BI Covid-19 test case decision released

Background

As regular readers know, Fee Langstone has been providing updates on the UK “test case” on the Business Interruption response to Covid-19 claims as the case has proceeded through the Court.

To recap, the United Kingdom Financial Conduct Authority (FCA) had brought the Covid-19 “test case” with the aim of bringing clarity to areas of uncertainty for as many policyholders and insurers as possible.  A sample of twenty-one policy wordings issued by eight insurers were considered, with the FCA putting forward policyholders’ arguments in the public interest. 

The decision & implications for New Zealand

On 15 September 2020 the High Court handed down its judgment, largely finding in favour of the arguments advanced for policyholders by the FCA.

Three types of BI policies were considered in the case, namely:

• Disease wordings – cover was provided for a notifiable disease within a certain radius of the insured premises.

• Prevention of access/public authority wordings – cover was provided where there was a prevention of access as a consequence of government action.

• Hybrid wordings – cover was provided where restrictions were imposed on the insured premises in relation to a notifiable disease.

Whilst a large part of the judgment deals with the “disease wordings”, that part of the judgment is of little direct relevance to New Zealand as virtually no BI policies issued in New Zealand provide specific cover for disease. 

The portion of the judgment dealing with the “prevention of access” clauses is of interest however to New Zealand insurers.  Generally speaking, the “prevention of access” clauses were to be construed more restrictively than the majority of the disease clauses. 

The High Court held that only premises that were closed as a result of government advice or regulations were “prevented” from accessing their premises.  Restrictions on free movement of people imposed by regulations in the UK did not in themselves prevent access to premises which remained open.  Accordingly, there was only a prevention of access to premises within the meaning of the “prevention of access” clauses where government actions or advice required complete, not partial, closure of premises.  Anything short of complete closure, therefore, does not constitute prevention of access. 

The High Court also considered a number of wordings requiring the emergency/danger/incident to be “in the vicinity” of the insured premises.  The High Court said that these were all requirements that connoted something specific which happens at a particular time and in the local area.  The Court therefore concluded that such wordings were intended to provide narrow, localised cover.  As such, for cover to apply, the action of the relevant authority would have to be in response to the localised occurrence of the disease.  Action taken in response to the Covid-19 pandemic generally would not suffice.  This accords with common sense and, in our view, is a correct interpretation. 

The “hybrid clauses” are also of some interest to New Zealand insurers.  The clauses were a blend of a disease wording and a prevention of access wording.  As with the prevention of access wordings, the Court construed the “inability to use” phrase narrowly.  It required something more than just impairment of normal use of premises.  However, the Court pointed out that, as ever, close examination of each particular clause is required to determine the coverage position. 

Possible Appeal?

For the moment, the High Court judgment is legally binding on the eight insurers that were parties to the test case.  The decision also provides persuasive guidance for the interpretation of similar policy wordings and claims for other insurers, including NZ insurers.

Although the judgment will bring welcome news for many policyholders, the judgment did not say that the eight defendant insurers are liable across all of the twenty-one different types of policy wording in the representative sample considered by the Court.

On 28 September 2020, the FCA confirmed that it had filed a “leapfrog” application to appeal to the Supreme Court.  The “leapfrog” appeal would see the case being heard in the Supreme Court, thereby avoiding the “intermediate” Court of Appeal.  Seven of the eight insurers are understood to be appealing as well. 

Apparently, the FCA continues to work closely and at speed with the eight insurers that participated in the test case to reach an agreement in principle on a range of issues so that an appeal can be avoided, and payments would be made on eligible claims as soon as possible.  Nonetheless, an appeal may still occur.  We will keep you posted on further developments. 

Comment (Craig Langstone)

Whilst this brief case note cannot do the 160-page judgment justice, hopefully it does alert NZ insurers to some of the salient points hidden within it.  Of course, many other topics were considered within the judgment and each particular BI clause will need its own consideration.  That said, seemingly an appeal will be forthcoming shortly.  The High Court judgment is only of limited importance if an appeal is pending.  Nonetheless, the judgement makes interesting reading in the meantime.

Relevant Links

For further background on the test case, see our first article published in July: Covid-19 Test Case to Proceed Urgently

Craig Langstone is a Partner at Fee Langstone