The UK Financial Conduct Authority brought the case on behalf of policyholders and was represented by Herbert Smith Freehills’ insurance team.
The High Court (the first instance Court in the UK) handed down its decision earlier this week and generally ruled in favour of policyholders, finding that various policy extensions can provide coverage for financial losses suffered as a result of the UK’s Covid-19 lockdown, and minimising the ability for insurers to reduce recoveries in reliance on causation arguments.
Herbert Smith Freehills’ insurance partner Mark Darwin said: ‘These issues represent some real pressure points for insurers, both in the UK and Australia. Policyholders should re-examine their policies to see what might be claimable for Covid losses and carefully assess any coverage positions advanced by insurers on these types of losses.’
Herbert Smith Freehills’ insurance special counsel Guy Narburgh added: ‘This is an important decision for Australian policyholders. The decision is highly persuasive and erodes a number of the more significant arguments insurers may have for resisting or adjusting claims.’
The Court made key findings on the application of particular coverage extensions to Covid-19 losses and causation issues relating to the impact of Covid-19, including:
- In relation to coverage: The Court considered a variety of extensions which are said to give rise to coverage either as a result of a notifiable disease occurring within a specified area or as a result of prevention of access / action by public authorities. The Court confirmed that various extensions would provide coverage. Disease extensions had particular success, with the Court confirming that individual outbreaks are indivisible from the general pandemic, meaning that cover was not limited to outbreaks wholly within the geographical area specified in the policy.
- In relation to causation: Insurers argued that the broader impact of the pandemic on the business must be taken into account as a ‘trend’ which would otherwise have affected the policyholder’s business – effectively negating any cover for the immediate local impact of the pandemic. The Court had little sympathy with this argument and precluded insurers from artificially distinguishing between local and national impacts to reduce claimable loss.
A hearing will shortly be fixed with the UK High Court, where any applications for appeal will likely be made.
There are also currently at least two significant cases underway in Australia in respect of Covid-19 business interruption claims. The Australian Financial Complaints Authority and Insurance Council of Australia case in the NSW Supreme Court and the Star Entertainment Group case in the Federal Court are both are in their early stages. Herbert Smith Freehills anticipates that there will be some overlap between the UK decision and these Australian test cases, but that a number of additional issues will be dealt with in the Australian cases.
More information can be found in our Legal Briefing.