Introduction
The year 2024 has seen a number of important insurance and reinsurance cases being managed by and decided in the courts of England and Wales. In this article, the authors address what they consider to be the main and most important insurance and reinsurance cases of 2024.
COVID-19 Business Interruption
Background and timeline
On 31 January 2020, the first two cases of COVID-19 were confirmed in the UK, with the first UK death reported on 2 March 2020. COVID-19 was added to England’s list of notifiable diseases on 5 March 2020. On 11 March 2020, the World Health Organization declared COVID-19 a pandemic.
There then followed a spate of UK government announcements, including the closure of schools and leisure venues on 20 March 2020, the nationwide lockdown on 23 March 2020, the Coronavirus Act 2020 (effective 25 March) and The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (effective 26 March).
On 15 April 2020, the FCA issued a “Dear CEO” letter to insurers, addressing their conduct in handling business interruption insurance claims, particularly for SMEs.
The Financial Conduct Authority (FCA) test case
As early as 27 April 2020, businesses were urged to challenge insurers on their non-damage business interruption insurance coverage for COVID-19. This was followed on 1 May 2020 by the FCA’s announcement that it would go to court to try and resolve the contractual uncertainty over business interruption insurance coverage for COVID-19 (the “FCA test case”). Court proceedings began on 9 June 2020, and on 17 June 2020, the FCA issued guidance to insurers and insurance intermediaries on handling insurance claims and complaints under business interruption insurance policies, pending the determination of the issues to be considered in the FCA test case.
There were also separate legal claims, commenced as early as 27 July 2020, seeking declarations as to insurance liability for business interruption losses caused by COVID-19 and the effects of the UK government’s response.
In September 2020, the High Court handed down its judgment in the FCA test case (FCA v Arch Insurance (UK) Limited & Others [2020] EWHC 244), followed by the Supreme Court’s judgment on 15 January 2021 (FCA v Arch Insurance (UK) Ltd & Others [2021] UKSC 1). This highlights the speed with which the courts can operate in response to cases of significant public importance.
The Supreme Court’s judgment was pivotal, addressing 21 policy wordings. However, the continuation of cases since highlights the variations in insurance wordings in place in England and Wales.
2024 decisions
Composite insurance involving multiple insureds
In February 2022, the judgment in Corbin & King v AXA Insurance UK Plc [2022] EWHC 409 clarified the scope of a non-damage denial of access clause, holding the insurer liable under the policy. Notably, it addressed composite insurance with multiple insureds, ruling that each insured premises was entitled to a separate cover limit per claim. This decision significantly increased potential recoveries under composite insurance policies.
By and large, the judgments that have been handed down by the courts have been favourable to policyholders.
Trigger under non-damage denial of access, policy limits and furlough
On 26 January 2024, the High Court handed down its judgment in Gatwick Investment Ltd & Others v Liberty Mutual Insurance Europe SE [2024] EWHC 83 (Comm). This case concerned several claims heard together. The judgment was the result of the hearing of preliminary issues focused upon:
• the trigger for insurance and causation under non-damage denial of access clauses;
• the limits available under insurance policies; and
• the treatment of furlough payments to insureds in the assessment of the loss claimed.
Although insurers initially sought to challenge the Corbin & King judgment, they conceded before the hearing that they would not succeed (though permission to appeal was granted later). Notably, HHJ Jacobs followed HHJ Cockerill’s reasoning in Corbin & King on several similar issues.
The first issue that the Court focused on was whether the business interruption arose as a consequence of “action by the police or other statutory authority”. The Court concluded that the COVID-19 regulations were a clear example of “action by the police or other statutory authority”.
On the issue of policy limits, the Court had to consider different factual issues. For Gatwick Investment Limited, it determined that for each premises owned or managed by separate companies with individual insurance policies, the claimant in respect of each premises was entitled to an indemnity up to the policy limit.
In relation to Starboard Hotel Limited, the Court found the policy was a composite policy, treated as separate policies between the insurer and each policyholder. Consequently, the insurer was ordered to indemnify each insured up to the limit of indemnity on an “any one occurrence” basis.
However, for Fuller Smith & Turner Plc and the Hollywood Bowl Group Plc, the Court held there was a single insurance policy covering all premises, capping the insurer’s liability at one overall limit. The focus of the latter decision was on the policy wording, particularly concerning the limits.
Lastly, in relation to the treatment of furlough payments, the Court followed Stonegate Pub Company Limited v (1) MS Amlin Corporate Member Limited and Others [2022] EWHC 2548, and held that insurers could deduct furlough payments received during the indemnity period from the “loss”, as these payments reduced the business’s costs.
