by a government or civil authority which prevents or hinders access to the premises

“What was very clear from the FCA challenge is that, where the policies clearly attached with physical damage, those were not challenged in court,” Marcotte said Mar. 9.

“The difference, I would say, between the U.K. and the North American [business interruption policy] languages – some of the polices in the U.K. did not have the same clarity of language that we have in North America and that’s where the language or the wordings have been challenged [by the FCA] in court.”

The RSA policies in the FCA test case covered:

  • loss as a result of closure or restrictions placed on the premises as a result of a notifiable human disease manifesting itself at the premises or within a radius of 25 miles of the premises;
  • occurrence of a notifiable disease within a radius of 25 miles of the premises;
  • business interruption from the actions or advice of a competent public authority due to an emergency likely to endanger life or property in the vicinity of the premises which prevents or hinders the use or access to the premises;
  • interruption or interference to the insured’s business as a result of notifiable diseases and other incidents occurring within the vicinity of an insured location, where “vicinity” means “an area surrounding or adjacent to an insured location in which events that occur within such area would be reasonably expected to have an impact on an insured or the insured’s business.”

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