January 4, 2021 by Greg Meckbach
The appearance of the word “event” in a “disease radius” clause in business interruption insurance contract could be instrumental in determining whether the client is covered during a pandemic.
In a ruling released Sept. 15, the High Court of England and Wales ruled that some BI policy wordings did not cover commercial claimants in Britain who lost revenue after the British government’s response to the COVID-19 pandemic in March 2020.
In particular, the British court ruled in favour of insurers over two types of policy wordings written by QBE Limited in for clients in the United Kingdom.
Hearings before the U.K. Supreme Court wrapped up this past November.
The original Sept. 15 High Court of England and Wales ruling resulted from a test case in which the British Financial Conduct Authority FCA took eight insurers to court over more than 20 policy wordings, which it broke down into 18 policy types. The FCA is seeking clarity on whether any or all of those 18 policy types provide pandemic coverage in Britain. A third policy type from QBE (known as QBE 1) was found by the court to cover pandemic. The QBE policies found not to cover pandemic are known by the test case as “QBE Type 2” and “QBE Type 3.”
The Sept. 15 decision is essentially about two dozen rulings in one. The court ruled against the insurers on most of the policy types in the case, and in favour of insurers on some. For several policy types, the High Court ruled pandemic is covered in some instances but not for others. This is why both the FCA and the insurers are appealing to the U.K. Supreme Court.
The U.K. Supreme Court has yet to release a ruling.
The outcome is not binding outside Britain but the verdict could be cited by parties in Canadian BI coverage disputes involving the same policy wordings because most Canadian provinces share the same common law jurisdiction (Quebec’s Civil Code jurisdiction being a notable exception).
The word “event” was instrumental in the High Court of England and Wales’ finding in favour of insurers regarding QBE Types 2 and 3. The court ruled that QBE Type 1, which does not include the word “event,” does cover pandemic.
QBE Type 2’s coverage – a customized form for nightclubs and bars – include “loss resulting from interruption of or interference with the business in consequence of any of the following events …” One of those “events” is “any occurrence of a notifiable disease within a radius of 25 [(twenty five)] miles of the premises.”
QBE type 3 has similar wording for BI. It has a section titled “notifiable disease, murder or suicide, food or drink poisoning” coverage loss. Among those coverages is “loss resulting from interruption of or interference with the business as covered by this section in consequence of any of the following events,” with one of those “events” being “an occurrence of a notifiable disease within a radius of one (1) mile of the premises; … Provided that … the insurer shall only be liable for loss arising at those premises which are directly subject to the incident.”
FCA is arguing in its appeal before the U.K. Supreme Court that QBE 2 and 3 should cover pandemic.
The U.K. Supreme Court, the court of last resort for civil lawsuits in Britain, has yet to issue a ruling. That court heard arguments from all sides Nov. 16-19.
One of the U.K. Supreme Court judges hearing the appeals is Sir George Leggatt. He asked FCA lawyer Colin Edelman why the British insurance regulator is arguing that the disease radius wordings in the QBE 2 policy should be construed as though they are insuring an outbreak, whether within or outside the 25-mile radius.
Lord Leggatt suggested the QBE 2 policy seems to say it insures BI from occurrence of a disease by a person within 25 miles of the client’s premises.
“I’m just trying to support the approach the [High Court of England and Wales] adopted in other policies,” Edelman replied Nov. 18 during the U.K. Supreme Court hearing.
“If the nature of the risk that’s being contemplated is an outbreak, and you’re talking about something that could be 25 miles away, within the sphere of the scope of operation of the clause, [coverage will be for] an outbreak which will be of varying extent but may well be within and without the radius,” said Edelman.
Key to the High Court of England and Wales’s finding, on the wordings in QBE 2 and 3, was the appearance of the word “events.”
This, the High Court said, “indicates that what is being insured is matters occurring at a particular time, in a particular place, and in a particular way.”
The word “events” was missing from QBE Type 1, which insures “interruption of or interference with the [business, arising from or caused by … any human infectious or human contagious disease (excluding Acquired Immune Deficiency Syndrome (AIDS) or an AIDS related condition) an outbreak of which the local authority has stipulated shall be notified to them manifested by any person whilst in the premises or within a twenty five (25) mile radius of it.”
In QBE Type 2 and 3, FCA argues the phrase “the following events” is really a catch-all word to summarize what follows the phrase.
“The starting point of treating ‘event’ as being definitional is erroneous,” Edelman argued for the FCA during the Supreme Court hearings in November.
“’Event’ may have an established meaning in the context of reinsurance aggregation clauses. What it means in each case must depend on the context in which it appears and in particular what it is being applied to,” said Edelman.
QBE is one of eight insurers that FCA took to court this past summer in its test case. The others are Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office Plc, Hiscox Insurance Company Limited, Ms Amlin Underwriting Limited, Royal & Sun Alliance Insurance Plc and Zurich Insurance Plc.
The verdict in the test case in binding only in Britain on the insurers named as defendants in respect of the 21 policy wordings.
None of the policies in the test case explicitly cover or exclude pandemic. None require physical damages to the premises. Some provide coverage if a disease occurs within a certain radius of the premises. Others have denial of access type clauses.
Feature image via iStock.com/whitemay