The recent High Court judgment 15 September 2020 in the UK test case of The Financial Market Authority v Arch Insurance (UK) Ltd & ors [2020] 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. [2010] 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.

Business interruption insurance policies usually contemplate the loss of premises by physical damage.  Typically, the Covid 19 pandemic does not physically damage premises, however, the loss of uses of premises is arguably “physical damage”.  In a decision released 30 March 2020 the Ontario Supreme Court in MDS Inc & anor v Factory Mutual Insurance Company, 2020 ONSC 1924  decided that loss of use or function of premises could be “physical damage” for the purposes of the insurance policy.  To interpret “physical damage” as requiring tangible damage was inconsistent with the purpose of the insurance policy.  The case involves the pre-emptive shut down of a nuclear reactor with a heavy water leak that produced isotopes that were then sold by MDS.  It claimed lost profit of about $121M by reason of the regulator imposed shutdown of the premises for 15 months.  This decision will be helpful to insureds in bringing successful claims for losses as result of Covid 19 enforced closures and losses.

In Bruce & ors v IAG New Zealand Ltd [2019] NZCA 590 the Court of Appeal allowed the homeowners’ appeal and dismissed the IAG cross appeal in a case about IAG’s post earthquake remedial work.  IAG elected to repair the house and spent $1.4M doing so.  IAG’s engaged builder, Jim the Builder, did not repair the house so that it was “as when new”.  At issue at trial were the floor levels, wall verticality and internal finishes.  The High Court Judge, Mallon J, found that IAG had not restored to the three items to the policy standard, but puported to limit the remedy available to the homeowners.  The Court of Appeal set aside the limits on recovery and dismissed the cross appeal about the lack of damage by wall leans. There is to be a second hearing about remediation and cost of remediation.  This case is important for its finding that IAG is liable for the defaults of its builder when IAG elected to repair the house.

Vero, AMI and AA Insurance refused to pay $4.9M of rental hire costs claimed by not at fault drivers where their insured drivers were at fault.  Right to Drive funded the rental cars in return for rights against the insured driver(s) and their insurers.  It sued to recover from the insurers.  The insurers denied liability for many reasons.  The insurers lost in the High Court.  In Frucor Beverages Ltd & ors v Blumberg & ors [2019] NZCA 547 the Court of Appeal dismissed the insurers’ appeal(s) and commented about the lack of merit of the appeals.  Previous Australian and United Kingdom cases were similar.  The Court of Appeal makes very critical comments about the insurers in paras [151] to [162] of the judgment.

In Birchs Road Ltd v EQC & anor [2019] NZHC 2439 the High Court (DunninghamJ) considered  an application to transfer a court proceeding in process for 3 years with a trial date commencing 21 October 2019 where the defendants had concerns about their ability to recover costs from the homeowner if the claim was transferred to the Earthquake Tribunal.  In Fraser v EQC & anor [2019] NZHC 2768 the High Court (Lester AJ) decided that the High Court retained jurisdiction to deal with costs in respect of a proceeding transferred to the Earthquake Tribunal.  Fraser is notable for a wasted costs order against the homeowner for changing lawyers and engineers.

In Settlers Crescent Partnership v IAG New Zealand Ltd [2018] NZHC 2775 the owners of 4 adjoining buildings at 14 Settlers Crescent, Ferrymead (funded by Risk Worldwide) sued to recover for damage in the June 2011 earthquake notwithstanding that they had cash settled for $10,233,973.80 with IAG for damage to the buildings in the September 2010 and February 2011 earthquakes on the basis that those buildings were recommended for demolition as being destroyed. The Court in a judgment 25 October 2018 unsurprisingly found that the partnership suffered no further loss in the June 2011 and the claim failed.  A year later the High Court on 17 September 2019 in Settlers Crescent Partnership v IAG New Zealand Ltd [2019] NZHC 2341 ordered the owners to pay costs of $51,067 together with disbursements  of $111,147.76.  IAG had claimed $297,621.72.

In Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016 the High Court (Gendall J) ordered Southern Response to pay Dodds $178,894.30 plus interest from 23 December 2013 because Southern Response misrepresented the cost to rebuild the house at 9 Errol Lane, Huntsbury damaged in the earthquake on 22 February 2011.  Southern Response provided a Detailed Repair/rebuild Analysis to Dodds that excluded demolition, professional fees and contingency that totalled $895,937.78 whilst at the same having a full costing at $1,186,920.75 that it did not provide to Dodds.  Dodds entered into a settlement agreement based  on the lesser figure.   The High Court decided that SR was guilty of misrepresenting the rebuild cost and engaging in misleading and deceptive conduct.  It also said that Southern Response breached good faith obligations.  The High Court ordered Southern Response to pay the difference in the 2 costings less the cost of demolition that Southern Response paid and some Arrow costs.  It did not award general damages.

In Tower Insurance ltd & anor v Nicon Ltd [2019] NZCA 332 the Court of Appeal dismissed Tower’s appeal of a High Court decision that it was obligated to offer demolition work to Nicon where Nicon had done a demolition assessment.  Nicon said that it did 1376 assessments, but was only allocated 186 demolition jobs.  It claimed lost income of more than $4M from Tower/Stream.  The issue was whether a written heads of agreement between Nicon and Stream/Tower was a legally binding contract.  Tower said it was not binding.  The High Court and Court of Appeal disagreed.  There will now be a trial about the amount of money Tower/Stream must pay Nicon for lost demolition work.

In Biggins & anor v Southern Response Earthquake Services Ltd [2018] NZDC 25609 the District Court considered an application by an insured home owner for summary judgment for the cost of a carport that was not included when SR rebuilt the insured’s house.  There were also claims for general damages and the owners’ share of liability for a common driveway.  The insured house had a carport.  The house rebuilt by Southern Response after the earthquakes did not.  SR said it was not liable because the cost of a carport was included in the costing for the rebuilt house.  Southern Response lost.  There were no documents that supported the SR position.  SR also lost on the driveway share issue, but avoided a liability for general damages.