Fenchurch Law warns the clock is ticking for Covid-19 Business Interruption claims
Fenchurch Law, the UK’s leading firm for insurance policyholders, has issued a warning to brokers to ensure their clients file any Covid-19 business interruption (BI) claims now, before they are time-barred.
Five years on from the pandemic, experts at Fenchurch Law are highlighting that the limitation period for Covid-19 BI claims will expire in March 2026, leaving affected businesses with less than a year to act.
Over the last five years, a series of high-profile battles between insurers and policyholders in the UK over BI wordings have expanded the scope of BI policies. The result is that policyholders now have more potential opportunities to receive compensation for the loss of business during the early months of the pandemic.
Fenchurch Law’s Managing Partner, Joanna Grant, warns that brokers need to act now to give their clients the best chance of success:
“Many industries were decimated by the pandemic that swept the world in 2020, with few more severely impacted than the hospitality industry, the long periods of lockdown taking a significant toll.
“During the last five years, we’ve fought for clients to get a fair outcome from their insurers. Though the pandemic was unprecedented, insurance policy wordings should be fair, proportionate and transparent, and we have found time and time again, that this was not the case. We’re still coming up against legal challenges regarding how to apply policy wordings, most recently the Non-Damage Denial of Access appeal brought by Liberty, which found for policyholders in holding that in composite policies, 'any one loss' limits applied separately to each policyholder rather than in aggregate across all policyholders. We are also involved in new cases being issued in court, including most recently a claim brought by the owner of the Franco Manca chain of pizzerias against QIC in respect of their Covid-19 losses.
For some businesses, there may be a long road ahead, so we urge brokers start talking to clients now, long before the liability period runs out.”
Joanna Grant is the Managing Partner of Fenchurch Law UK
The Good, the Bad & the Ugly: #25 The Good turned Ugly: Lonham Group Ltd v Scotbeef Ltd & DS Storage Ltd (in liquidation) [2025] EWCA Civ 203
Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
In our view, some cases are bad for policyholders, wrongly decided and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
#25 The Good turned Ugly: Lonham Group Limited v Scotbeef Limited & DS Storage Limited (in liquidation)
Introduction
In a highly anticipated appeal concerning the Insurance Act 2015 (“the Act”), the Court of Appeal has offered the first guidance on the operation of Parts 2 and 3, and the characterisation of representations, warranties and conditions precedent.
Background
D&S Storage Limited (“D&S”) provided refrigeration and transport services to Scotbeef Limited (“Scotbeef”), who are producers and distributors of meat. In October 2019, D&S transferred six pallets of mould contaminated meat to Scotbeef. The meat was unfit for consumption by humans and/or animals and was consequently destroyed, leading Scotbeef to issue a claim against D&S for £395,588.
Initially, D&S sought to limit its liability to £25,000 on the basis that the Food Storage and Distribution Federation terms (“FSDF Terms”) (which included a £250 per tonne liability limit for defective meat) had been incorporated into its contract with Scotbeef. The Court disagreed, finding that the FSDF Terms were not incorporated into the contract, and that Scotbeef’s claim was not limited in value.
The first instance decision triggered D&S’ insolvency, and Scotbeef sought to pursue the claim directly against D&S’ insurer, Lonham Group Limited (“the Insurer”) pursuant to the Third Parties (Rights Against Insurers) Act 2010.
The Insurer defended the claim on the basis that D&S had failed to comply with a condition precedent in the Policy by not incorporating the FSDF Terms into the contract.
The Policy
The Policy contained a “Duty of Assured” clause that read:
"Conditions
General Conditions, Exclusions, and Observance…
DUTY OF ASSURED CLAUSE
It is a condition precedent to liability of [the Insurer] hereunder:-
(i) that [D&S] makes a full declaration of all current trading conditions at inception of the policy period;
(ii) that during the currency of this policy [D&S] continuously trades under the conditions declared and approved by [the Insurer] in writing;
(iii) that [D&S] shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by [it]. Reasonable steps are considered by [the Insurer] to be the following but not limited to… [various examples relating to incorporation of terms and conditions were set out]…"
(Our emphasis)
The following term was also included elsewhere in the Policy:
"The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety.”
The High Court decision
Section 9 of the Act expressly prohibits an Insurer from converting a representation into a warranty or a condition precedent, whether by declaring the representation to form the basis of the contract or otherwise.
The High Court found that although sub-clause (i) was expressed as a condition precedent, it was in fact a representation about the insured’s trading position at the inception of the Policy. As such, it fell to be considered under Part 2 of the Act, which deals with the fair presentation of the risk.
As the Insurer had not based their defence on a breach of the duty of fair presentation and had not claimed any of the Section 8 proportionate remedies (such as part reduction in the claim), they could not rely on sub-clause (i) to repudiate liability.
Adopting a pro-policyholder interpretation, the Court held that each of the sub-clauses in the Duty of Assured clause had to be read together, meaning that sub-clauses (ii) and (iii) could not be relied upon either.
The Insurer appealed.
The Court of Appeal decision
Whilst the Court of Appeal agreed that sub-clause (i) was a pre-contractual representation dealing with existing contracts at policy inception, they disagreed that sub-clauses (ii) and (iii) had to be classified in the same way, stating that “the way they are grouped together in the policy does not justify… the “all or nothing” collective approach that was adopted by the judge."
That being the case, the heart of the appeal went to the characterisation of sub-clauses (ii) and (iii), and whether they were warranties and/or conditions precedent.
Answering that question, the Court ruled that the wording was clear, and that on a proper construction, sub-clauses (ii) and (iii) were warranties and conditions precedent to liability covering D&S’ future business operations, because:
- They were included under the heading “General Conditions, Exclusions and Observance”.
- The heading of the clause included the word “duty”, synonymous with an ongoing responsibility, obligation or burden.
- It was stated, in no uncertain terms, that the clause was “a condition precedent to liability”.
- The Policy contained, elsewhere, the following wording: “The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety”.
Their categorisation as warranties meant that rather than being governed by the provisions of Part 2 of the Act, sub-clauses (ii) and (iii) fell to be considered under Part 3 of the Act, section 10(2), which provides that an insurer has no liability for any loss after a warranty has been breached but before it has been remedied. Since it had been established that the FSDF Terms were never incorporated into the contract between Scotbeef and D&S, D&S was in breach of the warranties and conditions precedent contained in sub-clauses (ii) and/or (iii), and the Insurer was absolved of any liability.
