"Covid-19 and business interruption claims have been one of the most divisive issues throughout the pandemic, with many of the cases only just reaching the courts, as Liz Booth reports"
This time a year ago, for the general public it seemed that the Supreme Court ruling on the Financial Conduct Authority (FCA) test case on Covid-19-related business interruption (BI) claims was the end of the matter – insurers would pay.
However, the reality is less straightforward and this spring will see further cases reaching the courtroom.
One recent ruling came on 25 February, when Justice Cockerill upheld the claims of Corbin & King, operator of the Wolseley, Delaunay and other restaurants, against AXA Insurance UK.
According to barristers from Essex Court: “She decided that the analysis of the Supreme Court on causation in the context of disease clauses substantially undermined the reasoning of Flaux LJ and Butcher J on prevention-of-access clauses.”
The barristers add: “Additionally, the judgment provides consideration of the application of policy limits in cases where there are multiple assureds and numerous premises affected by lockdown regulations. Justice Cockerill decided that there was a separate policy limit for each assured and premises affected.
The landscape of Covid-19 BI claims continues to shift, with disparate legal opinion slowly giving way to judicial decisions on issues that are likely to have seismic effects on policyholders and insurers
“This decision will be of particular interest to policyholders who have suffered serious losses as a result of the Covid-19 pandemic and have seen their claims denied.”
More to come
However, as ratings agency S&P Global says: “Insurers and reinsurers may have to wait several years before they know the ultimate bill for Covid-19-related BI claims in the UK, as a series of potentially expensive cases head to court in 2022.” S&P points to a list of larger, more complex claims on issues not resolved by the test case. The Commercial Court, part of the UK’s High Court, has been keeping tabs on six live Covid-19-related BI cases.
Restaurant group Corbin & King’s case against AXA Insurance UK was heard in January, while Parkdean Resorts' claim against Axis Managing Agency will be heard “not before June 2022”, according to the court's website.
Hospitality group Stonegate Pub Co’s case against MS Amlin Corporate Member, Liberty Mutual Insurance Europe SE and Zurich Insurance is expected to be heard on 13 June 2022.
S&P says: “A significant unresolved issue is whether policyholders can claim the relevant payout limit more than once, for example for multiple premises, lockdowns or insuring clauses. Stonegate, which has 760 venues, argues that its insurers owe it £845m, while the insurance companies contend that they owe £17.5m, of which £14.5m has already been paid.”
It adds: “A 10 September arbitral award on a business interruption dispute involving China Taiping Insurance (UK) has given policyholders fresh hope of claiming under certain denial-of-access clauses.
The High Court’s verdict in the test case, which was not appealed in the Supreme Court, ruled that such clauses could only be triggered by local incidents and would not respond to national lockdowns.”
A further point of contention, also part of the Stonegate case, is whether payments made under the UK government furlough scheme should be deducted from claims. Other issues could also emerge, such as how to handle wordings that require a disease outbreak at the premises, rather than within a particular perimeter, to be triggered, suggests S&P.
Samuel Ellerton, regional claims lead (SVP) at Lockton, notes: “Despite the UK’s 2021 Supreme Court judgment in the FCA’s business interruption test case, there remains a plethora of unresolved issues, with very significant and high-value claims now beginning to make their way to trial.”
He pointed to last year’s FCA test case, saying many of those who were successful were insured by way of a wide vicinity disease extension.
“However, that was far from the whole story. Those who successfully recovered from their insurers following the FCA test case were very much the minority. Many more policyholders, particularly those who had disease extensions that required the presence of Covid-19 ‘at premises’ or who had purchased non-damage denial-of-access cover, were not so fortunate. At the time of writing, many large claims for major corporates remain outstanding in the wider market, with insurers arguing over coverage or quantum issues that could cost millions,” he says.
For policyholders who have already made the expensive journey to the High Court, the results have not been particularly positive, Mr Ellerton warns.
A claimant’s suggestion that Covid-19 could be covered by a list of diseases within the policy that included ‘plague’ (but not Covid-19) was summarily dismissed as “a clever lawyer's construct and not a credible argument” in Rockliffe Hall v Travelers.
Also summarily dismissed on the basis that it “part[ed] company with reality” was the claim of TKC London Limited v Allianz Insurance Plc, in which the deterioration of stock as a result of the closure of the premises was ruled to be an unsuitable trigger for a BI claim, with the court blithely pointing out that the closure, not the deterioration, was the cause of the loss.
These are just two examples and Mr Ellerton suggests: “The landscape of Covid-19 BI claims continues to shift, with disparate legal opinion slowly giving way to judicial decisions on issues that are likely to have seismic effects on policyholders and insurers.”
But this is not just a legal issue, it is also about trust in insurance and the sector’s reputation. As Mr Ellerton warns: “Many insurers, fearful of opening the floodgates, will inevitably rely on arbitration clauses to try and keep key decisions private. Others will require the signing of NDAs when concluding commercial settlements, to avoid the risk of trial.”
But as Dr Matthew Connell, policy and public affairs director at the CII, warns, the need for transparency is clear. “The CII has long discussed the importance of trust and confidence in insurance and we believe both can be restored if this process remains open and transparent to the public,” he notes.
Liz Booth is contributing editor of The Journal