Acting in the public interest they proposed to put forward policy holder arguments to their best advantage with an aim to secure legal guidance more quickly at a lower cost to policy holders. They were primarily concerned with "non-damage" business interruption cover. Also how “business trends” clauses should be approached which are typically employed when considering the outcome had the matters giving rise to the insurance claim not occurred.
What an amazing illustration of positive action by the legal profession in this surreal environment. Only five months later, the FCA appear to have achieved their aims. In a lengthy judgment delivered by Lord Justice Flaux sitting together with Mr Justice Butcher, the High Court has found largely in favour of the FCA having considered 21 lead sample wordings from eight insurers. Different conclusions were reached in relation to each of the wordings considered, but the FCA have succeeded on the majority of their key issues.
These include coverage triggers under most disease and “hybrid clauses”, certain denial of access/public authority clauses, causation and “trends” clauses. The policy wordings considered fell into three categories.
- Disease wordings – providing cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
- Prevention of access/public authority wordings - providing cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions and
- Hybrid wordings - which are engaged by restrictions imposed on the premises in relation to a notifiable disease.
We do not attempt to delve into the detail just now as more will follow, we do however invite you to read the judgment and discuss it with us at your leisure – please do! The FCA estimate some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by the test case.
In their defence, Insurers had placed significant reliance on Orient Express Hotels Ltd v Assicurazioni Generalie SpA, however the court distinguished it on matters of construction and commented that had they been obliged to rule on the case they would have determined that it was wrongly decided.
Readers may recall that the Orient Express claim was for business interruption losses caused by Hurricanes Katrina and Rita. That claim was made under an all-risks policy with a trends clause incorporating a “but for” causation test and was an appeal from an arbitral tribunal. Insurers had argued that there was no cover because, even if the hotel had not been damaged, the area surrounding it was such that business interruption losses would have been suffered in any event. They argued that the insured peril was the damage alone and that the event which caused the physical damage i.e. the hurricanes, could be set up as a competing cause of business interruption.
In the test case the court dismissed Insurers’ analogy on the basis that it was not concerned with the type of insured perils being considered in the case, in particular the “composite or compound perils” which features in the test case and which contrasted with the “all risks” nature of cover in the Orient case. They chose not to follow Orient and commented that they thought it had been wrongly decided. We understand that insurers will be likely appealing the test case and seeking to leapfrog directly to the Supreme Court such is the importance of the impact of this decision. If they do, ironically the matter will come before their Lord Justices Leggatt and Hamblen both of whom coincidentally determined the Orient Express claim.
This case has highlighted with stark simplicity how the courts can assist the “ordinary businessman” in a manner which has not been evident since perhaps Lord Denning was around.
It is an important decision and will impact upon the whole insurance industry exposing it to many more claims whilst the pandemic continues. Lawyers and insurers are digesting what the judgment means for the law around causation generally.
Whether or not an appeal is lodged, which will take time, many a policyholder will now be considering their options and whether or not they can resurrect or start their claims for business interruption against the backdrop of this decision. Whatever the outcome and in answer to my original question, “yes” COVID-19 does play a part in business interruption claims “for now”.