The UK’s FCA ran a test case in July 2020 with a group of eight sample insurers – Arch, Argenta, Ecclesiastical, Hiscox, MS Amlin, QBE, RSA and Zurich – to resolve the most common pandemic-related BI claims disputes between policyholders (typically SMEs) and insurers.
The Supreme Court upheld the findings of the High Court and ruled largely in favour of policyholders in January 2021. Since then, UK insurers have paid out more than £1.35bn ($1.66bn) in interim and final settlements to more than 40,000 policyholders, according to data published by the FCA.
But while the test case was successful in clarifying various issues common to many Covid-19 BI claims, it still left a number of areas of uncertainty created by the variety of policy wordings used and also the lack of legal clarity around their application.
Now, almost precisely two years after the initial test case was accelerated to the Commercial Court, the stage is set for a trio of summer cases which should ultimately bring clarity on the outstanding issues relating to both coverage and loss computation (see table).
So great is the continuing volume of litigation that the UK’s Commercial Court has grouped together a series of live disputes which it deems as noteworthy under a sub-list directed by Justice John Butcher, with support from his colleague Justice Julian Cockerill.
Stonegate to tackle aggregation challenge
The first of these grouped disputes is the multi-million-pound lawsuit brought by UK pub group Stonegate against three insurers – MS Amlin, Zurich and Liberty Mutual – which is to be heard in the High Court over two weeks beginning on 13 June.
It focuses on the limits of liability available to meet Stonegate’s losses, which itself turns on four issues of principle: aggregation, causation of post-policy period losses, increased operating costs and the impact of government support.
Stonegate, which is backed by private equity group TDR Capital, is seeking £845mn from its insurers, claiming its cover provides indemnity against losses sustained during pandemic and associated government-mandated lockdowns.
The disputed cover is based on Marsh Resilience policy wordings – a policy aimed at restaurant owners which came under scrutiny during the FCA’s High Court test case, referred to as ‘RSA4’.
The pub group is arguing each of its circa UK 760 locations suffered a covered loss, equating to a £2.5mn payout per location. Stonegate said the insurers do not dispute that the policies should have paid out, but says they contend their liability is limited to £17.5mn, of which £14.5mn has already been paid.
Another unresolved issue set to be challenged by Stonegate is whether policyholders can claim the relevant payout limit more than once, for example for multiple premises, lockdowns or insuring clauses.
A further point of contention, also part of the Stonegate case, is whether payments made under the UK government furlough scheme should be deducted from claims and whether the policy provides cover for additional increased costs of working.
Greggs takes on Zurich over crisis management costs
The issue of secondary costs is also being examined in the £100mn suit mounted by British high street bakery chain Greggs against the UK arm of Swiss insurer Zurich. The case is expected to be heard over four days starting 4 July.
The chain, which has more than 2,000 shops across the UK and is famed for its sausage rolls, wants Zurich to compensate it for its BI costs and expenses, as well as costs associated with public relations crisis management.
It is seeking between £50mn and £100mn in losses, but instead Zurich argues Greggs is entitled to a mere £2.5mn.
At the heart of this case is to what extent financial relief received by a claimant should be netted off against insurance claims. According to legal filings, Greggs benefited from £18.8mn in rates relief and £87mn of furlough support during lockdown.
Various Eateries holds Allianz to task on single occurrence definition
The issue of aggregation is also the focus of a suit between Various Eateries plc, the owner and operator of UK restaurants Coppa Club and Tavolino, against the UK arm of heavyweight European insurer Allianz.
The hospitality firm is seeking £16.4mn in total and is asking for £15.8mn in losses linked to a drop in turnover, £520,000 for increased working costs and £30,000 in costs linked to the legal claim – considerably more than the £2.5mn the insurer has already paid out.
Various Eateries claims that each lockdown and each set of restrictions are separate events under its policy and that each occurrence of Covid-19 across England was a separate trigger for a BI clause, meaning it could claim the maximum payout many times over – a claim it says is supported by the Supreme Court ruling.
It argues that changes in UK government policy, such as a shift from a mandatory nationwide lockdown to a tier system, are individual events under the policy wording and fall into different categories under the policy it took out with Allianz.
Various Eateries is claiming losses under the prevention of access clause, the enforced closure clause and the disease clause in its Allianz policy.
But in its defence filing, Allianz sought to rebut the argument about the Supreme Court ruling, saying that the part of the judgment that Various Eateries was relying on was an interpretation of a different kind of clause to that in its policy.
Smart Medical challenges Chubb’s “at the premises” wording
In addition to the three cases, there is another outstanding issue not directly addressed in the FCA test case relating to wordings based on disease being present “at the premises”.
This is expected to be determined in another dispute guided for trial in 2022 – for which no date has been set – between London-based private healthcare firm Smart Medical Clinics Ltd and global insurer Chubb.
Smart Medical claims that due to the government restrictions, it was not able to offer face-to-face consultations at its clinics in the period from 23 March 2020 until 1 June 2020. This resulted in a “significant loss” of over £1mn in income across its three premises.
The main issues include the extent to which access to the claimant’s premises was restricted, and whether members of its staff contracted Covid-19 at the premises.
It will also examine whether Covid-19 was a notifiable disease as defined in the policy, and whether for there to be cover under a ‘Restrictions on the use of the premises’ clause discovery of the causative agent had to take place at the premises.
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