Fenchurch Law joins City law firms in commitment to levelling up on social mobility in the profession
A group of trailblazing City law firms including Fenchurch Law Ltd have published a pioneering action plan to boost social mobility and widen opportunities within the legal sector and launched a Levelling Up Law Coalition to deliver on the recommendations.
Fenchurch Law and fourteen other City of London Law Society (CLLS) member firms have been working with Rt Hon Justine Greening’s Social Mobility Pledge on a strategy to open up the sector to a diverse range of backgrounds.
The firms have collaborated with a number of universities across the regions, including Bradford, Staffordshire, Lincoln, York St John and Liverpool John Moores in a bid to create new and wider pathways from higher education into the legal sector.
The action plan sets out recommendations for leading law firms to work together on solutions that benefit the whole legal profession. Research shows that more diverse companies are now more likely than ever to outperform less diverse peers on profitability* and the plan looks at how the profession can tap into talent from a range of backgrounds.
The project has been led by former Government Minister, Member of Parliament and city Solicitor, Seema Kennedy OBE. Fenchurch Law and the other firms now plan to go further and play a leading role in Britain’s national recovery from coronavirus, opening up greater access to careers in the legal sector.
The publication of the action plan also marks the launch of the group of firms forming a Levelling Up Law Coalition, coming together to take leadership on the levelling up agenda through the lens of the legal sector.
Seema Kennedy said: “The pandemic has caused many young people to lose jobs or have their future opportunities restricted. Meanwhile, there is now a building demand and need for reskilling and career changes.
“What is now abundantly clear is that levelling up needs to go far beyond just government action, we need businesses to play their role if we are to succeed. Through this action plan, CLLS members have shown that they are committed to playing their part in boosting opportunity and social mobility as part of our recovery.”
David Pryce, Managing Partner, Fenchurch Law “Levelling Up Law is the most effective initiative that I’ve come across with regard to promoting social mobility within the legal profession. The project’s goal of creating true equality of opportunity is vitally important not just in terms of basic fairness, but also because law firms have for too long drawn on an artificially limited pool of talent.
“If the UK is to retain its place as a leading global legal market, it is essential we start to recruiting based on potential, and stop favouring people based on their background and upbringing. Like most firms we have further to go on our journey to creating a truly diverse team, but I have no doubt that we will only be able to unlock our full potential once we do”.
All round protection for brokers: how protecting the underwriter can protect your client and protect you!
Our March 2021 article ‘Insurers bound by the small print? I should cocoa!’ briefly noted that the judgment in ABN Amro considered the scope of a broker’s duty to procure cover that meets the insured’s requirements and protects it against the risk of litigation. But what does that mean in practice, and can it really extend, as was argued in this case, to a duty to explain unusual clauses to underwriters?
One of the many roles brokers perform is in relation to policy placement, which role involves advising their clients and dealing with underwriters. As part of that exercise a broker must: (i) ensure that it understands its client’s instructions and in the event of uncertainty query, clarify or confirm the instructions given; (ii) explain to its client the terms of the proposed insurance; and (iii) ensure that a policy is drawn up, that accurately reflects the terms of the agreement with the underwriters and which are sufficiently clear and unambiguous such that the insured’s rights under the policy are not open to doubt. It is well-established law that in the performance of these tasks, a broker must exercise reasonable care and skill.
If the coverage is unclear, the client will be exposed to an unnecessary risk of litigation, and the broker will be in breach of its duty.
The scope of this duty was considered in the recent ABN Amro Bank case. By way of brief factual background, the claimant bank provided instructions to its broker that it required cover against its clients defaulting under a finance agreement. The broker placed the risk with RSA under an all risks marine policy. A bespoke clause was added to the policy midway through the policy period which had been drafted by the bank’s external lawyers. The effect of the clause was to provide the equivalent of trade credit insurance.
When subsequently presented with a £33.5 million for financial losses suffered by the bank, the insurer refused cover on the basis that the clause had widened the scope of the policy beyond what a marine policy would ordinarily provide. That disputed claim resulted in litigation, as part of which the court had to consider the role of the broker and what it was required to do in order to fulfil its duty to arrange cover which clearly and indisputably met the client’s requirements, and did not expose the client to an unnecessary risk of litigation.
