UK insureds slowly winning the war on Covid-BI litigation

As Covid-19 business interruption (BI) insurance claims continue to grind their way through the English Courts, UK businesses are slowly recovering billions of pounds from their insurers, despite some carriers’ ongoing resistance, claimant law firm Fenchurch Law told Commercial Risk Europe.

Since the Supreme Court policyholder-friendly judgement in the FCA’s Covid-BI insurance test case in January 2021, the majority of subsequent court cases have also largely gone the way of insureds. In June, further clarity on key policy interpretation is expected when a group of ‘At the Premises’ cases are heard at the Court of Appeal.

Policyholders appear to be winning the fight against insurers over Covid-related BI claims in the English courts, according to Daniel Robin, partner at Fenchurch Law. At the outset of the pandemic, insurers were refusing to make any payments for Covid BI. Four years on and they have been forced to make payments under a wide range of policies, Robin explained.

“In some instances, they have gone from paying nothing to paying out for multiple sub-limits. The majority of the significant decisions have been more favourable to the policyholder,” he said.

Policyholders are in a far better position than they were in 2020, either through the growing number of positive judicial positions or by their insurers taking a more pragmatic approach to handling claims, according to Anthony McGeough, senior associate at Fenchurch Law.

“For the majority, there is now at least some cover or at least some certainty, but there are still plenty of policyholders that have not had their claims paid and who are willing to litigate if a sensible resolution cannot be found,” he said.

Unfortunately, the tough stance on Covid-BI claims taken by insurers at the outset means that many policyholders have been forced to incur legal costs and, in some cases, forced out of business because their insurers did not meet their contractual obligations, said the lawyer. Policyholders should not have needed to “fight” their insurers to get claims paid, according to Robin.

“When a policyholder has purchased a product and has been forced to take action or wait an unreasonable amount of time for that product to perform, that isn’t a good outcome for anyone. The insurance market has missed a trick with using the pandemic as a chance to shine. The pandemic was an opportunity to restore the public’s faith in the insurance market, but it has had the opposite effect,” he said.

Even now, when met with unfavourable decisions, some insurers are trying to find ways to put in place further hurdles, according to Robin. For example, in the At the Premises test cases led by Excel v RSA, the court found that those policies respond to the general government action, provided that there was a case of Covid at the insured premises. Rather than take a practical and reasonable approach, some insures are demanding positive Covid tests from March 2020, when there was no widespread testing, explained Robin.

After the Supreme Court delivered its judgement in the 2021 Covid-BI test case, the Association of British Insurers said the industry expects to pay up to £2bn in BI Covid claims incurred during 2020. As of March 2023, insurers had paid £1.7bn in claims, according the FCA. However, the total figure is likely to be much larger, as large cases fell outside the remit of the FCA test case and with ongoing litigation.

In Stonegate vs MS Amlin alone, which settled for an undisclosed figure just weeks before a Court of Appeal hearing was due to get underway in November, the UK-based pub chain claimed £1.1bn from insurers under the Marsh Resilience wording. It had argued that it was entitled to separate £2.5m limits of cover for each of its 760 premises, but insurers said single £2.5m limit applied to the group.

The past year has seen more policyholder-friendly judgments, according to McGeough.

In particular, the At the Premises group of cases confirmed that the Supreme Court’s reasoning on causation applies in the same way as it does to radius disease clauses. The Liberty Mutual Insurance Europe group of cases managed together as part of the Gatwick Investments proceedings considered the same point on causation in respect of various non-damage denial of access wordings, and again delivered a favourable outcome for policyholders, said McGeough.

“This is not the last word on the point, as some insurers consider that only a ruling from the Court of Appeal will be able to put this particular argument to bed for good, despite the growing body of case law at the High Court in support of policyholders,” McGeough said.

Another issue requiring some further consideration is furlough, he continued. The UK’s High Court found in favour of insurers, but following Stonegate settling prior to appeal last year, the Court of Appeal has not yet had an opportunity to consider the arguments. However, as the Liberty Mutual group of cases have permission to appeal on this issue, it will come before this court later this year.

“The other key issue that is likely to require judicial input in the absence of agreement between policyholders and their insurers is what are the relevant government actions/ occurrences/ restrictions for the purposes of aggregation. For policyholders with lower sub-limits, this remains a very important point,” said McGeough.

The Liberty Mutual At the Premises appeal hearing is due to be heard in June. The appeal is important as it will examine several key issues currently in dispute.

“The causation point remains an issue, at least for the time being, for policyholders with non-damage denial of access wordings similar to that considered in the recent Liberty Mutual group of cases, as insurers are seeking to appeal. The Liberty Mutual group of cases will also be dealing with furlough at the appeal, along with arguments on multiple sub-limits and composite policies,” said McGeough.

“All of these points expose insurers to fairly large recoveries on wordings that are widespread,” he added.

These English court decisions are also influential in other jurisdictions, including Ireland, Australia, Dubai and Singapore, noted Robin. “Most significant decisions in those jurisdictions refer to and, in some cases, rely on the English Judgments. Even when they don’t, it is not because they disagree with the English decisions but rather because on the facts, the government response on their countries or the nature of the pandemic was such that they can distinguish,” he said.