The Court of Appeal disagreed with the High Court’s interpretation that the Duty of Assured clause was an attempt to contract out of the Act because:
- The Duty of Assured Clause stated that it was subject to and incorporated the Act, which was “directly contrary to the type of wording that would be necessary to achieve any contracting out”; and
- Sub-clauses (ii) and (iii) did not place D&S in a worse position than it would have been in under the Act given that, under section 10(2) the Insurer is entitled to decline indemnity for breach of a warranty which has not been remedied.
Key takeaways for policyholders
The Court of Appeal decision highlights some of the difficulties policyholders may have in distinguishing between conditions precedent, warranties and pre-contractual representations in policies.
It is clear in a post-Insurance Act 2015 world that, although the ability of insurers to rely on conditions precedent and warranties has been limited, they are still of considerable use to insurers when properly applied. This decision confirms that underwriters are able to control the nature and extent of the risks they undertake through the use of appropriately worded duty of assured clauses, and warranties more generally, without contravening the provisions of the Act regarding the duty of fair presentation of risk (which the judgment of the lower court placed in doubt).
This decision is a salutary reminder for policyholders to ensure compliance with policy terms, and to seek support in identifying any conditions precedent to liability in order to ensure that an indemnity is available when needed.
Most importantly, for policyholders in the logistics and warehousing industry, where the value of goods stored or carried can be difficult to quantify and insurers manage their liability by requiring insureds to trade on industry terms, insurers will rely heavily on policy terms which require the incorporation of those terms, which limit liability and impose time bars on claims.
Abigail Smith is an Associate at Fenchurch Law
Climate Risks Series, Part 4: California Wildfires - Insurance Insights
Fenchurch Law firmly believes that an outstanding approach to claims payment is fundamental to the health of any insurance market. In fact, Lloyd’s of London’s modern reputation for excellence owes much to its response to the San Francisco earthquake in 1906, when leading underwriter Cuthbert Heath famously instructed his local agent to “pay all of our policyholders in full, irrespective of the terms of their policies”.
With extreme weather events including earthquakes, hurricanes and storms on the rise, the most recent wildfires in Los Angeles present a number of challenges, and also opportunities, for California’s insurance market.
Background
The fires originated in the canyons above the Hollywood Hills and were swept into residential areas by notoriously strong Santa Ana winds. Although the areas affected are known to be at risk of wildfires, it is unusual for them to occur in the winter months. This year, however, a combination of drought and abundant vegetation (the result of above average rainfall in the previous two years) resulted in there being ample fuel for the fires to spread.
Evidently, climate change is increasing the risk of wildfires in the area, with a study from Stanford University predicting that the frequency and potency of these fires will only continue to escalate in the future.
Now contained, the most significant fires were located in the Pacific Palisades and Eaton, primarily upscale residential areas surrounding the Hollywood Hills. The Pacific Palisades, in particular, is home to a wealth of high-value residential property, with average sale prices above $3 million. The impact of this is that insured losses are set to be the highest in California’s wildfire history, with JP Morgan’s most recent estimates at $20 billion. For context, California's most expensive wildfire to date, the 2018 Camp Fire, resulted in insured losses of around $10 billion.
Beyond their initial response to claims payment, insurers will need to reconsider their approach to wildfire risk and implement resilience measures in order to continue to do business in the area, while maintaining adequate capital reserves and managing cumulative exposures.
A fragile home insurance market
In recent years, several leading insurers, including AIG and Chubb, have stopped issuing new home insurance policies in the state of California due to persistent losses against a backdrop of rising construction costs and property prices, with one deciding to reduce cover for 72,000 homes in the Pacific Palisades area. Underinsurance is a widespread problem.
At the end of last year, the California Department of Insurance sought to entice insurers back into the market by allowing them to use sophisticated catastrophe modelling and artificial intelligence to evaluate risk in fire-prone areas. That risk, together with the cost of any reinsurance, could then be factored into premiums. Unfortunately, the effect was that premiums soared, and it became increasingly difficult to obtain adequate cover at an affordable price.
In response, many homeowners opted to take out policies with the State-backed insurer of last resort, Fair Plan. Fair Plan distributes losses among a number of insurers based on their respective market share. If insufficient funds are available to cover its losses, Fair Plan can issue assessments requiring insurers in the voluntary market to contribute. If that happens, the Plan will impose a special assessment on home insurance policyholders across the State.
It is estimated that Fair Plan’s exposure in the Pacific Palisades alone is almost $6 billion, with luxury property specialists Allstate, Travelers and Chubb the most exposed. Post-Covid-19 construction prices could further increase final payouts, in addition to living expenses claims, typically capped at 30% of a property’s value. It has already been reported that regulators are allowing Fair Plan to collect $1 billion from private insurers to cover its recent losses.
The future
Following initial focus on the safe evacuation of residents, the State’s Insurance Commissioner has taken steps to mitigate the impact on California’s already fragile home insurance landscape, by issuing a moratorium preventing insurance companies from cancelling or not renewing policies in the affected areas for the next year. The Commissioner has also issued a notice to insurers urging them to go beyond their legal obligation and pay policyholders 100% of their personal property coverage limits without requiring them to itemize everything that has been lost.
The insurance industry has, historically, supported risk management in the aftermath of catastrophic events. It was the London market that established the first organised firefighting services when insurers hired their own firefighters to protect policyholder properties during the Great Fire of London in 1666, and it was Hurricane Andrew that changed the way insurers looked at hurricanes, and at natural catastrophes in general.
Following the 2018 Camp Fire, the Californian town of Paradise implemented a number of measures to build resilience to future fires, such as burying all power lines underground to reduce the risk of electrical sparks causing fires, requiring residents to remove vegetation in close proximity to their homes, and making grants available to homeowners willing to use fire-resistant materials in their rebuilding efforts.
At a property resilience level, the Insurance Institute for Business & Home Safety (IBHS) provides science-backed mitigation measures for homeowners to reduce the risk of wildfires igniting in their homes. The IBHS is an independent body, supported by the insurance industry to advance building science in order to reduce risk from natural hazards.
It remains to be seen whether the local insurance market will step up to deliver on the Commissioner’s request to pay out full policy limits without requiring proof of loss for every individual item, and how far mitigation measures will be implemented to respond to the difficulties that policyholders are likely to face in the coming months.
Given the impact of climate change, losses resulting from wildfires and other natural perils are likely to increase in severity in the future, highlighting the critical importance of a strategic approach to consumer protection and insurance market sustainability.
