The ‘massive’ business interruption coverage question with no ‘obvious answer’

The outcome of an ongoing British test case for business interruption during a pandemic could set a precedent for commercial coverage disputes in Canada, a Toronto-based insurance defence lawyer suggests.

Britain’s Financial Conduct Authority (FCA) is scheduled to file a claim with the High Court of England and Wales on June 9 to resolve what the FCA calls “widespread uncertainty” around the validity of many commercial claims during the ongoing COVID-19 pandemic. The FCA is seeking clarity around various policy wordings that appear to provide business interruption cover related to government orders or advice to shut down a workplace.

“The FCA sees this as a massive insurance question without an obvious answer,” said Eric Charleston, Toronto-based associate with Miller Thomson LLP, who provides coverage advice to commercial insurers.

Charleston was interviewed in the context of separate but related issue in France. The Tribunal de Commerce de Paris recently ruled against French insurer AXA over a BI dispute with a restaurant that closed this past March because of the pandemic. The French case was reportedly over BI arising from administrative closure, said Charleston, commenting on media reports in French translated in to English.

“The fact that [the test case in Britain] is not one wording but a cross-section of common wordings, and that a collection of very large sophisticated underwriters will be defending the action, will probably create a more persuasive precedent for Canadian courts compared to the decision in France on AXA,” said Charleston. “To be clear, my comments are not based on reading the original decision by the Tribunal de Commerce de Paris but are based on reading news articles translated from French into English.”

For its part, the FCA released a list of 17 business interruption policy wordings last week that it intends to use for the test case with the High Court of England and Wales.

“FCA collected a sampling of wordings from insurers and worked out what is essentially a management structure for the litigation,” said Charleston.

A case management conference is scheduled June 11.

The result of the test case will be legally binding in Britain on the insurers that are parties to the test case in respect of the policy wordings considered by the court, the FCA reported. It is not intended to encompass all possible disputes, nor is it intended to figure out how much is actually payable on those policies.

Public comments on the test case were due June 5.

Among the policy wordings the FCA test case will consider are:

• an incident during the period of insurance within the vicinity of the business premises which results in a denial of or hindrance in access to the business premises imposed by the police or other statutory authority;
• prevention of access to The Premises due to the actions or advice of a government or local authority due to an emergency which is likely to endanger life or property;
• access to or use of the premises being prevented or hindered by … any action of government police or a local authority due to an emergency which could endanger human life or neighbouring property;
• loss resulting from interruption or interference with the business following action by the police or other competent local, civil or military authority following a danger or disturbance in the vicinity of the premises where access will be prevented provided always that there will be no liability under this additional cover for loss resulting from interruption of the business during the first 24 hours of the indemnity period.

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