Disputes Yearbook 2023:
Insurance disputes

Covid-19 business interruption cases

Insurance claims for lost revenue suffered by businesses during the Covid-19 pandemic and resulting government lockdowns have continued to keep the English courts busy this year and will do so for months to come as claim forms continued to be issued against insurers. This series of cases began with the Supreme Court's judgment in the Covid-19 business interruption test case in 2021 in which Herbert Smith Freehills acted for the UK regulator, the FCA, on behalf of policyholders (the FCA Test Case): Supreme Court hands down judgment in FCA’s Covid-19 Business Interruption Test Case.

Subsequent cases have sought to resolve outstanding issues and disputes on policy wordings not considered or resolved by the FCA Test Case. In the past few months, this has included:

• Consideration of "at the premises" clauses (which were not considered by the Supreme Court in the FCA Test case): Supreme Court’s approach to causation in the FCA Test Case applies to “at the premises” clauses in business interruption insurance. This decision is on appeal.
• Determination of a preliminary issue concerning the construction of provisions relating to policy limits: Court construes application of policy sub-limits in Covid-19 BI claim.
• Whether cover is available under an extension which required business interruption to be caused by damage in Bellini (N/E) Ltd trading as Bellini v Brit  UW Limited [2023] EWHC 1545 (Comm)  
• A case heard in October this year which considered issues concerning Prevention of Access cover, including issues very similar to those addressed in Corbin & King v AXA Insurance Plc [2022] EWHC 409 (Comm). Judgment is awaited but you can read our article on the Corbin & King decision here: Prevention of Access clauses revisited.

An appeal was heard in November in the case of Various Eateries Trading Ltd v Allianz [2022] EWHC 2549 (Comm) which looked at issues around aggregation. Judgment is awaited but you can read our article on the first instance decision here: Covid Business Interruption claims – the next instalment.

Impact of war risks on insurance disputes

Recent geopolitical events have and will continue to impact the insurance sector and have a knock-on effect on the types of disputes we see going forward. There are already a number of actions which have begun in the Commercial Court involving claims on Contingent and Possessed insurance policies brought by lessors of aircraft (and/or aircraft equipment, such as engines) in respect of the alleged loss of assets leased to Russian airlines since the Russian invasion of Ukraine.  The Commercial Court is actively case managing these with Mr Justice Butcher as the assigned judge. Other claims involving aircraft in Russia under or related to policies taken out by lessees (Operator Policies), have also been commenced in the Commercial Court. Mr Justice Henshaw has been designated as the assigned judge for those cases. Beyond Russia, recent events in the Middle East are meaning that war policies and war exclusions are again getting more attention than they have for some time and are likely to lead to more disputes given the complexities involved.

Co-insurance in the spotlight again

The judgment of the Court of Appeal in FM Conway Ltd v Rugby Football Union & Ors [2023] EWCA Civ 418 (see: The scope of cover for co-insureds may not always be as it seems) is the latest in a series of cases which explores the nature of co-insurance in a multi-party construction project context and whether subrogated claims can be brought in the name of one co-insured against another. The Court of Appeal considered the scope of cover provided to a contractor under a Construction All Risks (CAR) policy and whether the contractor was able to rely on a co-insurance defence to prevent the insurer from bringing a subrogated claim against it. The court found that while the contractor was insured to some extent under the policy, it was not a co-insured in relation to the damage for which the insurer had indemnified the principal insured. The insurer was therefore able to pursue a subrogated action against the contractor.

The case is a useful reminder that the contractual arrangements between insureds have been found by recent court decisions to inform coverage under multi-party project policies and so policyholders cannot just look to their policy to understand their cover. Co-insureds are well advised to carefully consider the scope of cover obtained on their behalf. Even if an entity is within a class of potential insured parties, it should ensure that the risk allocation and insurance provisions are fully consistent to minimise the prospect of subrogated claims and adding to the already extensive case law in this area.

Causation

There is a presumption in English law that an insurer is only liable for losses proximately caused by perils covered by the insurance policy. Two cases this year have considered this fundamental principle. 

• Allianz Insurance Plc v The University of Exeter [2023] EWHC 630 (TCC) provides a practical example of how courts assess the proximate cause of a loss. The court considered whether property damage caused by the controlled detonation of a World War II bomb was "occasioned by war". If it was, there would be no cover for the damage due to the operation of a war exclusion. The court held that the proximate cause of damage was the dropping of the bomb around 80 years ago, not the controlled detonation in 2021 and, therefore, there was no cover. The case affirms that the chronological order of events is not determinative in establishing the proximate cause. It also reaffirms that proximate cause analysis remains a matter of judgment based on common sense rather than over-analysis. For further analysis of the case, see our insurance blog post: When is a cause a proximate cause?
• The second case considered the issue of proximate cause in the context of an insurance policy exclusion. In Brian Leighton (Garages) Limited v Allianz Insurance Plc [2023] EWHC 1150 Civ 8, the parties agreed as to the proximate cause (unlike in Allianz v University of Exeter) but were in dispute as to whether a policy exclusion displaced the proximate cause presumption. Namely, that an insurer is only liable for losses proximately caused by a peril covered by the policy. For a full analysis of this case, see our insurance blog post: Court of Appeal considers presumption of proximate cause in exclusion.