Abigail Smith is an Associate at Fenchurch Law
Climate Risk Series:
Part 1: Climate litigation and severe weather fuelling insurance coverage disputes
Part 2: Flood and Storm Risk – Keeping Policyholders Afloat
Part 3: Aloha v AIG – Liability Cover for Reckless Environmental Harm
Reinsurance Cover for Covid BI Losses Upheld on Appeal
In UnipolSai Assicurazioni SPA v Covea Insurance PLC [2024] EWCA Civ 110, the Court of Appeal has upheld the first instance finding that the reinsured (Covea), having paid out substantial sums in respect of Covid business interruption (BI) losses, were entitled to indemnity under property catastrophe excess of loss policies with reinsurers. The decision provides clarification on the operation of aggregation clauses and the proper interpretation of a “catastrophe” in treaty reinsurance arrangements.
Covea provided cover for a large number of children’s nurseries which were forced to close between 20 March 2020 and July 2020, as a result of the pandemic. The factual background and outcome at first instance are explained in detail in our earlier article. The decision was appealed by reinsurers and the following questions arose for re-evaluation:
1. Whether Covid-19 losses arose out of, and were directly occasioned by, a “catastrophe”; and
2. Whether the “Hours Clause” - by which the duration of any “Loss Occurrence” was prescribed depending on the nature of the underlying peril - meant that:
(i) an “individual loss” occurs on the date the covered peril strikes, including where the insured peril is the loss of ability to use premises; and
(ii) where the (re)insured first sustains indemnifiable BI loss within a nominated 168-hour period, subsequent losses after that period fall to be aggregated as part of a single “Loss Occurrence”.
Meaning of Catastrophe
At first instance, Mr Justice Foxton held that Covid-19 did amount to a “catastrophe,” as required under the reinsurance wording. On appeal, the reinsurers argued that a catastrophe must be a sudden or violent event, capable of causing physical damage, whereas the pandemic was an ongoing state of affairs.
The Court of Appeal rejected these submissions, highlighting the absence of any reference to an “event” within the policy wording, and noting that the unities test in Axa v Field [1996] is merely an aid to be used with broad application. Their Lordships also rejected the argument that “suddenness” was a pre-requisite for all catastrophes, and, in any event, the “exponential increase in Covid 19 infections in the UK […] did amount to a disaster of sudden onset.” The attempt by reinsurers to rely on an ejusdem generis argument, in relation to the alleged need for physical damage, was flawed, as the types of catastrophes mentioned in the policy were not intended to be a prescribed class. The expert evidence that BI cover may include cover for non-damage BI was unchallenged.
Operation of the Hours Clause
The central question for consideration under the Hours Clause was when the relevant loss occurred. If it fell outside the period stipulated, then it would not be recoverable. It was also noted that the term “Loss Occurrence” was defined in the policy to mean “individual losses”. Discussing this further, the Court of Appeal emphasised that the term “occur” means when a loss first happens during a period of time. In relation to BI specifically, it was held that when the covered peril is the loss of an ability to use the premises, the individual loss occurs at the same time, regardless of how long the financial loss continues - consistent with the approach taken by Mr Justice Butcher in Stonegate and Various Eateries. Provided the individual loss occurs within the indemnity period, the totality of that loss is covered and all of its financial consequences. An apportionment of financial loss would give rise to considerable practical difficulties and was deemed to be incorrect.
Implications for Policyholders
The decision is welcomed by cedants with the benefit of similarly worded reinsurance policies. The implications are far-reaching, with total payouts for Covid BI claims estimated in the region of £2 billion, according to the Association of British Insurers. This policyholder-friendly precedent is particularly helpful, since most reinsurance disputes are resolved in confidential arbitrations.
Authors:
Pawinder Manak, Trainee Solicitor
Climate Risks Series, Part 3: Aloha v AIG - Liability Cover for Reckless Environmental Harm
Aloha v AIG - Liability Cover for Reckless Environmental Harm
Increasing numbers of claims are proceeding around the world alleging that the public were misled about the risks associated with climate change, resulting from fossil fuels and greenhouse gas (“GHG”) emissions.
A recent decision in the Supreme Court of Hawaii, Aloha Petroleum Ltd v National Union Fire Insurance Co. of Pittsburgh and American Home Insurance Co. [2024], held that an “occurrence” in this context included the consequences of reckless conduct, and GHG emissions were a “pollutant” for purposes of a pollution exclusion under a commercial general liability policy.
Background
The Appellant, Aloha Petroleum Ltd (“Aloha”), was insured with two subsidiaries of AIG under a series of liability policies, in respect of its business as one of the largest petrol suppliers and convenience store operators in Hawaii.
The counties of Honolulu and Maui sued several fossil fuel companies, including Aloha, claiming that the defendants knew of the effects of climate change and had a duty to warn the public about the dangers of their products. It was alleged that the defendants acted recklessly by promoting climate denial, increasing the use of fossil fuels and emitting GHGs, causing erosion, damage to water infrastructure and increased risks of flooding, extreme heat and storms.
Aloha sought indemnity under the policies and AIG refused to defend the underlying claims, alleging that the harm caused by GHGs was foreseeable and therefore not “accidental”; and alternatively, seeking to rely upon an exclusion to cover for losses arising from pollution.
Aloha issued proceedings seeking a declaration that the policies would respond, and the District Court of Hawaii referred the following questions to the Supreme Court, to assist with determining the parties’ motions for summary judgment:
- Does an “accident” include recklessness, for purposes of the policy definition of “occurrence”?
- Are greenhouse gases “pollutants” within the meaning of the pollution exclusion?
Policy Wording
The policies provided occurrence-based coverage, with two different definitions of “occurrence” for the relevant periods:
- “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”, or
- “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured”
The pollution exclusion clauses varied across the policies, but the differences were immaterial for purposes of the issues before the Supreme Court.
The 2004-2010 policy excluded cover for:
“Bodily injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.
. . . .
“Pollutants” [mean] “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
Is Reckless Conduct Accidental?
Aloha argued that it was entitled to indemnity, as the allegations of recklessness were sufficient to establish an “accident” and therefore an “occurrence” under the policies. Aloha relied on Tri-S Corp v Western World Ins. Co. (2006), which held - in the context of unintentional personal injury resulting from proximity to high voltage power lines - that reckless conduct is accidental, unless intended to cause harm, or expected to with practical certainty.
AIG claimed that Aloha understood the climate science, and the environmental damage was intentional, not fortuitous. It relied on AIG Hawaii Ins. Co. v Caraang (1993), which held - in the context of torts involving obvious physical violence - that an “occurrence” requires an injury which is not the expected or reasonably foreseeable result of the insured’s own intentional acts or omissions.
