Property and business interruption

In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for property and business interruption.

Key developments in 2021

 January 2021 saw the publication of the Supreme Court's Judgment in the FCA Test Case (FCA v Arch [2020] EWHC Comm 2448, [2021] UKSC 1), a claim by the FCA against eight insurers concerning the interpretation of selected non-damage business interruption extensions and the potential availability of cover for COVID-19 business interruption losses under them.

Such were the complexities of the Supreme Court's decision that it took another six months to finalise the wording of the Declarations giving effect to the Judgment.  The FCA Test Case was successful in clarifying various issues common to many COVID-19 business interruption claims across the market, thereby helping to confirm for many claims whether there is cover, and allowing the mammoth task of adjusting and paying claims to be completed.

However, the FCA Test Case was not, and could never be, a panacea.  There remain numerous undecided issues which have provided fertile ground for dispute in these difficult times.

Many policies providing disease cover do so by reference to a closed list definition of "Notifiable Disease".  Unsurprisingly, as a newly emerged disease, COVID-19 was not included in such lists.  Policyholders have nevertheless argued that existing diseases within such lists, such as "plague" or "acute encephalitis", should be construed as including COVID-19.  Such arguments were firmly rejected in Rockliffe Hall Ltd v Travelers Insurance Company Ltd [2021] EWHC 412. Interpretation of a contract will depend on the specific words used in that particular instance, but this case makes it unlikely that Policyholders' arguments on comparable forms of wording would succeed.  It however remains to be decided whether an exclusion for "atypical pneumonia" in the ongoing case of Smart Medical v Chubb is to be similarly regarded, or whether its meaning is in fact capable of extending to COVID-19.

Another issue which was not directly addressed in the FCA Test case was the approach to be taken in relation to extensions requiring disease to be present "at the premises". The geographically specific nature of such a requirement differs from the one to twenty-five mile radius requirements seen in the FCA Test Case.  Despite this difference, some policyholders have sought to rely on the multiple concurrent cause approach to causation applied by the Supreme Court to radius clauses (under which it matters not that a business's interruption is caused by the pandemic as a whole rather than cases within the radius).

The English courts are yet to opine on this issue, but it has attracted comment in the Irish case of Brushfield Ltd t/a The Clarence Hotel v AXA [2021] IEHC 263.  The policy provided cover in connection with closure due to defects in "drains or sanitary arrangements at the premises".  In rejecting the claimant's argument that social distancing fell within the scope of this cover, the Court considered that social distancing was not a "sanitary arrangements" and social distancing rule were not defects in them.  Notably, the Court also placed emphasis on the words "at the premises" as indicating a requirement for a premises-specific order.

The effect of "at the premises" requirements is likely to receive further attention from the Irish courts in Devlin v RSA, a case involving a requirement for the disease itself to be present at the premises.  The Judgment in that case is expected in the coming months.  The issue is also currently before the English High Court in Smart Medical v Chubb.

The status of certain issues decided by the Divisional Court which were not subject of appeal to the Supreme Court may also receive further judicial attention, as has been suggested in the arbitral award in Policyholders v China Taiping Insurance (UK) Co Ltd.  Although arbitral awards do not set binding precedents, the arbitrator was Lord Mance whose views, as a former Justice of the Supreme Court, may be of persuasive effect.  The case ultimately turned on whether "Police of other competent local authority" in a denial of access clause could extend to measures taken or advice given by central government.  Lord Mance concluded that it could not, despite the opposite conclusion of the Divisional Court in the FCA Test Case that a similar form of wording ("competent local authority" in the Ecclesiastical Insurance Office's policy). 

Given this finding, Lord Mance found it unnecessary to reach a conclusion in relation to the insurer's argument that the disease needed to be local, rather than national, in scope.  He nevertheless took the opportunity to express difficulty in resolving the Supreme Court's multiple concurrent cause approach to causation with the conclusions of the Divisional Court not subject to appeal that there was no cover for COVID-19 losses resulting from the national epidemic under certain wordings because they indicated a localised form of cover (e.g. the requirement for a "danger or disturbance in the vicinity of the premises" in the MS Amlin 1 wording and for "an emergency likely to endanger life or property in the vicinity of the Premises” in RSA 1 and 2).   He expressed doubt that Divisional Court would have reached the same decision had it had the benefit of the Supreme Court's judgment.

What to look out for in 2022

 It remains to be seen how the courts will seek to resolve this apparent tension.  Further guidance may emerge from the case of Corbin & King v Axa, which involves a denial of access extension requiring a danger or disturbance, like the MS Amlin 1 wording, but within a 1-mile radius rather than "the vicinity".  The judgment in that case is expected in January 2022.

Aggregation, and its effect on applicable sub-limits, is another issue which is the subject of various disputes.  They include the case of Stonegate v Amlin, which is scheduled for trial in June/July 2022.

Given the various issues which are subject of ongoing disputes, 2022 is likely to see a number of court decisions on COVID-19-related business interruption claims.  First and foremost, this should help to bring many currently unresolved claims to a conclusion.  Looking beyond these immediate concerns, the Judgements expected in 2022 should provide valuable insight into judicial thinking for reference by those drafting policy wordings in the years to come. 

Written by James Adams.

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