UK Covid BI litigation still favouring buyers as Stonegate appeals

Covid-19 business interruption (BI) litigation in the UK continues to favour policyholders despite insurers’ claims to have prevailed in recent cases, according to Fenchurch Law, which is representing Stonegate in its closely watched coverage dispute with insurers.

In mid-October, the UK Commercial Court’s ruling in Stonegate v MS Amlin, Liberty Mutual and Zurich was somewhat inconclusive, with key rulings now set for the Court of Appeal, according to David Pryce, managing partner at Fenchurch Law. And the outlook for policyholders looking to recover Covid-19-related BI losses from their insurers remains positive, he told Commercial Risk Europe.

In addition to the Stonegate case, the Commercial Court delivered its judgment in two other related Covid-19 BI claims – Greggs v Zurich and Various Eateries v Allianz. These rulings, which hinged on fewer issues, were consistent with Stonegate and were generally favourable for policyholders, argued Pryce.

“Optimism remains. Every time one of these Covid cases goes to court, policyholders get a little bit more than the insurance market wanted to give,” he said.

Last week, the court awarded Greggs 60% of its legal costs. “Even though quantum has not been determined yet, it was so clear the policyholder had effectively won that 60% of Greggs’ costs were awarded to it,” said Pryce, whose law firm works solely for policyholders.

According to Pryce, the Commercial Court ruling in the Stonegate case was a “mixed bag”, with Justice Butcher ruling in favour of Stonegate on certain aggregation issues but siding with insurers on other key points, including deductions for furlough payments.

MS Amlin said in a statement that the court fundamentally supported the insurers’ position. In particular, MS Amlin claimed that the court found “almost entirely” in favour of insurers on “whether Stonegate’s losses were limited by the aggregation language in the policy, the extent to which losses were caused by cases of Covid-19 and government action within the policy period, and whether insurers were entitled to credit for furlough payments received by Stonegate”.

Pryce, however, does not share Amlin’s view. “One of the insurers in the Stonegate case has taken a different view as to who won. Based on the fact that the decision was consistent across all three cases [Stonegate, Various Eateries and Greggs], and that the judge said the policyholder effectively won in [Greggs v Zurich], it is wrong for insurers to say they won,” he said.

The Supreme Court’s January 2021 rulings in the Financial Conduct Authority’s (FCA) BI test case, which found in favour of policyholders on most key points, had already established that Stonegate, the UK’s largest pub company, was covered under a Marsh Resilience wording. However, a number of secondary issues remained in dispute that would affect the size of claim, in particular aggregation and furlough.

“The reality is there was a huge number attached to the Stonegate claim, which would have been received by Stonegate had it won on the particular issue of per-premises aggregation. When Amlin [the insurer] says it won, what it means is that it was not as bad as it could have been. That is true based on Justice Butcher’s current decision, because Stonegate was unsuccessful on per-premises aggregation, but it is not true that the insurers won on aggregation,” said Pryce.

The Commercial Court ruled against Stonegate in relation to claims being made on a “per location” basis, however Stonegate won on another key aggregation issue of whether the pandemic, lockdowns and Covid restrictions amounted to one or more ‘single occurrence’ for the purposes of aggregation.

The court rejected insurers’ primary argument that all cases aggregate to the emergence of the virus or pandemic in China, and agreed with Stonegate’s position that losses are recoverable after the end of the policy period, and that each lockdown was a separate occurrence.

The judge ruled “somewhere in the middle” of the positions taken by Stonegate and its insurers, said Pryce. “Did Stonegate get as much as it as asking for on aggregation? No. Did Stonegate get more than insurers were previously prepared to provide? Yes. And did Stonegate get more than the insurance market generally provides in relation to aggregation? Yes. So, in a very real sense, the aggregation issue is a win for policyholders,” he said.

Stonegate is claiming £1.1bn from its insurers, which reportedly claimed their liability would be capped at £2.5m for BI and £15m for increased cost of working. With such a large sum at stake, quantum is a key issue in the case. The court has not decided on quantum yet, reflecting appeals and the fact it remains unclear how Justice Butcher’s rulings would translate to the size of claim, Pryce explained.

Depending on the appeals, Stonegate may yet be successful in its £1bn claim, despite the Commercial Court ruling, he said. On 21 November, Justice Butcher granted Stonegate permission to appeal two of the three rulings on aggregation and furlough. Stonegate also intends to apply to the Court of Appeal on causation and additional increased cost of working (AICW).

“The big headlines for policyholders are that permission has been given to appeal the decision on per-premises aggregation – which unlocks the potential for Stonegate’s £1.1bn claim – and furlough, which is a big deal for policyholders more generally,” said Pryce.

He is optimistic about the appeal. “My view, and this is consistent with the FCA test case, is that the higher the level of the court, the more likely it is that it will take into account the public policy narrative. You saw that in the Supreme Court judgment in the test case – a judgment that was solid on the law but also felt like the judges were intentionally helping policyholders. This is an unprecedented crisis for business and our Supreme Court had the back of these companies in a way the insurance market did not,” he said.

Insurers and claimants in all three cases are seeking to appeal various rulings around aggregation, causation, AICW and furlough. “Because everyone is appealing, it shows that they all feel they can do a bit better second time around,” said Pryce.

Given the complexity of the judgments and the appeals, the Commercial Court rulings have yet to “unlock” settlements in wider Covid-19-related BI coverage disputes, he explained. However, other large cases are in process, and many large companies are awaiting the outcome of Stonegate and Various Eateries before settling claims, he said.