The Supreme Court agreed with Aloha, ruling that:
“when an insured perceives a risk of harm, its conduct is an ‘accident’ unless it intended to cause harm or expected harm with practical certainty … interpreting an ‘accident’ to include reckless conduct honors the principle of fortuity. The reckless insured, by definition, takes risk.”
Are GHGs “Pollutants”?
Aloha argued that GHGs are not pollutants, because they are not “irritants” (applicable in the context of personal injury, not property damage) or “contaminants”. The drafting history was said to indicate that the exclusion should be limited to clean-up costs for traditional pollution caused by hazardous waste from the insured’s operations, not liability resulting from its finished products.
The Supreme Court held that a “contaminant”, and therefore “pollutant” for purposes of the exclusion, is determined by whether damage is caused by its presence in the environment. Although a single molecule of carbon dioxide would not be viewed as pollution, a fact-specific analysis is required, and the Supreme Court was satisfied that Aloha’s gasoline production is causing harmful climate change. This approach was supported by the regulation of GHG emissions in Hawaii and the federal Clean Air Act.
Not all of the policies contained a pollution exclusion clause, however, and the question of whether AIG is required to indemnify Aloha for that policy period (covering 1986 to 1987) will now be considered by the District Court.
Impact On Policyholders
The finding that reckless conduct is covered by liability policies in the context of climate harms is highly significant and will be welcomed by energy companies.
While the issues are yet to be fully explored in European jurisdictions, it is interesting to compare the UK Supreme Court decision in Burnett v Hanover [2021], where merely reckless conduct was insufficient to engage a ‘deliberate acts’ exclusion in a public liability policy; and the recent decision in Delos Shipping v Allianz [2024], confirming that a defence based on lack of fortuity requires the insurer to establish that consequences of the insured’s actions were inevitable, i.e. “bound to eventuate in the ordinary course”.
The precise wording of any pollution or climate change exclusion should be carefully considered prior to inception of the policy period. The causative language used can significantly alter the scope of coverage and prospects of indemnity (see, for example, Brian Leighton v Allianz [2023]).
Authors:
Climate Risk Series:
Part 1: Climate litigation and severe weather fuelling insurance coverage disputes
Part 2: Flood and Storm Risk – Keeping Policyholders Afloat
Climate Risks Series, Part 2: Flood and Storm Risk - Keeping Policyholders Afloat
Introduction
Extreme rainfall and storms have become increasingly prevalent in the UK. Figures from the Association of British Insurers (“ABI”) show that storms and heavy rain have contributed to driving up property insurance payouts to the highest level in 7 years.
During floods in September 2024, several areas of the UK experienced significant property damage. This included AFC Wimbledon’s grounds, where a sinkhole caused the football pitch to collapse, after a nearby river burst its banks due to the excessive rainfall.
This article will discuss:
- The coverage issues that policyholders could face in relation to cover for damage caused by flood and storm.
- How stakeholders can increase resilience to floods and storms.
Coverage Issues
Where policies do not clearly define what constitutes a “flood” or a “storm”
Extreme weather comes in various forms and severities. In the absence of a clear definition of “flood” or “storm”, insurers may seek to rely on metrics such as the Beaufort wind force scale, ABI definition of storm, or previous case law, to support arguments limiting the scope of policy cover depending on the particular facts.
Recent decisions from the US have held that flood exclusions did not apply to: water damage from backed-up drainage following Hurricane Ida (GEMS Partners LLC v AmGUARD Ins Co (2024), in the New Jersey district court); and water accumulating on a parapet roof after a severe storm (Zurich v Medical Properties Trust Inc (2024), in the Massachusetts Supreme Court); based on the meaning of “flood” and “surface waters” in the relevant policy wordings.
In FCA v Arch Insurance Limited [2021] UKSC 1, the UK Supreme Court confirmed that, when looking at the construction of a policy, it is necessary to consider how a reasonable person would understand the meaning of the words used, in light of the commercial context. Therefore, policyholders should ensure, prior to inception, that the policy contains appropriate and clear definitions of “flood” and/or “storm”, to prevent ambiguity in the event of a claim.
Where the weather event is a combination of “flood” and “storm”
Where a weather event may appear to be a combination of both a flood and a storm, identifying the proximate cause of the loss, i.e. the dominant cause, may be difficult without meteorological expert evidence. This can raise two separate issues.
Firstly, policies contain different sub-limits for flood or storm damage. For example, if “flood” has a lower sub-limit compared to “storm” perils, a policyholder would likely seek to argue that storm damage has occurred, to maximise cover under the policy.
Secondly, if a policy excludes either flood or storm damage, the principles derived from Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57 and The Miss Jay Jay [1987] 1 Lloyd's Rep 32 may apply. This means that where two concurrent proximate causes operate together to bring about a loss, if one is insured under the policy and one is excluded, the loss will not be covered. If one concurrent proximate cause is an insured peril and the other is not insured, but not excluded, the loss will be covered.
Flood management measures
After the damage to its pitch, AFC Wimbledon was reportedly exploring ways to improve its flood management and infrastructure, to reduce the risk of future floods. It is likely that insurers will seek to introduce more conditions within property insurance policies, requiring certain flood management measures to be in place as a prerequisite to cover.
Flood resistance measures aim to “resist” or reduce the amount of water that enters a property. This can include the installation of flood gates or airbrick covers. Flood resilience measures purely mitigate the level of damage to property. This would include having concrete floor tiles, as opposed to carpets, and placing plug sockets away from entrances close to water.
Some property policies will contain a stillage condition precedent to liability. This will state that a policyholder will not be covered for loss caused by a flood, storm or escape of water, if it does not keep stock or other items a certain distance above floor level.
Furthermore, insurers could potentially restrict cover offered to policyholders whose buildings are situated in areas at a higher risk of flooding, or where businesses do not have mechanisms in place to deal with potential flood damage.
Why is Climate Change causing more Floors and Storms?
It is thought that the increase in the number of extreme weather events is a result of climate change.
Climate change contributes to more floods and storms because the increase in greenhouse gases in the atmosphere has allowed carbon dioxide to trap the sun’s rays. This has resulted in an increase in the planet’s temperature and the level of moisture that is held in the atmosphere. The warmer the atmosphere, the quicker the water can evaporate and fall, resulting in more intense and voluminous rainfall.
Improving Industry Resilience to Floor and Storm
The increase in natural disasters such as earthquakes, floods and hurricanes has led to some insurers pulling out of international catastrophe insurance markets. This is because of the unpredictable nature of these events and the severity of the losses suffered. This has resulted in limited options and more expensive premiums for catastrophe policies available to policyholders.