On the facts, it was held that:
- a reasonably competent broker would have advised its client from the outset that the credit risk market and not the marine insurance market was a more appropriate market in which to place the cover the bank had instructed it to obtain. Such advice would have enabled the bank to make an informed decision as to how to proceed;
- having gone to the incorrect market, it became important for the brokers to explain to the underwriters what the clause was intended to cover; and
- any reasonably competent broker would have specifically pointed out the clause to the underwriters and talked through the amended wording and its implications.
The broker argued that this effectively imposed an unprincipled “duty to nanny”. The court clarified that there was nothing in its reasoning or conclusions which was intended to suggest that brokers generally owe duties to their clients to explain particular clauses, including unusual clauses, to underwriters.
Rather, in order to fulfil its duty to obtain cover that met the bank’s requirements and did not expose it to an unnecessary risk of litigation, and thereby protect its client’s position, the broker needed to give information to underwriters and discuss the implications of that information. In doing so, it would avoid problems which would potentially arise in the future if underwriters did not share the bank’s understanding of the unusual clause.
As such, the requirement did not amount to a duty to protect underwriters, it was about the steps that needed to be taken to fulfil the duty of a broker to protect its own client.
Having failed to take those steps, on the facts of this case the broker was in breach of its duty and consequently liable to the underwriters and the bank for costs.
In this case, protecting the underwriter was a necessary part of protecting the client, and, in turn, protecting the broker from the consequences of failing to obtain cover that met its client’s requirements.
Authors
Fenchurch Law awarded “Gold” for client care experience
We’re delighted to announce that Fenchurch Law has achieved a ‘gold’ award from the independent Investor in Customers (IIC) assessment process for a fourth year running.
IIC is an independent client experience agency which conducts client experience assessments, helps develop insights into client satisfaction, and awards annual accreditations. IIC also compares the views of staff and senior management to identify how embedded the customer is within the company’s thinking.
Comments from Fenchurch Law clients included:
“They have always been a solid, consistently high-quality business, who add genuine value for policyholders”.
“I have been very impressed by Fenchurch Law in all my dealings with them. I particularly value the fact that, unlike the majority of the large law firms, they never act for insurers and accordingly there is no conflict of interest”.
“Fenchurch Law is clearly passionate about what it does. They have given invaluable advice to me and my clientele and I would recommend and have recommended them to many clients and contacts”.
“Great to have a customer facing law firm with the level of expertise Fenchurch Law has”.
“The service that they offer is a real value add to my clients so a great strategic partnership”.
Sandy Bryson, Director at IIC, commented: “Investor in Customers has been working with Fenchurch Law for 4 consecutive years. Every year, the firm has demonstrated that it provides its clients with an exceptional experience attaining IIC’s highest award for client experience, Gold, each time. There is, and always has been, a genuine passion and culture within the whole Fenchurch Law team to continue to improve its service to all its clients and to consistently deliver the highest quality outcomes for them. It is such a pleasure to work with the firm.”
David Pryce, Managing Director at Fenchurch Law added: “Providing an exceptional service is one of our key principles. Improving outcomes for our policyholder clients is number one priority and we are confident that the IIC process will help us improve every aspect of our service in the future”.
‘Deliberate acts’ exclusion disapplied: Supreme Court decision on Public Liability
The Supreme Court has rejected attempts by an insurer to rely upon an exclusion clause under a public liability policy, in a case arising from the death of a customer following an assault by door staff at a bar in Aberdeen.
The security company’s insurance provided cover for accidental injury or death, but excluded "deliberate acts wilful neglect or default". The policy was governed by English law and there was no suggestion of any difference in approach under the law of this jurisdiction or Scotland in relation to the issues on appeal. The customer’s widow claimed against the insurer pursuant to the Third Party (Rights against Insurers) Act 2010, following liquidation of the security company employer, based on vicarious liability for wrongful acts of its employees.
The Supreme Court held that a “deliberate act” was something carried out with the intention of producing the insured outcome i.e. in this case, acts intended to cause injury. In reaching this conclusion, their Lordships recognised the commercial context of the policy to cover the business of “Manned Guarding and Door Security Contractors”, including unintended consequences of incidents at the bar door, which commonly involve deliberate physical acts. If every intentionally performed act was classed as deliberate for purposes of the exclusion, there would be no coverage for many accidental injuries the policy was designed to insure.
The same was true if “wilful neglect or default” was construed as extending the exclusion clause to acts embarked upon with reckless disregard for the consequences, in the sense of proceeding despite a known risk of injury, or not caring if such a risk may arise. Interpreting the exemption in that way would seriously limit the cover provided and lead to a “commercially unlikely exclusion, given the nature of the [insured]’s business”.
