Over the past two years, the English Courts have handed down a number of judgments that have provided guidance in response to claims made for business interruption losses arising from the Covid-19 pandemic.

While that guidance has been a welcome relief to parties on both sides of the insurance market, it feels like “half-time” and not the final whistle in understanding how insurance policies will respond to Covid-19 business interruption.

In the Autumn of this year, the Court heard three cases, Stonegate Pub Company v MS Amlin and others (“Stonegate), Various Eateries v Allianz Insurance PLC (“Various Eateries”) and Greggs PLC v Zurich Insurance PLC (“Greggs”), all of which involved Marsh Resilience policy wording (“the Judgments”).

The Judgments provided further guidance on policy triggers, aggregation, causation and savings for government assistance.

The Judgments

Causation

Most business interruption policies include a Maximum Indemnity Period that surpasses the end of the policy, allowing policyholders to recover losses after expiration of the policy provided that those losses were caused by the Covered Event (i.e. the event that triggered cover under the policy) which occurred during the policy. This is important for a vast majority of policyholders who continued to feel the effects of Covid-19 long after the expiration of their insurance policy.

In the Judgments, the Court was asked to consider the causation of losses under Disease and Non-Damage Prevention of Access extensions (“NDDA”).

The Court found that losses suffered after the expiration of the policy period were attributable to Covered Events and rejected the Insurers argument that a Covered Event could not have caused any losses suffered after the expiry of the policy period. No definitive answer was given as to when causation ceased; however  examples in the Judgments indicated that in most cases a “long-stop” will eminate from some further government action taken post-policy expiration. in Various Eateries, action taken over two weeks after expiration, was found to be caused by cases of Covid-19 during the policy (there were also other narrow categories of causation which could run for longer periods, such as customers who had died or had suffered from long-Covid).

The upshot for the majority of policyholders is there will be the potential for tail losses (i.e. losses which occur during the indemnity period but post policy expiration) which are recoverable. The recoverability of of tail losses will be fact sensitive and turn on consideration of points including (i) when the policy expires (ii) what measures were in place and (iii) subsequent measures following expiry.

Aggregation

Perhaps the most contested area (and unsurprisingly so given the financial implications) following the FCA Test Case is aggregation. This  addresses how many policy limits (or more likely sub-limits) are available to the Policyholder.

In the Judgments, the Court was asked to provide guidance on the extent to which the claimed losses arose from or were ‘attributable to’ or were ‘in connection with’ one or more single occurrence.

Both Insurers and  Policyholders ran several aggregation arguments:  Insurers argued that the losses should all be limited to a single occurrence (on which basis one sub-limit would be available).

The Court compromised with a middle ground and held that a small number of government measures could each amount to a single occurrence. However, a new occurrence would not ensue where measures or announcements simply continued, made trivial changes to, or reduced existing restrictions. Some examples of separate occurrences were: (i) the order to close hospitality businesses on 20 March 2020, (ii) the introduction of the three-tiered system in October 2020 and (iii) the announcement and imposition of the second lockdown in November 2020.

Government Support

The Court also found that deductions should be made from the policyholders’ losses for government support, such as Furlough payments and Business Rates savings. However, the wider implications of this decision depend greatly upon the specific wording of the ‘Savings’ provisions within the business interruption cover under the policy.

Implications

The Judgments provide some helpful guidance, but the extent to which the findings are applicable to other policyholders greatly pivots upon the specific wording in their policy andthe outcome of both parties seeking leave to appeal those issues decided by the Court of first instance.  

Applicability of these findings to non-English-based Policyholders

The Court’s findings on aggregation and causation were underpinned by the decisions, actions and measures taken by the British Government/Governments. The findings will have different implications for Policyholders holding policies underwritten in England but whose premises are based in other jurisdictions.

Foreign-based policyholders subject to an English policy will need a cumulative appreciation of the above judgments and operation of local restrictions and government measures to assess their situation with greater perspicuity.

For those Policyholders, the number of sub-limits available (particularly in the event of aggregating wording based on either ‘occurrences’ or ‘events’) and the causation of “tail losses” will be contingent on the decisions, actions and measures of the Governments in those jurisdictions

A hotelier with say, 20 premises across Germany and France and an ‘Enforced Closure’ extension would, under the Judgments, argue that their policy was triggered in respect of each closure (subject to the relevant national or state restrictions); following the Court’s rationale there would be scope to argue that each closure (encompassing any re-closures) during the policy period would equate to a separate occurrence.

Another way non-UK Policyholders could be impacted is where they have an insurance program with local policies written under local law, and a master policy providing either ‘Difference in Conditions’ or ‘Difference in Limits’ cover under English Law (i.e. responding where the English Law policy provides for greater cover). If so, examination of the most favourible conditions will be required.. For example, in some jurisdictions, such as Spain, decisions were largely insurer positive, whereas others like Australia are considered to be generally pro-policyholder. 

Outstanding issues remain undetermined, a number of which are due to go before the Court in 2023, including availability of cover for Disease Extensions that respond to cases of Covid ‘at the premises’. The  current judgments provide a starting point for guidance on some very tricky and unprecedented issues arising from the pandemic, with the hope on all sides of the insurance market  that 2023 will bring even further clarity.