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INSURANCE: An Introduction

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2020/2021 is shaping up to be a busy year for the insurance and reinsurance disputes market. Few would have predicted at the start of the year that the biggest issues to hit the market would concern an infectious disease pandemic, with businesses and consumers all across the UK and globally having to radically alter their ordinary ways of working and living. The fallout from COVID-19 will dominate the issues faced by the global (re)insurance market for the foreseeable future.

COVID-19 related claims will impact both personal and commercial lines, spanning everything from claims under travel and health policies, to business interruption claims as well as claims under event cancellation and trade credit policies. There will, of course, also be reinsurance implications particularly given the scale of the claims involved.

Of particular complexity are the issues surrounding cover under business interruption policies for financial losses suffered by many businesses as a result of disruption and closures experienced during the COVID-19 pandemic. A number of high value claims have already been commenced against insurers including a £59 million claim brought by UK holiday operator Parkdean Resorts against the Axis Syndicate.

With the stated aim of seeking clarity and certainty over the validity of such business interruption claims, the UK regulator, the Financial Conduct Authority, commenced novel expedited test case proceedings – the first to be determined under the Financial Markets Test Case Scheme – against eight insurers in June 2020. An eight-day trial took place in the High Court in the second half of July before a two-judge court consisting of Butcher J and Flaux LJ.

The test case raises a wide range of coverage and causation issues. The coverage issues will be of significant importance not only to the operation of the business interruption policies which are the subject of the test case but also other policies on similar wordings issued by insurers to both SMEs and larger commercial policyholders alike. The disputes in relation to the appropriate approach to causation, in particular the applicability of the ‘but for’ causation test and the correctness of the previous decision of Hamblen J (as he then was) in Orient-Express Hotels Ltd v Assicurazioni Generali, could be of even wider impact still.

Judgment in the test case is expected in mid-September, with the possibility of an appeal (including a leap-frog appeal to the Supreme Court) to follow. This litigation is definitely one to watch.

Outside of the COVID-19 context, the insurance market still awaits substantive judicial consideration of the Insurance Act 2015, which reformed the law governing the duty of fair presentation of the risk, breaches of warranty, remedies for fraudulent claims and the insured’s remedies for late payment of insurance claims. The only decision to date under the 2015 Act is that of the Scottish Court of Session in Young v Royal and Sun Alliance plc [2020] CSIH 25, which published its judgment on appeal on 19 May 2020. In Young, RSA avoided the policy on the basis that the insured had breached his duty under Section 3(1) of the 2015 Act to make a fair presentation of the risk by failing to disclose that he had been the director of four companies that had been dissolved after an insolvent liquidation or had been placed in insolvent liquidation. However, the only limited issue with which the Court was concerned was whether the insurer had waived its entitlement to be provided with the undisclosed information, a recognised exception in the 2015 Act to the duty of fair presentation (Section 3(5)(e)). The Court did not, however, regard the law in this area to have been altered by the 2015 Act. The case therefore provides limited guidance on the important provisions of the Insurance Act 2015. An opportunity for the courts to opine on the provisions of the 2015 Act is still, therefore, awaited.

2020 has already seen a number of important decisions in the field of insurance. The Supreme Court’s decision in Aspen Underwriting Ltd v Credit Europe Bank NV, The Atlantik Confidence [2020] UKSC 11 was significant not only for its consideration of the extent to which the mortgagee bank as loss payee and assignee was bound by an exclusive jurisdiction clause in the insurance policy, but also for its clarification of the meaning of “matters relating to insurance” in Section 3 of the Recast Brussels Regulation and the absence of a “weaker party” exception to the requirement in Article 14 of Section 3 that the insurer may only bring proceedings in the courts of the Member State in which the defendant is domiciled. This decision will continue to be of importance even after the end of the Brexit transition period (when the Recast Brussels Regulation will cease to apply) if the UK accedes to the Lugano Convention, which contains similar provisions.

A number of other decisions are also worth noting. In Endurance Corporate Capital Limited v Sartex Quilts & Textiles Limited [2020] EWCA Civ 308, the Court of Appeal confirmed that the reinstatement basis was the proper measure of indemnity where a fire had substantially damaged insured property which had not since been reinstated. The judgment of Lord Justice Leggatt (as he then was) is of interest not just for its clarification of when the reinstatement (rather than market value) basis is the appropriate basis of indemnity but also for its restatement of classical principles applicable to the assessment of loss under an indemnity policy (including the hold harmless principle). Further, the Supreme Court decision in Braganza v BP Shipping [2015] 1 WLR 1661 was applied by the High Court in UK Acorn Finance Ltd v Markel (UK) Ltd [2020] EWHC 922 (Comm) to an unintentional non-disclosure clause in a professional indemnity policy, holding that the insurer, who was made the decision-maker by the clause as to whether the non-disclosure was innocent, could not exercise its decision making powers in a way that was arbitrary, capricious or irrational.

Decisions in a number of other cases are highly anticipated. In the arbitration field, the Supreme Court has recently heard the appeal in ENKA v Chubb, a subrogated claim brought by Chubb Russia against ENKA, a subcontractor, alleging liability for a fire that damaged insured property. This is likely to become the leading case on the law governing arbitration agreements and the role of the courts of the seat of the arbitration in granting anti-suit relief. Judgment is also expected from the Supreme Court in Halliburton Co v Chubb Bermuda Insurance Ltd regarding an arbitrator’s duty to disclose circumstances which may give rise to justifiable doubts as to his impartiality. November 2020 also brings with it one of the top cases for 2020: a five-week long bust up between ABN AMRO Bank and various underwriters in relation to whether the cargo insurance policy at issue covered non-physical trading risks, with an alternative claim in negligence against Edge Brokers. Edge Brokers have also brought in Norton Rose Fulbright LLP, which drafted the disputed policy wording, as a third party.

2020/2021 is therefore set to be a significant year in the field of (re)insurance disputes. The most notable of the developments is likely to be in the context of the COVID-19 pandemic and the determination by the High Court – and possibly appellate courts – of the FCA business interruption test case. The market and its legal advisers will be watching closely.