The Court of Appeal recently handed down its judgment in the case of London International Exhibition Centre versus Allianz Insurance – upholding the landmark ‘At the Premises’ COVID BI test case decision in what was described as an “important victory for policyholders”.
Offering background on the ruling – which has significant implications for the insurance industry – Peter Hardy (pictured), partner at Reed Smith, noted that the case raises a series of preliminary issues in connection with six separate actions – the lead action being the claim by the London International Exhibition Centre which owns and operates the Excel Centre – which are being heard together.
Last Friday’s ruling saw the Court agree with the lower court on causation, he said, though it adopted a different approach to reaching that conclusion. The Court found against insurers on both whether the ‘but for’ test should apply, and whether the occurrence of COVID-19 was a “distinct effective cause”. This broader approach to causation will mean that far more policyholders with ATP wordings are able to seek cover for their COVID-19 losses.
“A finding for insurers would have resulted in different tests for causation applying depending on whether a policyholder purchased ATP or radius wording,” he said. “A finding for policyholders provides welcome certainty that, regardless of which policy wording was purchased, the test for causation will be applied consistently.
“Whilst the Court of Appeal took a different approach to interpreting the policy wordings (focussing on the language and context of the ATP clauses in issue and the presumed common intentions of the parties), the Court of Appeal expressly agreed with ‘the conclusion and much of the reasoning of the judge on the common causation issues’.”
As to how ruling might provide clarity regarding other key aspects of BI coverage not considered within the scope of the FCA’s original test case, Hardy highlighted that the first instance judge found that the UKSC’s decision on radius disease concurrent causation - that the case of COVID-19 was a “proximate cause” of the subsequent closure order – applies to ATP wording. This means that the specific instance of COVID-19 at the premises does not have to be the effective or only cause, and recognises that there would have been other occurrences throughout the country.
“In welcome news for policyholders,” he said, “the Court of Appeal has agreed with the conclusions of the High Court judge. The decision provides important clarity and certainty as to the coverage afforded under the ATP wordings, which are generally considered to provide narrower cover than the ‘radius’ wordings or other Non-Damage Denial of Access extensions.
“Whilst there remain other claims being managed through the active case management of the Commercial Court, this is one of the few remaining cases on an issue of general application, as opposed to a decision on the specific facts of a policyholder’s business.”
Assessing the potential implications of the ruling for the insurance market, he advised that all interested parties take time to consider the detail of the judgment. The original FCA test case finding sent a very clear message in support of the policyholders’ position and in favour of coverage, he said, and insurers should have been reserving appropriately. “There is, of course, a risk that any reinsurance programmes are not back-to-back, and cause significant exposure to insurers, but we have yet to see any proceedings on the terms of those policies.
“We are already aware of express exclusions for COVID-19 and similar pandemic-based diseases. We expect insurers to continue to review wordings closely,” he said. “It remains to be seen whether insurers will decide to appeal this further. On one view, given that the initial decision on causation in FCA v Arch was given by the UKSC, it might be that further guidance from the highest court is needed albeit that the insurers will need to have a clear basis for seeking to distinguish the prior analysis in Arch if they expect a different outcome for an ATP wording.”
As to the next steps for the insurers – and policyholders – Hardy said that policyholders who are still waiting for final decisions from insurers on coverage for COVID-19 losses under their ATP wordings, should review their policy documents and get in touch with their insurers and brokers.
The FCA has repeatedly reminded insurers of their obligations to treat customers fairly, he said, and to provide reasonable guidance to policyholders. This will include responding to questions promptly as well as paying without delay where losses are covered. “There remains the challenge of proving the occurrence of COVID-19 at the premises. Policyholders will need to work closely with brokers and any specialists to gather the necessary evidence.
“Further, even though coverage might be confirmed, policyholders should still be sure to fully document all costs, expenses and losses in relation to the impact of COVID-19 on their business. Even though a claim may in principle be covered, we expect insurers to scrutinise quantum closely (not least in light of any Trends clauses that might apply).”