Permission to appeal on causation and furlough payments was granted, and the hearing for such appeal is fixed for 21 January 2025.
Contractual construction and mistake
On 30 April 2024, the court of appeal handed down its decision in relation to Bellini (N/E) Ltd trading as Bellini v Brit UW Limited [2024] EWCA Civ 435. This case focused on a disease clause, which provided (at clause 8.2.6) the following: “We shall indemnify you in respect of interruption of or interference with the business caused by damage, as defined in clause 8.1, arising from… any human infectious or human contagious disease…”. “Damage” was defined elsewhere in the policy (albeit not in clause 8.1) as “physical loss, physical damage and physical destruction”.
Bellini argued there was a clear mistake in the clause’s language, and that “caused by damage, as defined in clause 8.1”, should be deleted and redefined, as it rendered the insurance provided by clause 8.2.6 nonsensical. Bellini relied on the principles of East v Pantiles (Plant Hire) Ltd [1982] 2 EGLR 111, which permits correcting obvious mistakes by construction.
The court of appeal dismissed the appeal, ruling that the East v Pantiles principles applied only to “obvious clerical blunders”. Here, no such error existed; construed objectively within its broader context, the requirement for physical damage was deliberate. The court noted that while the policy may have been “clumsily drafted” and offered limited additional business interruption coverage, this did not make it absurd. Insurance policies predating the COVID-19 pandemic must be interpreted as at the inception date, and not through “the telescope of COVID-19”.
The Bellini case is important for two reasons. Firstly, it provides further interpretation of this contentious area of insurance law, and an interpretation that is supportive of the insurer’s position. Secondly, it underscores the court’s stance on interpreting insurance contracts: it will only rewrite a clause if there is a clear drafting error, and even then, only if the wording is ambiguous. Otherwise, the court will apply the clause’s natural meaning.
Presence of COVID-19 “at the premises” of the insured
On 6 September 2024, the court of appeal delivered its judgment in London International Exhibition Centre Plc v Allianz Insurance Plc & Others [2024] EWCA Civ 1026. The case concerned the policy response to the presence of COVID-19 “at the premises” of the policyholder, a wording not addressed in the FCA test case.
The court of appeal upheld the lower court’s decision and adopted a similar approach to causation as in the FCA test case when considering the “radius” clauses. It ruled that to prove loss from business interruption caused by COVID-19, it was sufficient to show the interruption resulted from government action responding to cases of the disease, provided at least one case occurred within the clause’s geographical scope, the reasoning being that each individual case of illness resulting from COVID-19 that had occurred by the date of any government action was a separate and equally effective cause of that action (and of the response of the public thereto).
Determining whether COVID-19 was a “catastrophe” and the “hours clause”
On 30 September 2024, the court of appeal delivered its judgment in Unipolsai Assicuraziono SPA v Covea Insurance Plc [2024] EWCA Civ 1110, a section 69 Arbitration Act 1996 appeal concerning errors of law in arbitral awards. The case examined the recoverability of COVID-19-related losses under insurances provided by Covea to nurseries and day care centres and whether Covea’s underlying settlements were covered under a property catastrophe XL reinsurance. While such appeals are rare, they offer valuable insight into the treatment of reinsurance claims following COVID-19, particularly the XL reinsurances commonly used to cover catastrophic losses.
The reinsurers:
• sought to challenge the lower court’s determination of whether the COVID-19 losses were a directly occasioned “catastrophe”; and
• on aggregation, argued that the hours clause in the treaty limited the recovery of the business interruption losses to the individual losses suffered day-to-day in relation to the closure of the insured’s premises for the stipulated 168 hours.
The court of appeal decided:
• Covea was able to recover its insurance losses from its reinsurers;
• the outbreak was a “catastrophe” – in the UK, the period immediately preceding the government closure order qualified as a “catastrophe”, which did not need to be “sudden” and which was specific to the policy’s facts and construction, rather than a defined market term; and
• the hours clause did not limit the indemnity because the loss occurrence was not akin to an “event” (happening at a specific time and place and in a particular way) or an “originating cause” (a state of affairs) – the losses of the original insured, arising from the “catastrophe”, were no different to business interruption losses covered under a standard property damage policy, and it was sufficient for the individual loss to occur within a 168-hour or seven-day period, with all subsequent financial losses covered even if they continued beyond that period.
This case is significant as it addresses the treatment of non-damage business interruption losses from COVID-19 in reinsurance, focusing on key issues such as aggregation (a catastrophe) and its applicability to an hours clause. Rather than limiting recoveries to individual losses during a 168-hour period, it applies the usual principles from property damage business interruption policies to extend coverage for non-damage losses.