Similarly, insurers in the UK are becoming more reluctant to provide cover for damage caused by storm and flood, as the number of these types of claims increases, giving rise to the risk of a protection gap for policyholders.
Parametric Insurance
One of the tools available to help mitigate this effect is parametric insurance. This is a type of insurance cover where claims are paid on a predetermined basis. For example, cover for a storm would have parameters such that, if there is damage to property and a certain wind-speed or water depth is reached, then the policy would be triggered.
Traditional insurance policies are based on the actual loss that is sustained by the policyholder, whereas parametric insurance policies are triggered by the occurrence of an event and when certain parameters are reached. One of the main benefits of parametric insurance is the greater certainty of insurers paying out. This is especially important where there is a need for an urgent financial resource, allowing for a quicker payment to be made to policyholders.
Flood/Storm specific reinsurance schemes
For flood damage in the UK, there is a scheme in place for homeowners known as Flood Re. This scheme operates in a way where insurers can pay a premium to reinsurers and they would have access to a “pool” of indemnity when a claim arises. If the pool is exhausted, then the government can step in to pay the remainder of any losses.
The scheme is expected to provide cover until 2039 as Flood Re anticipates there will then be a “free market” for flood risk insurance. However, one can argue that this is unlikely if we see a similar pattern in the increase in extreme weather events and insurance claims over the next decade. Therefore, an alternative scheme may be needed, for businesses as well as homeowners, to ensure all policyholders have a safety net in the event of claims arising out of floods and storms.
Broader Risk Management
Increased industry resilience is likely to come from broader risk management. Currently, the UK does not have a robust plan in place to tackle flood risk. It is the responsibility of organisations such as the Environment Agency, the UK Climate Change Committee and DEFRA to collaborate and mitigate flood risk.
There have been calls for the Government to set specific flood risk targets as a result of climate change and the increase in extreme weather events. This would be an example of an initiative where input from a variety of organisations could help to reduce the risk of property damage and lead to increased resilience.
Conclusion
With the rise in extreme weather events, insurers will look to mitigate exposures and robustly defend claims arising from flood and storm damage, leaving policyholders in a potentially vulnerable position.
A collaborative response is needed to ensure that the insurance industry can adapt to emerging risks and ensure that appropriate cover is available for policyholders, in the event of floods and storms.
Author
Ayo Babatunde, Associate
The elephant in the room: and it’s not the Secretary of State
In this, the latest in a series of recent Covid-19 BI appeals, the Court of Appeal has handed down judgment in International Entertainment Holdings Limited & Ors v Allianz Insurance Plc [2024] EWCA Civ 1281. A copy of the judgment can be found here.
The central issue here turned on whether the restrictions brought in by the government, preventing or hindering access to the claimants’ theatres around the country, were those of a “‘policing authority”.
In concluding that they were not, the Court of Appeal held that, “It is sufficient to say that the term does not extend to the Secretary of State. To adapt Lord Justice Scrutton’s famous remark about the elephant (Merchants Marine Insurance Co Ltd v North of England Protection & Indemnity Association (1926) 26 Ll LR 201, 203), the reasonable policyholder might not be able to define a “policing authority”, but he would know that the Secretary of State was not one.”
That finding notwithstanding, the judgment brings some welcome news for the wider policyholder market with the finding that Covid-19 can be an “incident” and that, in the absence of clear wording to the contrary, cover can be available on a “per premises” basis.
The Underlying Proceedings
The issues on appeal in this matter were first heard by Mr Justice Jacobs as part of a group of cases (see Gatwick Investment Ltd v Liberty Mutual Insurance Europe SE [2024] EWHC 124 (Comm)).
The claim concerned the interpretation of a non-damage denial of access (“NDDA”) clause for losses arising out of the closure of venues, following the 21 March Regulations made by the Secretary for Health and Social Care.
The relevant wording read as follows:
“Denial of Access Endanger Life or Property
Any claim resulting from interruption of or interference with the Business as a direct result of an incident likely to endanger human life or property within 1 mile radius of the premises in consequence of which access to or use of the premises is prevented or hindered by any policing authority, but excluding any occurrence where the duration of such prevention or hindrance of us [sic.] is less than 4 hours, shall be understood to be loss resulting from damage to property used by the Insured at the premises provided that
i) The Maximum Indemnity Period is limited to 3 months, and
ii) The liability of the Insurer for any one claim in the aggregate during any one Period of Insurance shall not exceed £500,000”
At first instance, the Judge concluded that the Secretary of State was not a “policing authority”, which was sufficient for the policyholders’ claims to be dismissed.
The Appeal
While accepting that the term “policing authority” was not limited to the police, and that it could encompass restrictions imposed by a similar body performing policing functions in circumstances likely to endanger human life or property, the Court of Appeal felt it unnecessary to decide how widely the clause may extent on the basis that it was sufficient to say it did not include the Secretary for State.
That decision was ultimately determinative of whether or not the policyholders in this case were able to claim for losses arising out of the Covid-19 pandemic, however, there were three further issues on appeal which will be of interest to the wider policyholder market: (i) whether or not Covid-19 was capable of being an incident; (ii) whether the extension applied on a “per premises” basis; and (iii) whether policy wording referring to “any one claim in the aggregate” contained a mistake capable of correction.
Can Covid-19 be an “incident”?
The Court of Appeal was asked to consider whether, in the context of the relevant clause, Covid-19 could be an “incident likely to endanger human life.”
The Court of Appeal accepted that the word “incident” can be used synonymously with “event” or “occurrence” but, in ordinary usage, it would generally connote something more dependent on the context in which the word is used. In the context of this wording, “incident” was qualified by something that “endangers human life or property,” so as to require a response from a “policing authority”
It was common ground that “Covid-19 endangered human life because of the infectious nature of the disease; and taken together with all the other cases of Covid-19 in the country, it called for a response by the Secretary of State”.
Further, in this clause, it was clear that the terms “incident” and “occurrence” were being used interchangeably. Therefore, a case of Covid-19 could properly be regarded as an “incident,” and could amount to an “event” or “occurrence”.
Although this analysis differs from that of the Divisional Court in the FCA Test Case, where it was held (in the context of the Hiscox NDDA clause) that “it is a misnomer to describe the presence of someone in the radius with the disease as “an incident” for the purposes of the clause”, the Court of Appeal did not find that the point was wrongly decided by the Divisional Court. Rather, its decision was based on the wording of the clause before it.
The finding that Covid-19 can be an “incident,” in certain contexts, is a potentially significant outcome for other policyholders with “incident” wordings. There are likely to be a number of claims out there that have been in cold storage due to an “incident” wording, which should now be revisited given this apparent thawing on the issue.
