Canadian Underwriter

What business interruption coverage appeal to U.K. Supreme Court could look like

October 6, 2020   by Greg Meckbach

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British insurers are not taking yes for an answer from the High Court of England and Wales, which recently ruled that insuring business interruption “following” a notifiable disease, within a certain distance of the client, does in fact mean that COVID-19 is covered if there was even one case in the client’s vicinity.

The U.K. Financial Conduct Authority and seven insurers are asking for permission to “leapfrog” an appeal of the High Court’s ruling in the FCA’s business interruption test case, released Sept. 15. This means both sides want to bypass the Court of Appeal of England and Wales civil division.

A hearing was held Oct. 2.

If both sides are granted leave to appeal, it means the U.K. Supreme Court — the court of last resort for civil lawsuits in Britain — will hear their appeal.

COVID-19 was declared a pandemic March 11. This resulted in a plethora of government advisories and lockdowns worldwide — including in Canada and Britain.

Related: Mixed result in British court ruling in business interruption coverage dispute

In Britain, the FCA launched its test case this past June in an effort to clarify whether dozens of wordings provide coverage for BI related to government orders or advice to shut down a workplace. The outcome is legally binding in Britain on the insurers that are parties to the test case — but only in respect of the 21 policy wordings considered by the court.

The Sept. 15 ruling resulted from an eight-day trial this past July. The FCA argued all of the wordings provide cover [depending on the client’s individual circumstances] while insurers argued they do not. The court ruled some wordings do provide cover while others do not, which is why both sides are appealing. None of the disputed wordings require physical damage to property.

One of the wordings, on which the court sided with the FCA and against insurers, is for a a BI extension covering interruption or interference with the business “following” an occurrence of a “notifiable disease” within 25 miles of the premises.

Key to the court decision was the word “following” instead of “in consequence of.”

With that wording, an insurer argued that had there been no occurrence of COVID-19 within a 25-mile radius of insured premises, the client would still have suffered from a general reduction of demand after the beginning of March, as well as from the impact of the central government’s social distancing measures. Those measures, insurers argued, would have been introduced anyway by reason of the occurrence or feared occurrence of the disease in areas other than the 25-mile radius.

But the High Court said with this particular wording, an occurrence of disease within 25 miles does not necessarily have to be the proximate clause of the closure. There only needs to be an occurrence of that disease within 25 miles — even if it is within a global pandemic.

This finding “construes causal wording so widely as to abandon any requirement of causation in fact,” insurers say in their application for leave to appeal to the U.K. Supreme Court.

Some policy wordings in the test case provide coverage for “prevention or hindrance of access,” but the result of the Sept. 15 ruling means that whether those policies cover COVID depends on exactly how the policies are worded.

So what happens of those same insurers provide the exact same wording in Canada?

“They will likely have to live with the ultimate outcome of the test case,” said Eric Charleston, a Toronto-based insurance coverage lawyer with Miller Thomson LLP, in an earlier interview. This is because Canadian courts frequently cite precedents set by court rulings in British Common law countries.

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