Tuesday, October 13, 2020

BigLaw on Big Insurance: Covid-19 Business Interruption Claims In The UK

 From the Columbia Law School's CLS Blue Sky blog, October 8:

Cleary Gottlieb Discusses Business Interruption Claims in the UK After COVID-19

Following the decision of the English High Court[1] in the high profile test case brought by the UK’s Financial Conduct Authority (the “FCA”), the UK insurance industry faces the prospect of being liable to cover losses relating to COVID-19 under business interruption policies.

In this piece, we review the implications of the decision and the position of policyholders in both the UK and the US.

Executive Summary

The English High Court has found that a number of representative business interruption insurance policies will cover financial losses caused by COVID-19. Insurers can now be expected to incur significant financial liabilities in meeting claims.

The Court’s key findings include:

  1. the “insured peril” should be broadly construed. The defendant insurers unsuccessfully argued for a narrow construction, claiming the wider effects of the pandemic were a “trend” which would have affected businesses in any event (an argument which may have substantially reduced the value of any recoveries by policyholders);
  2. the majority of “Disease Clauses” (which provide cover in respect of business interruption arising from the occurrence of a notifiable disease within a specified radius of the insured premises) and “Hybrid Clauses” (which require both restrictions imposed on the insured premises and the occurrence of a notifiable disease) will cover COVID-19 related losses; and
  3. “Prevention of Access” and similar clauses (which provide cover where there has been a prevention or hindrance of access to, or use of, the insured premises as a consequence of government or local authority action) may only provide cover for narrow, localized COVID-19 losses. The precise effects of such clauses which will be sensitive to the specific wording used and the way in which the business was affected by authorities’ actions (e.g. whether the business was ordered to close and/or the degree to which it was able to remain trading).

It remains to be seen whether the judgment will be subject to an appeal, which may delay the final resolution of claims.

In the meantime, U.S. courts have been grappling with similar issues as policyholders file hundreds of insurance claims seeking coverage for business losses due to the COVID-19 pandemic and associated civil authority orders.  While the great majority of the U.S. cases are still pending, recent decisions indicate that, much like the English Court’s judgment, the U.S. courts will have to address whether “prohibition of access” provisions require total closure of premises to trigger coverage.  Additionally, the outcome of a great majority of the U.S. claims will likely turn on how courts interpret a common provision, requiring “direct physical loss or physical damage” to trigger business interruption coverage....


 Previously on Pandemic Playhouse:

March 2020
P&C: Business Interruption Insurance—Here Come the Lawyers
July 2020
"COVID-19 insured loss reports reach $20.5 Billion"
And that's with insurers doing everything they can, including preemptively suing their own customers,* to keep a lid on business interruption coverage payouts....
*Travelers Insurance Is Suing Its Customers To Preempt Business Interruption Claims (TRV)

July 17
Re/insurance: "U.S. riot losses accelerated & worsened by pandemic..."
June 3
Insurance: AXA cites Business Interruption as “material” in EUR 1.2bn Covid-19 Property/casualty loss estimate
May 24
Insurance Oh-Oh: "French court orders insurer to pay restaurant’s business interruption losses from coronavirus".
March 31
P&C: Business Interruption Insurance—Here Come the Lawyers
April 14
Insurance:"Anticipated Coronavirus Claims Scenarios Across Major Coverage Lines"

If interested see also:
Re/Insurance: "Berkshire Hathaway will write pandemic cover 'at the right price', Buffett says" (BRK)
As with terrorism insurance Warren would rather that governments take the risks,* the downside is just so huge....
Insurance Trade Groups: "Pandemics simply are not insurable risk..."
Whitney Tilson: "Berkshire's Exposure To Business Interruption Insurance" (BRK)
Insurance:"Anticipated Coronavirus Claims Scenarios Across Major Coverage Lines"

Insurance: "Coronavirus to be largest industry loss ever: Chubb’s Greenberg & Lloyd’s Neal"
The last line is:
"Lloyd’s has set aside £15 million to fund research into how pandemics and other big events can be better dealt with in future."
As the kids say: "You had one job..."

Re/Insurance: "Pandemic could inflate hurricane industry losses by up to 20%..." 
Of course the jackpot for risk modelers is to have a volcano go off triggering an earthquake leading to the collapse of an underwater seamount, causing a tsunami as a hurricane roars through a pandemic zone.

Most likely location for this unlikely occasion: the Lesser Antilles.

Unlike Fukushima, no nukes though.
So it would be hard to recreate the typhoon approaching the nuke plant devastated by tsunami caused by the earthquake* but, but volcano and pandemic!

I believe for the remainder of 2020 our motto should be "Hey, it could be worse!""