There was no determination in the earlier proceedings of intention to injure, or even recklessness, and it is not the role of appellate courts to make findings of fact. Following ejection from the bar due to intoxication, the customer hit out at security staff and was taken in a neck hold for up to three minutes, resulting in death from asphyxiation. In sentencing remarks, Lady Wolffe found that the employee’s actions were: “badly executed, not badly motivated … you believed you were acting in defence of your fellow door stewards and to minimise the danger you felt Mr Grant posed to others.”
The insurer was therefore unable to avoid liability. Following a series of pro-policyholder decisions, this appears to be another example of the Supreme Court’s willingness to take account of public policy considerations to avoid stripping insurance contracts of much of their content, and confirms that exclusion clauses will be construed based on the words used in their “documentary, factual and commercial context”, in accordance with principles set out in Wood v Capita Insurance Services Ltd [2017].
The decision is helpful for policyholders in demonstrating that conscious performance of an act with intention to cause insured damage must be established, in order to trigger a deliberate acts exclusion, and mere recklessness will not suffice. Whilst recklessness will be enough to prove breach of a reasonable precautions condition (Fraser v Furman [1967]), insurers face a higher evidential threshold in relation to ‘deliberate acts’.
Burnett or Grant v International Insurance Company of Hanover Ltd [2021] UKSC 12
https://www.supremecourt.uk/cases/docs/uksc-2019-0121-judgment.pdf
Amy Lacey is a partner at Fenchurch Law
You have to be pulling my LEG(3)
An unwelcome consequence of the London Market’s preference for including arbitration clauses in most types of commercial insurance policies, is that disputes regarding the meaning of clauses in those policies are frequently resolved in private, rather than in a public forum where the decision of a Court could assist policyholders and insurers in avoiding similar disputes in the future.
In a Construction All Risks context, insurers’ preference for arbitration clauses has had the remarkable effect that in the nearly 25 years since the London Engineering Group (“LEG”) first introduced its suite of defects exclusions, there has not been a single Court decision, anywhere in the world, on the meaning of the defects exclusion which LEG intended to be the most favourable for policyholders: LEG3.
So, if there are no reported cases on LEG3 then where can one look for guidance? The current (2nd) edition of Paul Reed QC’s excellent book “Construction All Risks” doesn’t consider LEG3 in any detail. Whilst we understand that the omission will be corrected in the forthcoming 3rd edition, at present Mr Reed’s book refers to LEG3 as being an equivalent of the most favourable of the “DE” defects exclusions: DE5. That equivalence, however, is not accepted in all parts of the insurance market.
As noted in an article published by Iftikhar Ali of DWF in 2019, the absence of the word “additional” from LEG3 (as opposed to DE5, which explicitly excludes “additional costs of improvement”) has encouraged some to interpret LEG3 as excluding all costs which relate to works which have the effect of improving the original works. If this interpretation was correct then it would produce particularly harsh results for policyholders where the contract works have suffered damage as a result of defects in design, as in one sense all remedial works carried out according to a different design must necessarily be an improvement if the remedial works are defect-free as a result. For that reason Mr Ali (correctly in our view) reaches the view that such an interpretation, whilst consistent with a literal reading of LEG3, would be “a commercial nonsense”. Unfortunately, in our experience, that does not always prevent insurers from running the argument, to the surprise and disappointment of any policyholder or broker who is familiar with how the market ordinarily approaches the clause.
Whilst other texts and commentaries are consistent with the guidance notes produced by the London Engineering Group itself, that LEG3 was intended by the underwriters who drafted it to provide the “the widest form of cover, for physical damage caused by defects”, none of the texts or commentaries discuss how, precisely, one should determine: (i) what constitutes an improvement for the purposes of LEG3; and (ii) what cost is thereby excluded. This article attempts to address that gap.
What is an improvement for the purposes of LEG3?
For the purposes of this article the relevant part of LEG3 provides that:
“the cost of replacement or rectification which is hereby excluded is that cost incurred to improve the original material workmanship design plan or specification” (our emphasis).
It seems to us that for remedial works to constitute an improvement as compared with the original works:
- The remedial works must be different in some way from the original works; and
- That difference must be more than an equally valid way of performing the works, and must produce a tangible benefit (for instance an improved factor of safety, or a longer design life, or superior functionality - in all cases as compared with the original works as completed, as opposed to the outcome desired by the employer).
