The outcome of UK Covid-related business interruption (BI) claims hangs in the balance as crucial cases head to higher courts later this year, according to experts at Fenchurch Law.
The 2021 Supreme Court judgment in the Financial Conduct Authority (FCA) test case – which focused on small to medium-sized enterprises – was largely a victory for policyholders, although it left several significant loose ends.
It also left insurers, policyholders and the courts to interpret and apply the Supreme Court ruling, often with very large claims at stake.
Despite the Supreme Court ruling and subsequent cases over the past 12 months, many Covid-BI coverage disputes have yet to be settled. Several important cases are being appealed, including Stonegate, Greggs and Various Eateries vs MS Amlin, and London International Exhibition Centre (ExCeL) vs RSA and others.
Joanna Grant, a partner at Fenchurch Law, which works solely for insurance buyers, said Covid-related BI litigation in the UK continues to favour policyholders but insurers are still reluctant to proactively settle claims.
“The balance is tilting towards policyholders. I think we will get there in the end but it is just a waiting game. The courts are being proactive and making sure these cases are pushed through the system quickly, however insurers are still showing a reluctance to pay unless they are given no alternative,” she told Commercial Risk Europe.
“It is disappointing that insurers continue to drag their heels in this way. But we would like to think that by this time next year, most of the issues will have been resolved and the landscape clearer,” Grant said.
There are currently several outstanding issues being litigated in the UK, including aggregation, furlough payments, denial of access and ‘at the premises’ wordings under non-damage BI policies.
According to Daniel Robin, a partner at Fenchurch Law, the treatment of government pandemic support for businesses, such as furlough, is perhaps the most significant in terms of potential losses for insurers. But the aggregation issue can also have a significant impact on the size of individual claims, he said. Litigation around denial of access is also wide reaching and will affect a large number of companies and claims, added Robin.
The ExCeL High Court ruling in June looked at whether a business is covered for Covid-19 BI claims under ‘at the premises’ clauses, which was one of the two big unresolved FCA test case issues being litigated this year, along with denial of access cases, according to Grant.
“The Supreme Court analysis says that each and every case is a concurrent cause, and that is a gateway to cover for the policyholder. Insurers have resisted the application of that analysis, but in a comprehensive and resounding win for the policyholders the court [in ExCeL] found in their favour, holding that the Supreme Court analysis did apply,” she said.
The ruling is expected to affect hundreds of thousands of policyholders around the country, and has important ramifications, according to Grant. However, insurers continue to resist paying claims.
“Frustratingly, the judgment does not help determine what the policyholder must show to prove it has a case at the premises. While the judgment indicates the threshold should be relatively low… equally it does not indicate what would suffice by way of proof and we already see insurers push back on payouts consequent on the judgment, looking for a high standard of proof that would be difficult for policyholders to meet,” she said.
“Also, frustrating for policyholders, insurers are appealing. That will bring further delay as they will likely not pay out until the outcome of the appeal. The trial judge is sceptical of the outcome of an appeal but it has been allowed as insurers will say the first instance decision is not enough to bind them,” she continued.
The ExCeL case, which is likely to go before the appeal court early next year, is reflective of the insurance industry’s reluctance to settle Covid-19 BI claims quickly and as smoothly as buyers and regulators had hoped, according to Grant.
“From a policyholder perspective, [the ExCeL case] is indicative of more delay and uncertainty, which has become a feature of these cases. Even though they keep coming to court, and we see more and more rulings, we are still not getting to the end of it,” she said.
Litigation involving claims brought under non-damage denial of access wordings, which are due to come to court in October and November, also follow the pattern of delay. The cases are a re-run of the 2022 Corbin & King Ltd v Axa High Court judgement, which found in favour of the policyholder.
Insurers are now looking to higher courts for greater clarity on the application of both denial of access and ‘at the premises’ clauses, according to Grant.
“While AXA did not appeal [in Corbin & King], other insurers say they are not bound by the judgment. Liberty Mutual, in particular, is not paying out following Corbin & King, and we have a number of much larger corporate entities [in the hospitality and retail sectors] pursuing claims against Liberty, looking for a ruling that applies the Corbin and King analysis,” she said.
David Pryce, managing partner at Fenchurch Law, believes insurers have missed an opportunity to step-up and fulfil their “public service” role by supporting business. He noted how Lloyd’s underwriter Cuthbert Heath famously honoured all quake and fire claims from the San Francisco earthquake in 1906, cementing Lloyd’s reputation in the US.
“The London market risks losing its pre-eminence unless it takes opportunities like Covid to show the business community it can set up,” he said.
Robin calls for more engagement from insurers to avoid disputes and delays in settling claims. “What has frustrated policyholders is that where they have waited for judicial guidance on certain issues in good faith and expected insurers to engage, there has been a movement of the goalposts,” he said.
“The only way there will be an end to this is if there is sensible engagement on both sides. The courts cannot determine every single issue. Even cases like Stonegate, they provide only the guidance needed to engage sensibly and extrapolate the findings, which is where we come up against frustration on our side,” Robin said.
The big case to watch at the end of the year is Stonegate. The Court of Appeal will consider the key issue of furlough, and whether insurers can adjust BI claims for government support. According to Pryce, taxpayer money intended to support businesses during the pandemic could result in a “windfall” for insurers if they are able to reduce payments they would otherwise have been required to make under their policies.
“As a lawyer, it is not for me to comment on government policy, but as a taxpayer I would have an issue if the outcome were that insurers get a windfall. That is not what the government intended when it used taxpayer money to help businesses. For me it is an important public policy point and I hope it goes for determination at the Court of Appeal… The [High Court] decision, while understandable in the legal sense, should be overturned as a matter of public policy,” he said.
All parties are appealing the Stonegate judgments, with an appeal hearing set for 27 November 2023. Greggs, however, recently settled its dispute with Zurich Insurance, although the terms of the settlement are confidential.
The Stonegate case also considered the key issue of aggregation – namely, whether the insurers’ interpretation of ‘occurrence’ would enable them to apply a single sub limit of liability to which all losses could be aggregated. The appeal court judgment would have a significant effect on the quantum of BI losses recoverable from insurers.
Fenchurch Law recently helped student travel company World Challenge win its case against Zurich, which had argued a £150,000 aggregation sublimit applied to £10m losses from the cancelation of thousands of school trips. “Based on the policy wordings in this case, the judge found the decision to cancel the trips was not an occurrence, and therefore there was no aggregation for the purposes of that policy,” Grant said.