The courts have been busy in 2024 with insurance and reinsurance coverage issues arising from the COVID-19 pandemic. With some trials not scheduled until 2026, this subject is likely to keep the courts occupied for the foreseeable future.
Western Aircraft in the Russian Federation
Litigation arising from insurance and reinsurance coverage issues involving over 570 aircraft, valued at approximately USD13 billion (GBP10.2 billion), was brought by Western owners, lessors and operators (“lessors”). These aircraft, originally leased to Russian (and a few Ukrainian) airlines, were not returned in the aftermath of Russia’s invasion of Ukraine in February 2022 and the subsequent sanctions imposed by the UK, the EU and the USA, and Russia’s counter-sanctions.
There are two categories of claims proceeding in the English court arising out of this issue:
• claims brought by lessors under their own contingent and possessed insurance policies (“C&P policies” and “C&P claims”); and
• claims brought by lessors under policies taken out by the Russian (and Ukrainian) lessees with local (ie, Russian or Ukrainian) insurers who themselves reinsured the majority of their (hull all and war) risks with London and international market reinsurers, including Russian reinsurers (the “operator policies” and the “OP claims”).
There is an interplay between the C&P claims and the OP claims, in that the contingent cover under the C&P policies provides cover in respect of losses where lessors are not fully indemnified under the operator policies (hence the name “contingent cover”). The contingent cover and the operator policies are similar and cover broadly the same risks.
The C&P claims
Phase one
The C&P claims are cases managed together and due to culminate in a two-phase “mega trial”. A total of 11.5 weeks of court time has been set aside for phase one, which was due to conclude on 20 December 2024. However, this autumn has seen phase one adjourned.
The main focus of phase one is the competing arguments of all risk insurers and war risk insurers as to whether, on analysis of the facts, the cause of the loss was a decision on the part of the airlines because they needed or wanted the aircraft for their own commercial purposes (an all risks loss) or a decision of the Russian government (a war risks loss). This will involve consideration of:
• factual evidence from the lessors dealing with the Russian airlines; and
• expert evidence on Russian law, Russian politics and Russian civil aviation.
The remaining issues to be considered in phase one include the scope of cover under the C&P policy, whether the C&P policy has been triggered and whether there has been a loss (in terms of the prospects of lessors recovering the aircraft).
The judgment of the court in phase one of the C&P claims is likely (although not certain) to be decisive of certain factual and legal issues in the OP claims.
Phase two
Phase two of the C&P claims will address whether the claims are covered under the operator policies.
The OP claims
In the OP claims, lessors have brought claims directly against the reinsurers, arguing that they are entitled to claim as additional insureds and/or beneficiaries, and can do so under “cut-through” clauses contained in the operator policies. In each case, the reinsurers challenged the jurisdiction of the English court on the basis of the exclusive jurisdiction clauses in the operator policies in favour of the Russian and Ukrainian courts.
The enforceability of cut-through clauses under English law has long been debated. These clauses aim to protect policyholders, allowing them to bypass the insurer and claim directly from the reinsurer, typically in cases such as insurer insolvency, assuming the underlying claim is valid. For reinsurers, the issue is whether they should pay directly to the insured in the event of an indemnity, rather than to the underlying insurer. The cut-through clause would make the reinsurer liable to the insured, essentially acting as a direct insurer and raising potential regulatory concerns.
Under English law, one of the issues with cut-through clauses is the absence of a direct contract between the insured and the reinsurer. English contract law requires privity of contract, meaning only parties to a contract are bound by it or entitled to its benefits. Various solutions have been touted to overcome the absence of privity of contract. The focus of cut-through clauses has previously been to protect the insured from the insolvency of the insurer.
The arguments concerning cut-through clauses in the OP claims, though significant, are not central to the 2024 litigation. Instead, the focus has been on exclusive jurisdiction clauses.
Claims against the reinsurers rely on Lessors being additional insureds and/or beneficiaries under the Operator Policies, which include cut-through clauses. However, these policies also contain exclusive jurisdiction clauses favouring Russian and Ukrainian courts. On this basis, the reinsurers sought a stay and dismissal of the claims.
The Russian jurisdiction challenges
The commercial court heard arguments over four days in February regarding the application of exclusive jurisdiction clauses in favour of the Russian courts. In Zephyrus Aviation Partners v Fidelis Underwriting Ltd [2024] EWHC 734 (Comm), Mr Justice Henshaw dismissed the reinsurer’s jurisdiction challenges.
The decision hinged on several factors, the central reason being that lessors are unlikely to obtain a fair trial in Russia. Henshaw J characterised this as a strong, standalone reason undiluted by any argument from the reinsurers regarding foreseeability.
