Head of Property Risks & Coverage
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As the FCA dust settles...
Business Interruption (BI) insurers will find it hard to extract any points of comfort from the decision of the Supreme Court in the FCA-backed, Covid-19 test case. Not only was the result a resounding win for policyholders on the specific non-damage, infectious disease extensions under consideration, but we now have some new thinking on the approach to the determination of proximate cause in complex, multi-faceted cases. It is going to take years for the effects of that to work through and we are bound to see much more and rather unpredictable litigation around the issue of causation in coverage cases.
Two matters might be worth mentioning.
The first is the corollary of the approach taken to causation. It would seem logical that if each individual instance of someone being affected by Covid-19 is complete as to the insured peril for the occurrence of infectious disease and each has equal causative potency for lockdown restrictions, then each essentially drives the same overall composite loss. All of the general losses from the pandemic are equally driven by each instance of infection. That seems to support the approach of there being just one continuing event here, even if the force and precise effects of the lockdown vary from time to time. This is important as to the application of limits. Cover does not re-engage anew as local restrictions ease and then re-apply.
The second is as to the inevitable simmering surge in claims for late payment damages under the Insurance Act 2015. We are surely not far now from having some decided authority as to such claim and in particular the defence under s.13(A). An insurer has a defence to any claim for having failed to settle within a reasonable time where able to show reasonable grounds for the failure to pay; which ought to include the need to be properly satisfied as to the application of cover. BI insurers may have been found liable, but the genuine difficulty of the issues is ample evidenced by the complexities of the judgments in both the High Court and the Supreme Court. Insurers who have stayed in line with the FCA guidance as to keeping policyholders advised ought to take a robust view as to any late payment claims.
It is finally a shame that the judgment only touched in passing on that other suite of policy wordings concerning Infectious Disease specifically “at the premises”. It may have been thought at the outset of the FCA initiative, at the beginning of the pandemic, that such wordings involved less difficulty but, in fact, that is not really so when one has to carry across the Supreme Court findings to the language of those extensions. There may well be another store of litigation locked up there.
We do know reliably from the Supreme Court judgment that one instance of Covid-19 “at the premises” may complete the relevant insured’s risk but does not of itself trigger cover for the duration of the pandemic. But left rather open, however, are questions as to how such cover operates where there is a regular, repeating presence of infected persons at the premises. If there is an ongoing state of affairs whereby typically there is some likely level of infection at the premises – either because the public keeps visiting or there is a large workforce present - then there would seemingly be an ongoing operation of the insured peril keeping cover going. And that then poses the very tricky question of whether cover attaches more readily for the business that can remain open during the pandemic rather than one that is required to close. Rather counterintuitive perhaps if the similarly-insured, closed business loses out - because of the premises being obliged to remain a Covid-19-free island in a sea of pandemic - when the neighbouring business remains open, with some likely presence of infected persons passing through and so is covered. The Courts will not be done with this issue for a while yet.