The requirement for the difference to produce a tangible benefit in order to constitute an “improvement” is important. The fact that remedial works are different to the original works does not on its own mean that they are an improvement, even if the remedial works are more expensive.
In the context of a Construction All Risks claim, if an insurer cannot identify a tangible benefit produced by the remedial works as compared with the original works, then it will not be able to show that the remedial works are an improvement, and any difference in cost between the remedial works and the original works will be irrelevant, and should not result in a deduction under LEG3. It is only if the insurer is able to identify a tangible benefit produced by a way in which the remedial works are different from the original works that one is required to consider what cost is thereby excluded by LEG3.
What cost is excluded?
Once one has a taken a view not just on how the remedial works are different from the original works, but also in what way that difference relates to a tangible benefit (i.e. what is the “improvement”), one can then try to identify the cost that relates to that improvement. Pausing there, it is of course entirely possible that there may be no “cost” of improvement, because a policyholder may find a different way of approaching the remedial works which, although producing a tangible benefit as compared with the original works, is nevertheless cheaper than the original works. In that situation whilst there is an “improvement”, there would be no “cost incurred to improve”, but rather a saving.
Any other interpretation would be precisely the “commercial nonsense” referred to by Mr Ali, and we doubt that there is a single CAR underwriter who, when writing a risk, would want to encourage their policyholder to carry out remedial works more expensively than a cheaper and better alternative if one was available.
Assuming, then, that remedial works are both an improvement, and are more expensive than the original works, it seems to us that the “cost incurred to improve” can then be identified in one of the two following ways.
Item by item comparisons
Depending on the facts, it may be possible to identify excluded costs on an item by item basis. For instance, there will be occasions when:
- Some elements of the remedial works are different to the original works, but produce no tangible benefit (“Differences”);
- Some elements of the remedial works are exactly the same as the original works; and
- Some elements of the remedial works are different to the original works, and do produce a tangible benefit (“Improvements”).
In that situation, the Differences may occasionally be cheaper than the comparable items of the original works. However, there wouldn’t be any justification, in our view, for offsetting any such savings against the cost of the Improvements if those were more expensive than comparable items of the original works. Rather, the cost excluded by LEG3 in that situation would be the un-discounted difference in cost between the Improvements, and the comparable items of the original works.
Equally, if the Differences are more expensive than the comparable items of the original works we can see no justification for excluding the difference in cost relating to them: what is excluded by LEG3 remains the difference in cost between the Improvements, and the comparable items of the original works.
It should be obvious, we hope, that any differences in cost which relate to elements of the remedial works which are exactly the same as the original works, are unaffected by LEG3.
The approach of separating Differences and Improvements should, in our view, be applied not only to separate items of work, but where required by the facts can also be used to identify the excluded costs where individual items of work may contain both Differences and Improvements.
Items of work containing both Differences and Improvements
How this would work in practice in relation to individual items of work can be illustrated by considering a length of steel pipe which was under-specified, has suffered damage by becoming deformed under expected pressure, and has been replaced by thicker steel pipe. In that situation:
- There is a difference between the original works and the remedial works, in that a thicker steel pipe has been used in the remedial works; and
- The fact that the steel pipe used in the remedial works is thicker than that used in the original works produces a tangible benefit, in that is more robust and less likely to become deformed under expected pressure (i.e. the pipework constitutes an Improvement in that it is thicker).
Suppose the thicker steel pipe used in the remedial works is more expensive for two reasons:
- Because more steel has been used to make it thicker; and
- Because the cost of steel has increased since the original works were carried out.
In that situation LEG3 would only exclude the cost of making the pipe thicker by using more steel, as it is only that cost which is related to the way in which the thicker steel pipe is superior to the original steel pipe. The increased material cost is not related to the way in which the thicker steel pipe is superior to the original steel pipe, and so that difference in cost is not, in our view, excluded by LEG3.
Holistic comparisons
There will be other occasions where individual items of remedial work cannot sensibly be compared with any items of the original works (for instance, where the remedial works follow a substantially re-designed scheme). In that situation it will be necessary to compare the overall (remedial and original) schemes with each other.
Even in that situation, however, care needs to be taken not simply to subtract the cost of the original works from the cost of the remedial works in order to identify the cost excluded by LEG3, because that would risk including Differences (i.e. which don’t relate to the way in which the remedial works improve the original works). Rather, the cost of any Differences (e.g. fluctuations in material costs), need to be identified and disregarded.
