Lawyers are already predicting a leapfrogged appeal to the Supreme Court after the High Court handed down its ruling in the Financial Conduct Authority’s (FCA) business interruption insurance test case.
The case was brought on the financial list and Lord Justice Flaux – supervising judge of the Commercial Court – and Mr Justice Butcher found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues.
The FCA and defendant insurers have agreed that they will seek to have any appeal heard on an expedited basis, including possibly leapfrogging it to the Supreme Court.
Some 35 barristers, instructed by seven different law firms, were involved in the case. Ten of the counsel involved were women, although only one was a QC – Leigh-Ann Mulcahy, one of two silks representing the FCA, instructed by Herbert Smith Freehills. There were 15 QCs involved in total.
The FCA argued that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings provided cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
The court agreed that most, but not all, of the disease clauses in the sample provided cover, as did certain denial of access clauses.
The latter depended on the detailed wording of the clause and how the business was affected by the government response to the pandemic, such as whether it was ordered to close.
The test case also clarified that the Covid-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.
However, the FCA stressed that the court did not say that the eight defendant insurers were liable across all of the 21 different types of policy wording in the sample considered by the court.
“Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next seven days.”
Christopher Woolard, the FCA’s interim chief executive, said: “Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties…
“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
“They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”
Insurers are expected to pay out £1.7bn in Covid-19 claims, a large proportion of which will be for business interruption.
Huw Evans, director-general of the Association of British Insurers (ABI), insisted that the ruling “divides evenly between insurers and policyholders on the main issues”.
“This is a complex judgement spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals.”
Stephen Netherway, partner and head of the insurance practice at Devonshires, said: “Today’s judgment gives a much-needed lifeline to struggling businesses across the UK and could prevent many from going bankrupt.”
But he said there would “undoubtedly” be an appeal from the insurance industry. “What is important now is that the FCA sits down with the insurance sector to discuss how they move forward and discuss if business can secure interim payments from their insurers pending any appeal.
“For the insurance industry this is a blow but they will, I am sure, continue to fight this all the way to the Supreme Court where the final judgment will most likely be made.”
Sonia Campbell, the partner at Mishcon de Reya representing the Hospitality Insurance Group Action – which along with the Hiscox Action Group were the only policyholder groups granted permission intervene in the case – said: “Insurers have now asked for more time to apply for permission to appeal which suggests that insurers will seek to continue to contest coverage despite the court’s clear judgment.”
Aaron Le Marquer, partner with Fenchurch Law, which works exclusively for policyholders and brokers on insurance coverage disputes, said the ruling was “undeniably a good outcome” for those policyholders with infectious disease coverage but far less so for those pursuing claims under prevention of access cover, who “will be very disappointed at the court’s finding that coverage will only be engaged under very narrow circumstances, and not in response to the national lockdown”.
He added: “The court’s finding that Orient Express was wrongly decided and that they would not have followed it even had they not found it to be distinguishable, will certainly raise eyebrows, and will surely lead to an appeal from Insurers on this issue at least.
“In deciding whether to appeal on the policy trigger issues, Insurers will have to weigh up the potential further reputational damage they may suffer from being seen to resist the court’s very clear findings.”
Ravi Nayer, a partner at Brown Rudnick, added: “If one or several insurers decide to appeal, it is likely to be hard for the FCA to insist that they make interim payments to businesses. If the FCA lose on appeal, it will be very hard to claw the money back from thousands of individual businesses. The FCA could also cross appeal.
“Big picture, this doesn’t bode well for the Treasury either. Given the likelihood of a second wave forcing future lockdowns, insurance companies that continue to provide business interruption insurance will tighten policy wordings and likely increase prices, making cover unaffordable for many businesses. It may again be time to consider the need for a Pandemic Re.”
Clive Zietman, head of commercial litigation at Stewarts, predicted that the case would lead to further litigation on specific policies.
“No doubt insurers may, in individual cases, rely on other defences such as failure to make full disclosure at the time the policy was taken out or failure to notify in good time. Other cases may well settle but this judgment is not a panacea for thousands of prospective disputes.”
Who acted for whom?
Colin Edelman QC, Leigh-Ann Mulcahy QC, Richard Harrison, Adam Kramer, Deborah Horowitz and Max Evans (instructed by Herbert Smith Freehills) for the claimant, the FCA
John Lockey QC and Jeremy Brier (instructed by Clyde & Co) for the first defendant, Arch Insurance
Simon Salzedo QC and Michael Bolding (instructed by Simmons & Simmons) for the second defendant, Argenta Syndicate Management
Gavin Kealey QC, Andrew Wales QC, Sushma Ananda and Henry Moore (instructed by DAC Beachcroft) for the third and fifth defendants, Ecclesiastical Insurance and MS Amlin
Jonathan Gaisman QC, Adam Fenton QC, Miles Harris and Harry Wright (instructed by Allen & Overy) for the four defendant, Hiscox
Mark Howard QC, Rachel Ansell QC, Martyn Naylor and Sarah Bousfield (instructed by Clyde & Co) for the sixth defendant, QBE
David Turner QC, Clare Dixon, Shail Patel and Anthony Jones (instructed by DWF Law) for the seventh defendant, Royal & Sun Alliance
Andrew Rigney QC, Craig Orr QC, Caroline McColgan and Michelle Menashy (instructed by Clyde & Co) for the eighth defendant, Zurich
Philip Edey QC, Susannah Jones and Josephine Higgs (instructed by Mishcon de Reya) for the first intervener, the Hospitality Insurance Group Action
Ben Lynch QC and Christopher Knowles (instructed by Mishcon de Reya) for the second intervener, the Hiscox Action Group