Per premises
The Court of Appeal agreed with the lower court’s finding that this wording provided cover on a per premises basis.
When considering whether the wording provided for cover on a per premises basis, the Court of Appeal focused on the specific wording of the clause, and in particular the fact that the insured peril was specific to each of the premises insured. A prevention or restriction of access to each premises would, therefore, give rise to a separate claim to which a separate limit would apply. The insurer’s focus on the defined term “Business” (i.e. that it would not “make sense to speak of the business of the premises as distinct from the business of the policyholder”) was found to place more weight on the definition that it would bear.
Further, the Court of Appeal noted that the policy drew no distinction between policyholders in the claimant group who owned or operated only one venue, and those who owned or operated multiple venues. In those circumstances, interpreting the policy limit as applying separately to each policyholder rather than to each premises would be “somewhat capricious”.
This is an important finding for policyholders with more than one premises in circumstances where insurers are frequently seeking to limit losses to a single limit across multiple premises. Close attention should be paid to the specifics of the wording, as the nuance of the drafted wording and the policy as a whole will dictate whether a per premises argument can be sustained.
Correction
The insurer’s attempt to introduce an aggregate limit were unsuccessful in the absence of a clear mistake (or at least a mistake with a clear answer).
The insurer’s had attempted to rework the wording of the extension referring to “any one claim in the aggregate” to provide an annual aggregate limit by inserting the word “any one claim and in the aggregate”. The Court of Appeal found that while it was reasonably clear that something had gone wrong in the language, it was nonetheless far from obvious what solution the parties had intended. It was as likely that the insurer had intended for the limit to apply in the aggregate as it was that the limit was intended to apply to any one claim. The correction proposed by the insurer would result in the words “any one claim” being deprived of any meaning. Accordingly, the judge was correct to have rejected the insurer’s case of construction by correction at first instance.
This decision again confirms the principles in East v Pantiles (Plant Hire) Ltd and Chartbrook Ltd v Persimmon Homes Ltd, which were considered recently in another appellate Covid-19 decision, Bellini N/E Ltd v Brit UW Ltd. It serves as a stark reminder that the courts will usually be reluctant to correct mistakes, and the circumstances in which they might do so are limited to those where there is an obvious definitive answer.
Parting Comments
Despite a disappointing result on the meaning of “policing authority”, this decision has produced renewed hope for policyholders with similar issues in dispute, and it is far from the last word on the various NDDA wordings still out there. Further appeals arising from the Gatwick Investment Ltd v Liberty Mutual Insurance Europe SE group of cases are listed for hearing early next year, in addition to other matters proceeding to trial in the commercial court.
Watch this space.
Authors
Joanna Grant, Managing Partner
Anthony McGeough, Senior Associate
The Good, the Bad & the Ugly: #25 The Good turned Ugly: Lonham Group Ltd v Scotbeef Ltd & DS Storage Ltd (in liquidation) [2025] EWCA Civ 203
Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
In our view, some cases are bad for policyholders, wrongly decided and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
#25 The Good turned Ugly: Lonham Group Limited v Scotbeef Limited & DS Storage Limited (in liquidation)
Introduction
In a highly anticipated appeal concerning the Insurance Act 2015 (“the Act”), the Court of Appeal has offered the first guidance on the operation of Parts 2 and 3, and the characterisation of representations, warranties and conditions precedent.
Background
D&S Storage Limited (“D&S”) provided refrigeration and transport services to Scotbeef Limited (“Scotbeef”), who are producers and distributors of meat. In October 2019, D&S transferred six pallets of mould contaminated meat to Scotbeef. The meat was unfit for consumption by humans and/or animals and was consequently destroyed, leading Scotbeef to issue a claim against D&S for £395,588.
Initially, D&S sought to limit its liability to £25,000 on the basis that the Food Storage and Distribution Federation terms (“FSDF Terms”) (which included a £250 per tonne liability limit for defective meat) had been incorporated into its contract with Scotbeef. The Court disagreed, finding that the FSDF Terms were not incorporated into the contract, and that Scotbeef’s claim was not limited in value.
The first instance decision triggered D&S’ insolvency, and Scotbeef sought to pursue the claim directly against D&S’ insurer, Lonham Group Limited (“the Insurer”) pursuant to the Third Parties (Rights Against Insurers) Act 2010.
The Insurer defended the claim on the basis that D&S had failed to comply with a condition precedent in the Policy by not incorporating the FSDF Terms into the contract.
The Policy
The Policy contained a “Duty of Assured” clause that read:
"Conditions
General Conditions, Exclusions, and Observance…
DUTY OF ASSURED CLAUSE
It is a condition precedent to liability of [the Insurer] hereunder:-
(i) that [D&S] makes a full declaration of all current trading conditions at inception of the policy period;
(ii) that during the currency of this policy [D&S] continuously trades under the conditions declared and approved by [the Insurer] in writing;
(iii) that [D&S] shall take all reasonable and practicable steps to ensure that their trading conditions are incorporated in all contracts entered into by [it]. Reasonable steps are considered by [the Insurer] to be the following but not limited to… [various examples relating to incorporation of terms and conditions were set out]…"
(Our emphasis)
The following term was also included elsewhere in the Policy:
"The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety.”
The High Court decision
Section 9 of the Act expressly prohibits an Insurer from converting a representation into a warranty or a condition precedent, whether by declaring the representation to form the basis of the contract or otherwise.
The High Court found that although sub-clause (i) was expressed as a condition precedent, it was in fact a representation about the insured’s trading position at the inception of the Policy. As such, it fell to be considered under Part 2 of the Act, which deals with the fair presentation of the risk.
As the Insurer had not based their defence on a breach of the duty of fair presentation and had not claimed any of the Section 8 proportionate remedies (such as part reduction in the claim), they could not rely on sub-clause (i) to repudiate liability.
Adopting a pro-policyholder interpretation, the Court held that each of the sub-clauses in the Duty of Assured clause had to be read together, meaning that sub-clauses (ii) and (iii) could not be relied upon either.
The Insurer appealed.
The Court of Appeal decision
Whilst the Court of Appeal agreed that sub-clause (i) was a pre-contractual representation dealing with existing contracts at policy inception, they disagreed that sub-clauses (ii) and (iii) had to be classified in the same way, stating that “the way they are grouped together in the policy does not justify… the “all or nothing” collective approach that was adopted by the judge."
That being the case, the heart of the appeal went to the characterisation of sub-clauses (ii) and (iii), and whether they were warranties and/or conditions precedent.