Ordinarily the most appropriate way to do so in order to produce a reliable holistic comparison, is to compare the cost of the remedial works against not the cost of the original works, but against the cost that would have been incurred if the original works had been re-performed (in exactly the same way) following the occurrence of damage instead of the remedial works which were actually done.
Authors:
Rob Goodship, Associate Partner
Fenchurch Law opens new office in Leeds
Fenchurch Law, the UK’s leading firm of solicitors specialising exclusively in representing policyholders in insurance coverage disputes, is delighted to announce its further expansion with the opening of a new office in Leeds from 1 September 2020, which will provide improved access to policyholders in the North of England, and their insurance brokers.
Founded in 2010, Fenchurch Law was created to allow policyholders access to specialist and high quality insurance advice that insurers have received for decades.
Fenchurch Law is now the largest specialist team of solicitors in the UK dedicated to serving the needs of policyholders. We focus exclusively on representing policyholders in insurance coverage disputes, specialising in high value and complex disputes.
The firm comprises five main practice areas, each of them partner-led by lawyers with a reputation for innovation and excellent client care:
· Professional Risks
· Financial & Commercial Risks
· Construction Risks
· Property Risks, and
· Products & Environmental Risks
Whilst Fenchurch Law has always acted for policyholders across the UK, as well as internationally, we have recognised an increasing demand among policyholders based in the North of England to have access to solicitors who are based closer to them. Our Leeds office has been launched in response to that demand.
David Pryce, Fenchurch Law’s Managing Partner is excited about the next stage of the firm’s expansion:
“For some time we’ve recognised not only that policyholders outside London often like to be able to instruct solicitors who are based closer to them, but also that there is a great pool of talented insurance disputes solicitors who are based outside the City. The launch of our Leeds office is the first step in helping to connect policyholders in the regions with solicitors who are not only based near them, but are genuine insurance disputes specialists with deep insurance market knowledge and experience”.
The Leeds Office will be headed up by Senior Associate, Daniel Robin. Dan has wide ranging experience of the insurance market, having previously worked as a panel solicitor for insurers, as a broker, and as a claims handler for insurers. He now uses his knowledge of how insurers operate to help policyholders to achieve the best outcomes from their insurance disputes. Dan has a particular focus on professional liability, property and financial lines risks.
Working alongside Dan is Phil Taylor, Insurance Consultant. Phil joined Fenchurch Law after 15 years in Broking as Regional Claims Director dealing with a wide portfolio of Clients, major and complex losses, and coverage disputes on first and third party claims. Prior to Broking, Phil’s background was Liability Loss Adjusting specialising in EL, PL, Products and Professional Indemnity claims. Phil has 35 years of experience in the insurance industry, is ACII qualified, and holds Chartered Status with the CII.
Fenchurch Law launches Fenchurch Advocacy Services
Fenchurch Law, the UK’s leading firm of solicitors focused exclusively on representing policyholders in insurance coverage disputes, is delighted to announce the launch of a unique claims advocacy service for insurance brokers, Fenchurch Advocacy Services, which will be available from 1st September 2020.
Fenchurch Advocacy Services is a non-legal insurance service designed to replicate the high quality, specialist claims advocacy currently only provided by the “Big 3” brokers and the Nationals.
Fenchurch Advocacy Services will provide brokers and their clients with access to an experienced ACII qualified and chartered status insurance claims professional, to offer brokers support, advice and assistance, as and when required, on claims-related issues, for a fixed monthly fee.
Announcing the launch David Pryce, Fenchurch Law’s Managing Partner, commented that: “For several years the brokers who we work with have been telling us that they really value the services we provide to them, and would like us to support them in other ways. Fenchurch Advocacy Services allows us to do just that, by providing brokers outside the “Big 3” brokers and “Nationals” with the same high quality claims advocacy that those larger brokers are able to provide to their clients. As a firm our purpose is to help level the playing field between policyholders and their insurers, and the launch of Fenchurch Advocacy Services is an important milestone in that journey”.
Fenchurch Advocacy Services will be headed up by Phil Taylor, Insurance Consultant. Phil joined Fenchurch Law after 15 years as Regional Claims Director at a leading broker, dealing with a wide portfolio of clients in relation to major and complex losses, and coverage disputes on first and third party claims. Prior to broking, Phil’s background was in Liability Loss Adjusting specialising in EL, PL, Products and Professional Indemnity claims. Phil has 35 years of experience in the insurance industry, is ACII qualified, and holds Chartered Status with the CII.
