Property & business interruption

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Property & Business Interruption.

Key developments in 2023

Causation

Questions of causation continued to prove fertile ground for litigation in 2023, both in cases involving damage to property and in a COVID-19 business interruption ("BI") context.

In Brian Leighton (Garages) Ltd v Allianz Insurance Plc, the Court of Appeal considered an insured's claim for property damage and BI losses arising from leakage of fuel from a ruptured underground pipe at a petrol station.  The policy excluded damage caused by pollution or contamination under an exclusion with a write-back provision.  In his dissenting judgment, Lord Justice Males reasoned that "caused by" in the write-back part of the clause should not be interpreted narrowly as "proximate cause", and that "caused by" in the exclusion part of the clause should be construed in the same way.  The majority did not agree, holding that the applicable test for causation was that of "proximate cause" and that the leak, and not pollution or contamination, was the proximate cause of the damage to the garage. 

In Allianz Insurance plc v The University of Exeter, causation of damage following a deliberate detonation of a World War II bomb discovered during building works in 2021 was considered.  The policy excluded damage "occasioned by war" (which, it was accepted, meant proximately caused by war). The High Court held that the exclusion applied and there was no cover for the claim under the policy.  The primary basis for this conclusion was that the Judge's finding that the damage was proximately caused by the war and not the detonation.  On appeal, the Court of Appeal favoured the Judge's alternative view that the war and the detonation were concurrent proximate causes.  However, this made no difference to the outcome: as one of the two concurrent proximate causes was expressly excluded, the claim was not covered under the policy. 

2023 also saw significant further litigation arising from insurance claims for BI losses in connection with the COVID-19 pandemic.  As regards causation, the judgment in London International Exhibition Centre Plc v RSA decided that the multiple concurrent proximate cause approach to causation applied by the Supreme Court in the FCA COVID-19 BI Test Case to clauses requiring disease within radiuses of 1 to 25 miles should also apply to clauses requiring disease at a specific premises.  The effect of this is that one case at a premises potentially gives cover for the consequences of all cases of COVID-19 throughout the world at the relevant time, not just the consequences of the case at the premises. Considered unsatisfactory by many, this judgment will be tested in the Court of Appeal in 2024.

As readers may recall, the Supreme Court's approach to causation displaced the previous orthodoxy of the "but for" test applied in Orient Express Hotels Ltd v Assicurazioni Generali SpA, leading to the conclusion that damage to a hotel did not constitute the proximate cause because the hotel closure would have occurred even without the damage, because of the evacuation of New Orleans due to hurricanes Katrina and Rita. 

With increased high energy weather events due to factors such as climate change, it may not be long before the courts are called upon once again to consider these kinds of causation questions in a wide area damage context.  As the abovementioned cases illustrate, difficulties often arise with the identification and satisfaction of the causation requirements of a given policy term in a variety of contexts.  Further case law developments in this area can therefore be expected.

What to expect in 2024

Misnaming of insureds

In (1) George on High Limited & (2) George on Rye Limited ("GOR") v (1) Alan Boswell Insurance Brokers Limited (2) New India Assurance Company Limited, the named insured was "George on High Limited t/a The George in Rye".  The Court held that Insurers had incorrectly rejected a claim by GOR in connection with a fire at its hotel premises (The George in Rye) on the basis that it was not named as an insured.  Either the named insured should be construed as “George on High Limited and the business operated by GOR t/a The George in Rye“ or the policy could be rectified and/or insurers estopped from denying liability.

Aggregation

In November 2023, the Court of Appeal heard an appeal in Various Eateries Trading Ltd v Allianz Insurance Plc.  At first instance, Various Eateries was part of a triumvirate of cases (including Stonegate Pub Co Ltd v MS Amlin Corporate Member Ltd, Greggs v Zurich Insurance Plc) dealt with together by the High Court.  All three concerned questions of aggregation of COVID-19 BI losses under the Marsh Resilience form of wording.  The wording allows aggregation by reference to a "single occurrence", which the High Court considered could be particular Government measures, but not the initial events surrounding the emergence of the pandemic in China. 

Whilst the Court of Appeal's judgment in Various Eateries is awaited, a significant number of disputes on issues of aggregation of COVID-19 losses remain ongoing across the market.  One prominent example is The Arsenal Football Club plc & others v Allianz, a case on the same Marsh Resilience wording as Stonegate et al and also involving issues of aggregation.  A trial is expected sometime in 2024.  Cases such as this pose interesting tests of the application of the High Court's judgment in Stonegate et al. and, it is to be expected, the Court of Appeal's judgment in Various Eateries.  Even with the benefit of guidance from such judgments, it is likely to be some time before all disputes as to aggregation of COVID-19 BI claims are resolved.

Economic factors impacting property claims

Many of the major challenges related to property insurance claims seen in 2023, and likely to continue into 2024, arise from the currently prevailing economic circumstances.

Long before inflation spread widely across the economy, supply chain disruptions led to price inflation of building materials, rising 23.5% August 2020-21 and a further 17.8% 2021-22.  Inflation in building materials dropped to 2.3% in August 2022-23 and is dropping further still, but the spread of inflation across the economy means that total build costs have continued to rise in 2023.

This has had a major impact on claims for property damage.  It gives rise to a greater possibility of underinsurance, poses difficulties in reserving for claims and adds to the risks associated with disputing coverage.

Inflation and the increased costs of borrowing have put pressure on individuals and businesses.  As inflation gives way to diminished economic output, the pressures on those individuals and businesses will continue.  Such conditions inevitably lead to a surge in fraudulently made and/or inflated claims.  Increased vigilance in the investigation of claims is therefore likely to be required over the course of at least the next 12 months.

Written by James Adams.