Property and business interruption

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for property and business interruption.

Key developments in 2022

Covid-19 business interruption claims

The FCA Test Case in 2020 addressed issues of coverage under various example non-damage extensions to business interruption cover from across the market, but it did not consider other important issues such as whether, and if so, how such losses would aggregate.  It also left questions as to how certain points decided by the Divisional Court which were not appealed were to be reconciled with aspects of the Judgement of the Supreme Court on the points which were appealed.

In Corbin & King v Axa [2022], the High Court addressed the difficulty in reconciling the Divisional Court's decisions that certain prevention of access wordings provided local-only cover with the Supreme Court's rejection of a traditional “but for” test for causation. In favour of a multiple concurrent cause approach. In Corbin, the High Court applied the multiple concurrent cause approach to an extension requiring “the actions taken by police or any other statutory body in response to a danger or disturbance at your premises or within a 1-mile radius of your premises”. Having regard to the policy terms and the fact that, properly construed, the policy provided cover for a number of separate insured entities on a composite (not joint) basis, the court found in the policyholder's favour on the question of whether the relevant sub-limit applied once, or several times on a per-premises basis.

2022 has also seen a triumvirate of cases in the High Court addressing several issues on one of the wordings considered in the Test Case (namely, RSA4 aka the Marsh Resilience wording).  The three cases were Stonegate Pub Co Ltd v MS Amlin Corporate Member Ltd, Greggs v Zurich Insurance Plc and Various Eateries Trading Ltd v Allianz Insurance Plc [2022] (together, "Stonegate etc.").

The issues addressed in the case included:

• Covered Events / triggers: The claimants claimed under three non-damage business interruption extensions, covering disease, enforced closure and prevention of access.Under these perils, cases of COVID-19 in the vicinity and the commencement of periods of relevant restrictions/closures were Covered Events and indemnity period(s) would run from when these Covered Events first caused interruption or interference.New restrictions may not constitute a separate trigger where they were materially of the same effect as existing restrictions.
• Aggregation: The question of whether or not the insureds losses could be aggregated and therefore subject to one or a small number of £2.5m sub-limits was a question to which significant value was attached (In the case of Stonegate, the claim was valued by the claimant at over £800m).The Court's decision indicates that it is possible to aggregate COVID-19 business interruption losses.Aggregation on this wording required identification of a "single occurrence" with a relatively loose causal connection (namely "in connection with") to the business interruption losses.Events surrounding the initial development of the pandemic in China were held too remote.However, particular Government measures were not too remote and had the necessary degree of unity (judged from the perspective of an informed observer in the position of the insured) to constitute a "single occurrence" by reference to which losses could be aggregated.
• Furlough: Payments from the Coronavirus Job Retention (aka furlough) Scheme and reductions in business rates were costs savings and could reduce the total indemnity payable to the insureds.

The judgments in Stonegate etc. give rise to an element of uncertainty.  They arise from preliminary issue trials, and they did not therefore determine the precise application of the issues decided to the particular facts of each case. Furthermore, issues arising on other cases will depend on the wording of the policy. Nevertheless, Stonegate etc. helpfully provide an indication as to the likely approach of the courts to such issues.

What to look out for in 2023

Stonegate etc. are likely to be the subject of an appeal in 2023, so the issues they decided should not be regarded as entirely settled at this point in time. 2023 is also likely to see further cases on other issues not addressed by the FCA Test Case such as the approach to be taken in relation to extensions triggered by COVID-19 at the insured's premises.

The building safety act 2022

The Building Safety Act 2022 (BSA), relevant aspects of which came into force on 28 June, implements broad reform to the legislative and regulatory landscape governing fire safety for buildings. It introduces greater accountability and responsibility for those involved in all stages of the design, development and construction of residential dwellings, adopting recommendations from the public inquiry commissioned by the UK government in the aftermath of the Grenfell Tower tragedy.

Key elements of the BSA include:

• The introduction of a new Building Safety Regulator, with powers to enforce building safety and compliance with standards, particularly in relation to "higher risk buildings".

   

• Expanding the scope of duties owed by construction professionals under the Defective Premises Act 1972 (DPA) and Building Act 1984, and increasing the redress available to residents, building owners and leaseholders for breach of those duties (including through the introduction of retrospective limitation periods applicable to certain claims).

   

• Strengthening the regulatory framework that oversees the supply of construction products used in new buildings.

   

• The creation of Building Liability Orders (BLOs), establishing a new avenue for Claimants to seek redress from "associated companies" of insolvent wrongdoing construction firms where the Court considers it "just and equitable" to do so. The aim is to make it easier to "find the money" where complex corporate structures have been utilised.

As new legislation of significant scope and complexity, it is likely that disputes regarding the interpretation and effect of the BSA will come before the courts for consideration.  It remains to be seen which aspects of the BSA will give rise to the first judgments.  However, issues such as the requirements for satisfying the "just and equitable" test for BLOs and the extent to which the expanded duties under DPA as expanded by the BSA applies to large scale residential buildings may benefit from clarification by the courts before long. 

Written by James Adams.

Download our full Annual Insurance Review 2023 for more insights.