Further reasons supporting the court’s decision include the increased risk of inconsistent judgments if claims were to proceed in Russia and the increased risk of personal attacks on individuals who would ordinarily attend trial.
The court relied on the testimony of key expert witnesses to provide a snapshot of the Russian courts and system of governance. Significant areas of common ground between experts included:
• an extreme likelihood of Russian state interference,
• judicial impartiality, and
• inappropriate discrimination against lessors deemed by Russia to hail from “unfriendly foreign states” (ie, the UK and the USA).
The court noted that these factors were exacerbated by the high likelihood that, were the trial to take place in Russia, the Russian reinsurers would be joined as defendants or third parties to the claim, increasing the Russian state’s interest and thus the propensity to intervene to ensure an outcome favourable to Russian state interest.
Moreover, under Russian law, Russian insurance companies must reinsure a portion of the risk with the state-owned Russian National Reinsurance Company (RNRC), which was sanctioned by the EU in February 2023. Of the USD9.7 billion claim value, RNRC holds the largest individual potential liability, at USD1.8 billion.
The court characterised certain lessors’ attempts to assert additional rights under implied collateral contracts as “an additional route over and above that advanced by other [lessors]”, which it was not prepared to definitively settle. Those arguments are that lessors have a right to enforce collateral contract claims directly against the reinsurers on the basis of “cut-through clauses” contained in the original agreements with insurers. This would allow problematic Russian insurers to be “cut out” and claims to be directed against relevant reinsurers.
Despite declining to hand down judgment on these issues, the court indicated that such a collateral contract claim is unlikely to succeed due to the Jay Bola conditional benefit principle, which may prevent recognition of a direct collateral contract between lessors and reinsurers and also implies exclusive (Russian) jurisdiction clauses for dispute resolution.
Nonetheless, Henshaw J emphasised that his commentary regarding collateral contract claims “should not be regarded as making any findings”.
Importantly, Henshaw J found that Russian courts were unlikely to impartially assess lessors’ losses as arising from war or invasion, given the lack of judicial neutrality in cases involving Russian state interests.
The court also noted that Russian courts would likely disregard Western sanctions, viewing them as contrary to Russian public policy, meaning lease terminations based solely on sanctions would not be upheld.
This marks only the third instance where the courts have not given effect to exclusive jurisdiction clauses, sending a serious message to the international legal community about the challenges of securing a fair hearing in Russia.
The Ukrainian jurisdiction challenges
The Ukrainian jurisdiction challenges were heard over three days in March 2024. In contrast with the Russian jurisdiction challenges, lessors did not argue that they would not obtain a fair trial in Ukraine. Instead, they resisted the jurisdiction challenges on two bases:
• the Ukrainian exclusive jurisdiction clauses were not (under Ukrainian law) binding and enforceable on lessors or applicable to the claims; and
• there were strong reasons not to enforce the Ukrainian exclusive jurisdiction clauses (principally arising from the effect of the ongoing conflict in Ukraine).
Henshaw J dismissed both arguments, holding that:
• the reinsurers had the better of the argument that the Ukrainian exclusive jurisdiction clauses are binding and enforceable, and applied to lessors’ claims; and
• there were not strong reasons to decline to give effect to the Ukrainian exclusive jurisdiction clauses.
The claims in relation to the aircraft in Ukraine will therefore be stayed and must proceed (if so advised) before the Ukrainian courts.
A Rare WELCAR Appearance
Coverage issues under WELCAR, the primary policy wording for construction all risk risks in the offshore energy market, rarely come before the courts. The matters addressed in Technip Saudi Arabia Limited v The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (“Medgulf” - [2024] EWCA Civ 481), which dismissed an appeal against a decision of HHJ Jacobs ([2023] EWHC 1859 (Comm)) regarding asset ownership and the exclusion for damage to existing property (DTEP), are well-established. This case therefore provided a rare opportunity for the courts to examine issues of asset ownership under the WELCAR wording.
The insurer, Medgulf, succeeded in establishing that the insured’s claim was excluded by the DTEP exclusion and did not fall within the scope of the DTEP buyback. This provision has been in dispute in many claims over recent years, but has not, until now, come before the courts.
The claim arose from an allision (a moving vessel colliding with a stationary object) involving a vessel chartered by the insured, Technip, for offshore construction work in a major oil and gas field off Saudi Arabia. The vessel allided with a wellhead platform owned by the field’s operator. The insured settled with the platform owner and claimed the settlement amount, along with other losses, under its construction all risks insurance. Both the insured and platform owner were named as “principal insureds” under the policy.