For further information please click here or contact Phil Taylor.
Government to fund replacement of non-ACM cladding systems on residential buildings
On 11 March, the government announced that it would provide up to £1 billion in 2020/21 to fund the removal and replacement of unsafe non-ACM cladding systems on high-rise residential buildings.
Attitudes towards building safety have undergone a paradigm shift since the tragic events at Grenfell Tower. Since then, the government has introduced a wide-ranging package of measures to ensure that buildings, particularly those with Aluminum Composite (ACM) cladding, are made safe. Notably, the government last year introduced a fund of £600m for the replacement of unsafe ACM cladding from residential buildings, similar to the type that was in place on Grenfell Tower.
Although ACM cladding remains the government’s priority, it has now announced proposals to extend funding for the removal and replacement of non-ACM cladding, such as High Pressure Laminate panels (‘HPL’). The announcement follows the guidance issued by the government earlier in the year in its “Consolidated Advice Note on Building Safety”, and in particular, the views of its Expert Panel that HPL systems with a ‘C’ or ‘D’ (i.e. those with a medium or high contribution to fire) would not meet the requirements of the Building Regulations, and that owners of such buildings should replace those materials as soon as possible.
Funding will be available to both the social and private sectors. In the private sector, the fund will be for the benefit of leaseholders to ensure that their buildings are made safe; and in the social sector, where remediation costs would otherwise be too prohibitive.
What are the eligibility criteria?
As with the ACM fund last year, funding will be available for buildings that are 18m or above.
The government has also said that building owners will be required to pursue warranty claims and take “appropriate action against those responsible for putting unsafe cladding on these buildings, with any damages recovered paid to Government once recouped.”
What are warranty claims?
Warranty claims refer to claims made under latent defect insurance policies. Those policies provide cover for newly built properties in the event of an inherent defect that was not capable of being discovered through inspection before completion.
Typically, latent defect policies are triggered in the event of (a) a non-compliance with the relevant Building Regulations that applied at the time of construction/conversion; and (b) which causes a present or imminent danger.
Given the above, unsafe non-ACM cladding that has been installed in high-rise residential blocks is likely to meet those requirements.
What other claims might be available against those responsible for putting unsafe cladding on buildings?
Those involved with the original cladding installations may include Main Contractors, Architects, and specialist cladding subcontractors. The type of claims that can be brought against them will differ in each case, and will depend upon the nature of the relationships between the parties, and the specific work that was undertaken.
One route to making a recovery against those involved with the original cladding installation is under the Defective Premises Act 1972.
The Defective Premises Act imposes a duty on builders and any other professionals who take on work in connection with the provision of a dwelling. It requires the work to be done in a professional or workmanlike manner, with proper materials, and that the dwelling is for habitation when completed. The duty is owed to every person who acquires a legal or equitable interest in the dwelling.
Summary
The announcement of funding for the remediation of non-ACM buildings underlines the government’s ever-increasing commitment to building safety.
It is also likely to come as a blow to latent defect insurers, who may face a surge in the number of claims made under their policies. The potential for claims will be increased if, as expected, local authorities and Fire and Rescue Services are granted enforcement powers where building owners refuse to apply for funding, or otherwise refuse to remediate their buildings.
Alex Rosenfield is a Senior associate at Fenchurch Law
Covid-19 Business Interruption Update: Is another storm brewing?
With the FCA Test Case concluding last week, and judgment not expected until mid-September at the earliest, this blog looks briefly at what further tumultuous times may lie ahead for policyholders. Specifically, whether policyholders’ business interruption (“BI”) losses following COVID-19 will be aggregated.
Policyholders and their brokers will know that aggregation is not in the scope of issues that has been considered by the court in the FCA Test Case. There will therefore be no fresh judicial assistance available to insureds on this issue.
Given the significance of some policyholders’ losses, we anticipate that this will be a hotly contested battle with insurers that will yet need to be resolved post-FCA Test Case.
Aggregation
In summary, aggregation is a principle under which two or more separate losses are treated as a single loss because of a unifying or connecting factor.
For those policyholders that have multiple premises insured under a single composite policy, additional aggregation arguments may arise (subject to the specific policy wording).