Answering that question, the Court ruled that the wording was clear, and that on a proper construction, sub-clauses (ii) and (iii) were warranties and conditions precedent to liability covering D&S’ future business operations, because:
- They were included under the heading “General Conditions, Exclusions and Observance”.
- The heading of the clause included the word “duty”, synonymous with an ongoing responsibility, obligation or burden.
- It was stated, in no uncertain terms, that the clause was “a condition precedent to liability”.
- The Policy contained, elsewhere, the following wording: “The effect of a breach of condition precedent is that [the Insurers] are entitled to avoid the claim in its entirety”.
Their categorisation as warranties meant that rather than being governed by the provisions of Part 2 of the Act, sub-clauses (ii) and (iii) fell to be considered under Part 3 of the Act, section 10(2), which provides that an insurer has no liability for any loss after a warranty has been breached but before it has been remedied. Since it had been established that the FSDF Terms were never incorporated into the contract between Scotbeef and D&S, D&S was in breach of the warranties and conditions precedent contained in sub-clauses (ii) and/or (iii), and the Insurer was absolved of any liability.
The Court of Appeal disagreed with the High Court’s interpretation that the Duty of Assured clause was an attempt to contract out of the Act because:
- The Duty of Assured Clause stated that it was subject to and incorporated the Act, which was “directly contrary to the type of wording that would be necessary to achieve any contracting out”; and
- Sub-clauses (ii) and (iii) did not place D&S in a worse position than it would have been in under the Act given that, under section 10(2) the Insurer is entitled to decline indemnity for breach of a warranty which has not been remedied.
Key takeaways for policyholders
The Court of Appeal decision highlights some of the difficulties policyholders may have in distinguishing between conditions precedent, warranties and pre-contractual representations in policies.
It is clear in a post-Insurance Act 2015 world that, although the ability of insurers to rely on conditions precedent and warranties has been limited, they are still of considerable use to insurers when properly applied. This decision confirms that underwriters are able to control the nature and extent of the risks they undertake through the use of appropriately worded duty of assured clauses, and warranties more generally, without contravening the provisions of the Act regarding the duty of fair presentation of risk (which the judgment of the lower court placed in doubt).
This decision is a salutary reminder for policyholders to ensure compliance with policy terms, and to seek support in identifying any conditions precedent to liability in order to ensure that an indemnity is available when needed.
Most importantly, for policyholders in the logistics and warehousing industry, where the value of goods stored or carried can be difficult to quantify and insurers manage their liability by requiring insureds to trade on industry terms, insurers will rely heavily on policy terms which require the incorporation of those terms, which limit liability and impose time bars on claims.
Abigail Smith is an Associate at Fenchurch Law
The Good, the Bad & the Ugly: #24 The (mostly) Ugly: Tynefield Care Ltd (and others) v the New India Assurance Company Ltd
Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
In our view, some cases are bad for policyholders, wrongly decided and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
#24 The (mostly) Ugly: Tynefield Care Ltd (and others) v the New India Assurance Company Ltd
Background
A substantial fire broke out at a care home which was owned and operated by the insured Claimants. At the time of the fire, the Claimants had a policy of insurance with New India Assurance co Ltd (“New India”), under which New India agreed to indemnify them against various losses.
Following the fire, the Claimants claimed from New India the cost incurred of having to move residents out of the care home for four weeks in order to carry out remedial work, as well as the cost of the remedial work itself.
New India refused to indemnify the Claimants on the basis that they misrepresented and failed to disclose that their Mr Khosla, a de facto director (a director who performs the duties and functions of a director, but without being legally appointed as such), was a de jure director (a legally appointed director) of a company that previously went into administration (“the Khosla Insolvency”).
The Claimants accepted that Mr Khosla was a de facto director at all relevant times, but denied making a misrepresentation or failing to disclose the Khosla Insolvency.
Although the Claimants had been taken out policies with New India from 2013 onwards, this article will address the parts of the Judgment that deal with the post-Insurance Act 2015 (“the IA 2015”) position.
The Good – was there a misrepresentation?
The relevant question in the Proposal asked: “Have you or any director or partner been declared bankrupt, been a director of a company which went into liquidation, administration or receivership. If so give details” (“the Insolvency Question”).
The Claimants answered the Insolvency Question in the negative. New India asserted that their answer was a misrepresentation, because any person who had the status of a director, if not the title, was nevertheless a director for the purposes of the Companies Act. It also argued that any reasonable person completing the Proposal would have realised that “what was being asked related to the reality of the position”.
The Claimants disagreed. They said that the word ‘director’ should be restricted to its plain meaning, i.e., a legally appointed director, and that to hold otherwise would create uncertainty and confusion because a policyholder needs to understand precisely what is being asked of it.
The Judge, Judge Rawlings, agreed with the Claimants: the Claimants were not taken to be qualified lawyers who understood the concepts of de facto and shadow director (and he accepted their evidence that they didn’t even know what those terms meant). The Judge also held that while one could determine if a person had been appointed as a de jure director with certainty, that was not the case with de facto directors, which would turn on a number of factors, including that individual’s role and responsibilities and how they were perceived by others in the organisation.
So far, so Good. But that was not the end of the story.
The Ugly – Was there a failure to disclose a material circumstance under s. 3 of the IA 2015
The duty of fair presentation requires an insured to disclose to an insurer every material fact which it knows or ought to know, in a manner which would be reasonably clear and accessible. A circumstance will be material if it would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms.
Therefore, quite apart from the Insolvency Question – which the Judge found did not embrace the Khosla Insolvency – the question was whether the Khosla Insolvency was material, and therefore disclosable, in any event.
Applying the summary of the law provided by Lionel Percy QC in Berkshire Assets (West London) Ltd v AXA Insurance UK PLC (see our article on that decision here), and particularly the principle that facts which raise doubt as to the risk, without more, are sufficient to be material, the Judge found that the Khosla Insolvency was a material fact. Specifically, the Judge held:
“Whist I cannot say whether a prudent underwriter would, if asked to provide insurance for the first time, refuse to provide that insurance, or only agree to do so on more stringent terms than would otherwise be the case, because of those concerns, it seems to me clear that a prudent underwriter would, at least be influenced or affected by those concerns and would.”
The Judge also considered – but had no hesitation in rejecting – the Claimants’ further argument that New India waived disclosure of the Khosla Insolvency because the Insolvency Question only used the term “director”. That argument was wrong, the Judge found, because a reasonable person would have appreciated that New India had not waived the requirement to disclose that Mr Khosla controlled the management of the Claimants, and was their director in all but name. Accordingly, the case was distinguished from cases such as Ristorante v Zurich (see our article on that decision here), because the insolvency question in that case enquired only about “owners, directors, business partners or family members of the business” i.e., unlike in this case, it did not extend to other business with which those individuals were involved.