At first instance, HHJ Jacobs held that the insured’s claim was excluded under the DTEP exclusion, which excludes cover for property owned by the principal insured. HHJ Jacobs agreed with the insurers that the DTEP exclusion is concerned with the identity and nature of the property, not with which insured party has suffered the loss.
On appeal, the insured argued that the reference to property owned by the principal insured in the DTEP exclusion was limited to the particular principal insured claiming under the policy. Since the damaged property was owned by the field owner, a different principal insured, the DTEP exclusion should not apply. The insured contended this interpretation aligned with the wording of the DTEP exclusion and the policy’s composite nature.
The court of appeal dismissed the appeal, holding that HHJ Jacobs’ construction accorded with the natural and ordinary meaning of the DTEP exclusion and its commercial purpose. The policy’s composite nature did not alter this conclusion, as the term “principal insured” had the same meaning in each separate insurance between the insured and insurer.
The court’s judgment is a good example of how, in addition to the policy wording itself, English law requires consideration of the context and purpose of a policy in order to construe contractual terms in a way that is most consistent with business common sense.
Security for Costs
The courts have provided welcome guidance on the interplay between after the event (ATE) insurance policies, security for costs and the use of ATE as security.
In this case, Astra applied for security for costs under Civil Procedure Rule (CPR) Part 25 against Musst, a British Virgin Islands (BVI) company engaged in litigation against Astra. Musst accepted that the gateway for security for costs was in principle satisfied and the appropriate level of security sought. Musst provided an ATE policy with an anti-avoidance endorsement as security, which Astra argued was insufficient.
The court reviewed the terms of the policy and the anti-avoidance endorsement, considered various legal principles and found that the policy, with proposed amendments, provided adequate security for Astra’s costs, subject to retaining funds in court to cover potential future applications. In particular:
• where a security for costs application is brought against a claimant under the insolvent or impecunious company gateway, the existence of an ATE policy may suffice to successfully defend the application;
• defendants are entitled to some assurance that the ATE policy is not liable to be avoided for misrepresentation or non-disclosure;
• the court must consider (i) the meaning of the policy; (ii) how readily it may be avoided, legally and contractually; and (iii) the likelihood of circumstances arising that will enable the policy to be readily, legitimately, and contractually avoided; and
• a defendant’s concern about the claimant’s inability to cover costs must be realistic, not theoretical or fanciful.
The court held that:
• the anti-avoidance endorsement for the benefit of the defendant created a direct contractual right of recovery under the ATE policy; and
• Astra’s objections, including whether a direct claim under the anti-avoidance endorsement in the circumstances of a BVI insolvency could be challenged by a liquidator on the basis of a creditor preference, were fanciful.
There was one area that the ATE policy did not address, namely a situation where the ATE insurer notified Musst and Astra of the policy’s termination. As a result, costs Astra incurred when applying to the court for further security or relief were not covered. The court ruled that costs during the period between the insurer’s cancellation notice and the policy’s termination might not be covered, especially if the insurer delayed the notice until after termination. To address this, the court ordered that funds remain in court as security.
This case highlights the importance of an anti-avoidance endorsement in ATE policies to protect the third-party defendant who is by virtue of the anti-avoidance endorsement a party to the ATE policy, and underscores the growing role of litigation funding and ATE.
Concluding Comments
The insurance and reinsurance sector is of vital importance to business and the global economy. Most businesses cannot operate without insurance. In addition, insurers are reliant upon reinsurance to de-risk their business. The sector’s importance is evident in the diverse cases brought before the courts in 2024, many of which will continue into 2025 and 2026.
Authors
Paul Wordley, Graham Denny, Alison Proctor and Costas Frangeskides
Wordley Partnership is a leader in international dispute resolution. The firm has highly experienced lawyers with expertise in all aspects of dispute resolution, including international arbitration, commercial litigation and insurance and reinsurance. This is complemented by a corporate, commercial and insurance regulatory practice offering full-service capability in non-contentious and transactional work. The partners have advised on complex disputes across the globe. Wordley Partnership's expertise has been accumulated over many years from advising boards, risk managers, the general counsel of companies across many industry sectors and companies located in multiple jurisdictions. The firm’s partner-led service brings city and international experience and quality to clients across a broad range of industry sectors. This proven expertise is consolidated into one customer service-driven firm with expertise in all aspects of dispute resolution, commercial problem-solving, corporate and M&A. Wordley Partnership’s sectors include aviation, commodities, comm tech, construction, energy and natural resources, fraud, hotel and leisure, industrial risks, insolvency, (re)insurance, marine, mining, power generation, property, space, sport and superyachts.