Where the sub-limits relevant to these COVID-19 BI claims are often lower, any aggregation of claims may ultimately be the difference between claims of hundreds of thousands of pounds or multi-millions.
On that basis, it is inevitable that insurers will use any and all arguments available to them to limit the losses recoverable, presuming policyholders succeed at least in part on liability and are able to pursue the quantification of claims.
Key issues
Whilst insurers may well seek to aggregate the losses for those policyholders that have suffered large losses, there must be a proper legal and policy basis for doing so. We are not convinced that, market-wide, there is such a basis.
As a starting point, there are numerous BI policies that do not have any aggregation wording present at all. In those cases, policyholders can take some comfort depending on how the applicable limits and sub-limits are expressed.
There are others that may face arguments from insurers that suggest that throwaway comments such as “any one loss” amount to an intention to aggregate losses, even where the wording does not purport to be an aggregation clause. Such assertions are capable of being firmly rebutted.
Any application?
On one view, it might be that aggregating wording is not triggered in any event. If the wording responds in cases where there has been ‘Damage’ i.e. property damage, one might question the relevance of that wording to the non-damage linked extensions with which COVID-19 BI claims are principally concerned. If the definition of ‘Damage’ is not extended to include non-damage perils, then it may be arguable that any aggregating wording is limited to apply only to those damage-based claims.
Commercial intentions
Even if it is conceded that there is a hypothetical basis for aggregation wording applying to a BI policy, policyholders may wish to look for the commercial realities of the effect of aggregation.
Taking the example of multiple premises being insured under one policy, where the sub-limits of the non-damage BI extensions are often a lot lower than the sum insured, policyholders may reasonably arrive at the conclusion that the aggregation of its losses would result in a commercial absurdity. Policyholders might be left with entirely inadequate cover, which cannot have been what was intended by policyholders or their brokers when obtaining cover.
Policy construction and factual issues
Notwithstanding the primary arguments above, policyholders can take some comfort that there are likely to be good policy construction arguments available, which may well be supported by a proper application of the facts.
Each policy and claim will of course have to be assessed on its own merits and facts. That notwithstanding, we would encourage insureds and their brokers to very carefully consider: (a) the construction of the wording that the insurer wishes to rely on (where relevant); and (b) how the insured’s losses have actually arisen.
Close attention needs to be paid to the actual aggregating words used: clauses that purport to aggregate losses by ‘originating cause’, ‘event’, ‘occurrence’, or ‘claim’, will have very different effects, and despite a long line of case law considering the meaning and application of these terms to various facts and circumstances, their proper application in any given case remains perennially contentious.
No two losses will have arisen in the same way. Referring again to the example of a limit applying ‘any one loss’ in a policy covering multiple insured premises, it is likely implausible that the same losses will have arisen across multiple premises, at the same time, in the same way, and with the same consequences. Might the better analysis be that multiple losses and therefore claims have in fact arisen, which therefore do not fall to be aggregated?
Further Lockdowns
As we move into the next phase of the pandemic and a new era of local lockdowns and other containment measures, many recently re-opened businesses may find themselves shutting down once more. Do any losses arising as a result give rise to a new claim under the policy, or do they fall to be aggregated with any claim already submitted from the earlier national lockdown?
The answer will lie partly in the outcome of the FCA Test Case, which will give us clearer guidance on exactly how and when the various non-damage BI clauses respond, and partly on an analysis of the relevant aggregating language in the policy. No doubt further disputes will arise over whether local lockdowns and restrictions imposed in relation to localised COVID-19 outbreaks amount to independent ‘causes’, ‘events’, or ‘occurrences’, and again the outcome may make the difference between no cover and full cover for continuing losses suffered by many businesses affected by the progress of the pandemic.
In the meantime, any policyholder that is subject to new restrictions on their business that are likely to result in losses should make a fresh notification under their policy via their broker.
Comment
We remain hopeful that the judgment following the FCA Test Case will decide at least some of the issues in favour of policyholders so that claims in principle may yet fall to be indemnified. If that is right, policyholders will understandably wish to proceed as quickly as possible to the quantification, and recovery, of losses.
In circumstances where that point is nearing, and losses may begin to be crystallising as those shorter indemnity periods end, we would encourage policyholders to seek assistance from their professional advisers in presenting the losses in an accurate and appropriate way. Failure to take care in doing so only risks backfiring at a later stage.
