The recent High Court judgment 15 September 2020 in the UK test case of The Financial Market Authority v Arch Insurance (UK) Ltd & ors  EWHC 2448 (Comm) is all bad for insurers of business interruption insurance claims in NZ. It says that disease extensions provide cover as do some Government authority extensions, but most importantly it says that the case of Orient-Express Hotels Limited -v- Assicurazioni Generali S.p.A.  EWHC 1186 (Comm) that insurers rely on to limit liability is wrong.
FCA is the regulator of the insurers in the UK. It brought a test case on various specimen wordings by underwriters of business interruption insurance arising in the context of the Covid 19 pandemic. The trial took place over Skype in front of a 2 Judge divisional court. It considered 21 lead policies underwritten by 8 insurers. 700 types of policies by 60 insurers are affected by the test case.
The test case was a policy interpretation exercise. It considered the application of policy clauses about indemnity for disease, government authority, trends clauses and causation. Firstly it looked at disease clause extensions that provide cover for business interruption arising from the occurrence of a notifiable disease within a specified radius of the insured premises. It said that there needs to be a causal connection to the business interruption, but less than proximate/but for causation. It is enough if there is a case within the required radius.
It looked at hybrid clauses – disease combined with government restrictions. Inability to use following restrictions following disease. Must be enforceable restrictions. Guidance is not enough.
It looked at prevention of access clauses. This is prevention of access by government restriction. Prevention is greater than hinderance. It must be legally enforceable restriction.
The final issue was causation. Insurers relied on the Oriental Express case – OEH owned a hotel in French quarter of Louisiana damaged by Hurricane Katrina. Since hurricanes damaged the rest of New Orleans OEH still would have suffered loss even if hotel was undamaged. So the Court then said Orient Express would have suffered the business loss even if its own building was not damaged. Adopted “but for” causation. The Court now said Orient Express did not apply and was wrongly decided. It adopted too narrow a view of insured peril. The insured peril was damage and hurricane. So the building damage and other hurricane effects could not be excluded.
Hopefully this case encourages more people to bring BI claims against insurance companies.