Having found that the Claimants failed to disclose a material circumstance, and thus breached their duty of fair presentation, the next issue to be decided was whether that failure was deliberate, reckless, or innocent. The judge held it was the latter. In particular, he accepted the Claimants’ evidence that they did not, at the relevant time, understand what “de facto director” and “shadow director” meant, and therefore would not have understood the Insolvency Question to be referring to Mr Khosla. The Judge also accepted Mr Khosla’s evidence that he had not read the proposal forms, and was unlikely to have read the Statement of Facts, either. While the Judge was satisfied that those failings were negligent, we can see how a different Judge could just as easily have found it to have been reckless (i.e., where a claimant “does not care” whether or not it was in breach of the duty).
The final issue to be decided was the remedy to which New India was entitled. New India’s evidence, which the Judge accepted, was that it had a strict policy of refusing to incept policies if it was disclosed to it that a director (which included Mr Khosla) had been a director of a company which had gone into liquidation. Accordingly, pursuant to the IA 2015, New India was entitled to refuse the Claimants’ claim, but had to refund the premiums.
Conclusion
We think Tynefield is a paradigm example of an ugly decision. In particular, while we sympathise with the Claimants given the wording of the Insolvency Question, the position in this case was that Mr Khosla was essentially “running the show”, such that his insolvency history was disclosable.
The decision is a salutary reminder that there is a critical difference between a misrepresentation and a non-disclosure, and that even an honest and correct answer to a question in a Proposal will not avail an insured of its duty under the IA 2015 to disclose material facts.
Alex Rosenfield is an Associate Partner at Fenchurch Law
A twist in the tale!: - the Court of Appeal throws up some surprises in the “At the Premises” judgment
The long-awaited judgment in the “At the Premises” (“ATP”) judgment has now been handed down, and the expected policyholder-friendly outcome marks another welcome milestone in the journey towards bringing these cases to a conclusion, even if the route by which the Court of Appeal got there took some less expected twists and turns.
While there were a number of other issues on appeal, this article focuses on causation, which continues to be a key battleground for insurers and their policyholders.
Background
By way of a brief recap, policies with clauses providing cover for cases of Covid-19 “at the premises” were not considered by the Divisional and Supreme Court in the FCA Test Case, which instead considered a range of policies including those which provided cover for a disease occurring within a specified radius of an insured premises.
In the FCA Test Case, the Supreme Court considered causation at some length, finding that “[212]…in order to show that loss from interruption of the insured business was proximately caused by one or more occurrences of illness resulting from COVID-19, it is sufficient to prove that the interruption was a result of Government action taken in response to cases of disease which included at least one case of COVID-19 within the geographical area covered by the clause.”
However, insurers resisted the application of that analysis to ATP policy wordings, leading to this litigation considering “the critical question” as to whether the Supreme Court’s reasoning in respect of causation could properly be applied to such wordings. At first instance, the answer was a decisive yes (and some further background can be found in our previous article). Insurers appealed, and this judgment is from that appeal which was heard earlier this year.
Insurers’ Causation Arguments
Despite a number of common causation issues to all of the appeals, the primary case advanced differed between the insurers, as follows:
- ExCeL & Kaizen Insurers – their position was that there would be cover only when an occurrence of disease at the premises was a “distinct effective cause” of the closure of the premises (i.e. it must be a known occurrence of the disease at the premises to which the government or local authority was responding);
- Hairlab & Why Not Insurers – they took the position that only a stricter “but for” test applied (requiring the occurrence of a disease at the premises to be a necessary and sufficient cause of the subsequent restrictions - the court recognised this test would seldom be satisfied); and
- Mayfair Insurers – whose position was that the authority had to know about the suffering of disease at the particular premises and had to take it into account in reaching its decision (although it need only contribute to that decision).
The Court of Appeal’s Decision
In setting out their positions, the insurers argued that the correct approach was to begin with the interpretation of the policies in issue, having regard to their language and context, rather than asking whether those clauses differ materially from the radius clauses considered by the Supreme Court in the FCA Test Case. The Court of Appeal agreed there was some force in that.
However, ultimately that change of approach proved to make very little difference to the outcome, with the Court of Appeal finding that:
- The nature of the insured peril informs the causation test agreed between the parties, which is not derived from other perils mentioned in the insuring clause (such as vermin infestation), but instead focuses on the particular peril in question.
- In that regard, notifiable diseases spread rapidly and widely, with the potential to cause interruption over a wide area. The circumstances that would lead to a closure of an insured premises are unlikely to be in response to an isolated incident: instead, it must have been contemplated that a closure or restrictions imposed by a relevant authority would be in response to an outbreak as a whole over a particular area, whether that be local or national. Furthermore, the worse and more widespread the outbreak of the disease, the more likely it would be that such restrictions would be imposed.
- Accordingly, a “but for” test could not have been the intended approach to causation, as the parties must have intended for the causation requirement to be satisfied if the occurrence at the premises was one of a number of causes of the closure.
- It would be unrealistic to suppose that the authority would apply its mind to identifying a particular case of a disease at a particular premises. In the case of a serious outbreak, a relevant authority would know that there had been a number of occurrences of a disease (perhaps over a certain area, or affecting a particular kind of premises within an area) and it would simply react to those occurrences by imposing restrictions accordingly.
- The finding of fact by both the Divisional and Supreme Court in the FCA Test Case (that “each of the individual cases of illness resulting from Covid-19 which had occurred by the date of any Government action was a separate and equally effective cause of that action”), applies equally to the ATP claims, both in respect of the cases which were known about, and those which were “known unknowns”.
Comment
This appeal judgment is a welcome development for policyholders and confirms that despite the differences between radius and ATP clauses, it may not materially affect the nature of the casual link that must be established, which is a matter of policy interpretation and intention.
Policyholders with the benefit of ATP cover can now expect a recovery from their insurers, although notably a lack of clarity remains about the evidence required to demonstrate the presence of a case of Covid-19 at the premises, and it is to be hoped that insurers take a pragmatic approach that avoids this issue becoming the next battleground.
Now that the ATP appeal has concluded, and with the tide very much in favour of the policyholders, the Court of Appeal will be considering similar causation arguments along with furlough in the upcoming appeals arising out of the Gatwick Investment Ltd & Ors v Liberty Mutual Insurance Europe SE group of cases.
Watch this space.
Anthony McGeough is a Senior Associate at Fenchurch Law
