Though for many, memories of the COVID-19 crisis are slowly receding, the impact of the pandemic and the resulting government-mandated lockdowns are still reverberating across the insurance ecosystem. This was thrown into sharp relief in early July, when the England and Wales High Court handed down a judgment with regards to the case of World Challenge Expeditions Limited vs Zurich Insurance Company Limited.
Discussing the ruling with Insurance Business, Joanna Grant (pictured), partner at Fenchurch Law – which represented the successful policyholder World Challenge – shared her insights into how the suit progressed and the implications it might have on similar cases going forward. Setting out the particulars of the case, she noted that World Challenge, a provider of adventurous expeditions worldwide for secondary school students, had to cancel its global programme of planned trips set to take place in 2020.
“In accordance with applicable regulations, having cancelled the trips, World Challenge had to refund to the schools any deposits paid by them for the trips,” she said. “Based on its prior course of dealing, World Challenge believed it had insurance cover that would pay out in the event of it having to refund a student following the cancellation of a trip.
“On over 100 prior occasions over the course of four years, when a student had fallen ill or for some other reason was unable to travel, World Challenge had looked to the cancellation cover provided by Zurich under its business travel policy. World Challenge therefore had an expectation as to how the policy operated. It had further sought reassurance that the policy would respond to a mass cancellation or ‘black swan’ event.”
In light of the significant losses that flowed from the cancellation of the global programme, which exceeded £10 million, Zurich paid closer scrutiny to the operation of the policy, Grant said. And, after some months of delay, the insurer declined to provide cover.
“This left World Challenge in a very difficult position,” she said, “both financially, as it had to make the refunds but had no cover – and reputationally, as the schools constituted its customer base, and were frustrated at the time taken for World Challenge to confirm its position, causing significant loss of goodwill.”
Grant noted that the court found that even though Zurich was correct in its assessment of the cover afforded by the policy based on its wording – namely that it was limited to irrecoverable third party costs such as airline tickets - its conduct in operating the policy led World Challenge to believe it had cover for the full extent of the refunds. This meant that an estoppel had arisen, she said, and it would be inequitable for Zurich to change the basis of its handling of claims.
She highlighted that what this meant for Zurich is that the insurer was required to cover the majority of the refunds made by World Challenge to the schools.
“This has been a long running, hard fought dispute over three years, culminating in a month long trial,” Grant said. “In addition to the significant financial implications for a travel business like World Challenge, that like other companies in the sector, was hard hit by the pandemic, World Challenge welcomes the recognition from the court that it ought to have been afforded better treatment from its insurer.”
Grant also noted that the court criticised Zurich for its handling of the claim and the time that it took to clarify its position. This was a matter of utmost importance and urgency in circumstances where it was critical to World Challenge’s business and customer relations that it was able to confirm whether it had a covered claim, she said.
She pinpointed the comments made by Mrs Justice Dias who said: “This is not an impressive performance even in the difficult circumstances of early 2020 and ordinary policyholders might well be appalled to think that a reputable insurance company could treat a long-standing and supposedly valued customer in this way”.
Grant said that, from a legal perspective, the key implications of this judgment are around the requirements of a number of different types of estoppels and what a party needs to show to found an estoppel.
“From a procedural perspective,” she said, “and in light of the recent changes in the civil procedure rules relating to witness statements, the case contains helpful commentary around best practice. In particular the evidence of Zurich’s witnesses was described as ‘dismal’ in a number of ways, but in particular because their evidence was not consistent with the contemporaneous documentation which impacted on their credibility.”
From an insurance perspective, Grant said, there are two key aspects that will reverberate throughout the sector.
The first, she said, is the need for a joined-up approach to claims handling, as evidenced by the judge being critical of the fact that the claims handlers appeared to operate in ‘silos’ and that insufficient thought or consideration was given to ensuring a consistent approach in line with the policy wording. The second is that the actions taken by junior claims handlers will bind the insurer.
“It was argued by Zurich that their actions did not operate to give rise to a common assumption on the part of Zurich,” she said. “However, the court found that where a claims handler is employed to adjust claims, and carries out that function, their action in doing so will bind an insurer.”
With regards to how this ruling might impact similar cases going forward, Grant, who leads Fenchurch Law’s construction and property risks practice, highlighted that this was a bespoke policy and a fact specific finding that – unlike some of the other COVID-19 litigation – will not have a direct impact on large numbers of other policyholders.
That being said, she identified that there are wide ranging implications for the insurance industry not least in relation to its attitude to claims handling, in light of the criticisms made by the court of Zurich’s treatment of World Challenge. Another key takeaway is with regards to claims handling practices more generally, in terms of the need for a joined-up approach that avoids giving rise to a ‘course of dealing’ that will bind an insurer notwithstanding that the policy might, in fact, not provide the cover thought to be afforded.
Grant added that the third takeaway for the sector is the finding that, “an insurer cannot wash its hands or look to disassociate itself from the actions of its claims handlers in adjusting claims.”
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