Some independent legal commentary by Stephen Netherway, Partner, at Devonshires, following the FCA court case judgement last week;
· With court overruling the Orient Express – what areas of liability could this affect? Where could we see the biggest hit?
The Supreme Court’s ruling is not specific to covid or disease claims. We will see this referenced in other BI claims, particularly property damage claims, to widen coverage for the benefit of policyholders where there may be in fact many connected causes of loss. Hitherto it could be significant to get a pay-out or not for a claim if any interdependent causes were not considered to be an insured risk, but this decision means this may all now be legally irrelevant provided no interconnected, albeit uninsured cause, is in fact excluded for cover under the policy. So if we had a re-run of Hurricane Katrina and no changes in policy wording, insurers ( and reinsurers) would not be able to say a business’ losses should not be compensated because the wider hurricane impact on a business’s ability to trade anyhow needed to be considered as an impact.
· Court rejecting the but for causation argument – what does that mean for policyholders?
The most immediate impact is the expectation of a pay-out for those small businesses who have the wordings/types of wordings considered by the Supreme Court. The Supreme Court made it clear that to assess the claimable loss of revenue its simply necessary to compare the difference between revenue (if any) that was actually received post Covid in the relevant indemnity period and what would have been earned had there been no Covid. This more simplistic analysis for purposes of assessment will be carried over into other cat event scenarios for sure
· Where will policies not pay out?
It remains the case if policies have very specific definitions of what constitutes an infectious disease (Covid not being within that definition) or very specific exclusions then they will not pay. For the more widely worded policy wordings that it considered, the Supreme Court has shut the door on some arguments left standing after the High Court judgment: Government exhortations, not just issued regulation, can be sufficient to amount to restrictions; a claim can be made now if just part of a business or part of a business’ premises is affected by Covid; trends clauses cannot be used to apply the effects of the pandemic to reduce quantum It will still be necessary for businesses to show that it was effectively required to cease business and that its losses flow from that- general business decline because of footfall disappearance will not be sufficient.
For many insurers whose policy wordings have been under the judicial microscope, the focus going forward may well be on claims adjustment rather than primary argument that coverage does not simply engage.
· Enterprise Act and how it comes into play here?
This is a ticking time bomb. Where claims payments have been unreasonably delayed then a further damages claim by policyholders can be brought on top of the claim payment. The pandemic is almost a paradigm example for the Act’s intervention: if a business has failed because of a delay in claims payment, then the Act should permit damages to be claimed for that business failure.
Many businesses are on a knife-edge, was it ever sufficient for insurers to delay payment because they wanted to see finality from the Courts? This could be a further hidden exposure, not reserved for by many insurers and not necessarily a risk that reinsurers would accept they should pay. This is another incentive for insurers now to make speedy payments.