Why this week's High Court ruling on Covid payouts could be more expensive for insurers than they thought

PA

It is a rare judge who leaves all sides jubilant, but this week’s ruling on insurers’ refusal to pay out on Covid claims seemed to do just that.

Policyholders were delighted the High Court said they should be paid in most cases. Insurers rejoiced that they could still wriggle out of others.

Shares in Hiscox and RSA shot up, helped by hopes that their reinsurers would foot most of the bill anyway.

Reinsurance is where insurers insure themselves against big losses. Rather than take on all the risk of the policies they sell, they pay a reinsurer to take on, say, 75% of the liability. Like a gambler laying off some of his bet.

But as the dust on the judgement settles, reinsurers murmur darkly that they may contest the hundreds of millions of pounds it looks set to cost them.

Lawyers are looking at their contracts to see if they really are as liable as the insurers say.

One of their arguments is that it was the insurance companies who lost the High Court ruling, not the reinsurers. Reinsurers were not represented in court, could not defend themselves at any stage and therefore should not be held liable, one lawyer points out.

Some say insurance contract wordings have got sloppier as the market has softened, proving fertile ground for litigators.

Reinsurers — currently holding a virtual version of their annual Monte Carlo Rendezvous conference — are suffering from poor premiums, low interest rates and large Covid claims.

They feel like the real losers of the High Court judgment, and are in no mood to be generous.