If policyholders or their brokers would like advice on any of the issues discussed in this article, or COVID-19 BI claims generally, please do not hesitate to contact us. In addition to written material, our thoughts on these issues are also disseminated by webinar as part of Fenchurch Law’s The Associate Series.
COVID-19 Business Interruption Update: Further details of FCA Test Case
The FCA has now published details of its proposed test case in which it seeks to determine a number of coverage issues common to a majority of declined COVID-19 business interruption claims.
Insurers/Policy Wordings
Following consideration of over 1200 submissions to its preliminary policyholder consultation process, 17 Policy wordings have been selected as a representative sample covering the broadest spread of common issues.
At present the FCA has indicated that 16 insurers have issued policy wordings within the list identified, eight of whom have been invited to participate in the proceedings:
• Arch Insurance (UK) Limited
• Argenta Syndicate Management Limited
• Ecclesiastical Insurance Office plc
• Hiscox Insurance Company Limited
• MS Amlin Underwriting Limited
• QBE UK Ltd
• Royal & Sun Alliance Insurance plc
• Zurich Insurance plc
It is anticipated however that other insurers who have issued policy wordings materially identical will also be affected by the court’s finding, and the FCA intends to issue a comprehensive list of affected insurers in July.
Issues
As anticipated, the focus of the proceedings is on the coverage provided by ‘non-damage’ extensions to business interruption policies, including Non-Damage Denial of Access, Infectious Disease, and Public Authority clauses.
The key issues that have been determined to be common to a majority of disputed COVID-19 BI claims include the following:
• What is meant by ‘interruption or interference’ and is closure required in whole or in part?
• Does “notifiable disease” or “human infectious or human contagious disease” include COVID-19?
• If the disease is required to be in the “vicinity of the insured premises” what does this mean?
• If the policy requires that the disease must exist within a geographical limit of the premises (e.g. 25 miles) what is required by way of proof?
• What is the meaning of an “occurrence” of notifiable disease or an “outbreak” of notifiable disease?
• What does a policyholder have to prove to show prevention or hindrance in access or use of premises?
• What is meant by “actions”, “advice”, “restrictions” imposed by government or other authority?
• What is meant by an “emergency likely to endanger life” (or similar)
• What is meant by “public authority” or “competent local authority”?
• What are the relevant causal links that must be established depending on the words used in the policy?
• Is there more than one potentially operative cause of loss, and if so what is the effect on recovery?
• What effect do any trends clauses have on the application of causation arguments?
• Do micro-organism, pollution or contamination exclusions act to exclude the losses?
Timeframe and Procedure
The FCA intends to file its claim on 9 June 2020, with Defences to be filed by 23 June 2020, and a final hearing is anticipated to be scheduled in the second half of July. In a Framework Agreement executed between the FCA and the participating insurers, it is expressly recognised that the FCA or any Insurer may appeal the decision of the court in relation to any particular issue, but the parties agree to explore the possibility of an expedited leapfrog appeal to the Supreme Court if necessary.
Further Documents
Alongside its announcement, the FCA has published:
• A proposed representative sample of 17 policy wordings;
• A preliminary list of affected insurers;
• Proposed Assumed Facts against which the determination will be made;
• Proposed Questions for Determination by the court arising from insurers’ reason fo declining claims; and
• Proposed Issues Matrix, showing which questions for determination by the court are engaged by each policy in the sample.
• The Framework Agreement agreed by the FCA and Insurers
All documents can be accessed at the FCA website https://www.fca.org.uk/firms/business-interruption-insurance
Consultation
Policyholders, insurance intermediaries, insurers and other stakeholders are invited to provide comments by 3pm on Friday 5 June, to biinsurancetestcase@fca.org.uk
Comment
Taken together, the FCA’s proposed sample of policy wordings, sets of assumed facts, and questions for the court amount to an ambitious and comprehensive set of issues for determination. With eight insurers invited to participate and make submissions across such a broad set of issues in such a compressed timetable, case management will be challenging. Nonetheless, if successfully completed, and not subject to a protracted appeals process, the exercise has the potential to provide insurers, policyholders and intermediaries with a welcome degree of certainty in relation to the vast majority of outstanding COVID-19 business interruption claims. Disputes over discrete issues such as aggregation and quantification of loss will remain, particularly in relation to those policyholders with significant and more complex losses, but even for these policyholders the FCA’s test case should narrow the issues in dispute and reduce the overall costs and time incurred in pursuing claims through formal proceedings.