Insurance: Mainly Policyholders: A UK-Wide Overview

Key Developments for Policyholders in 2025

The London insurance market entered 2025 facing familiar yet ever-evolving vectors of change. While the market continues to adapt to the challenges posed by key events, macroeconomic turbulence and geopolitical instability present new barriers that continue to drive claims – the result of which has been an undeniable upturn in coverage disputes between insurer and policyholder.

Some challenges are familiar. Since the Grenfell tragedy in 2017, a high volume of insurance disputes relate to fire safety. These disputes affect first-party property damage policies for property owners and landlords, as well as third-party professional indemnity policies for construction professionals facing claims due to the alleged use of unsafe cladding.

Similarly, the COVID-19 pandemic spawned numerous test cases to determine which types of policies provide business interruption cover for companies that suffered loss of income/profits due to government action.

More recently, however, the advent of generative AI and the war in Ukraine have presented new challenges for the market to weather. This overview explores the key developments affecting policyholders in 2025.

Judicial guidance and interpretation trends

In response to the general flurry of insurance coverage litigation, the courts have provided necessary guidance on key issues such as policy interpretation, aggregation (ie, how many deductibles or limits apply), and causation (ie, whether an insured peril caused the insured’s loss).

With regard to interpretation, the courts consistently reinforce that England and Wales adopt a literalist approach (focusing on the ordinary meaning of the words used) rather than a purposive one (focusing on the intention of the parties and the contract’s purpose). Recent cases such as ABN Amro Bank NV v Royal & Sun Alliance Insurance plc (2021) EWCA Civ 1789 and Bellini (N/E) Ltd v Brit UW Limited (2024) EWCA Civ 435 highlight the judiciary’s reluctance to depart from the plain meaning of policy wording, even where the result appears to be a commercially unreasonable outcome. This underscores the need for both insurers and policyholders to exercise greater caution and diligence when reviewing insurance contracts.

Geopolitical impact: Ukraine aircraft litigation

Russia’s invasion of Ukraine in 2022 triggered one of the largest-scale coverage disputes in English legal history. The retention of an estimated GBP7–10 billion worth of aircraft by Russian lessees lead to GBP809 million of insured losses by various lessors.

These events have had a dual impact. They have provided further judicial guidance on interpretation, causation, and aggregation. They have also prompted a further hardening of the insurance market, meaning that insurers are more likely to adopt a strict stance on ambiguous claims than they might otherwise have done.

Common coverage issues

Coverage disputes typically fall into three categories:

• breach of a policyholder’s duty before entering into a policy;
• breach of policy conditions during the policy period; and
• disputes over whether a claim falls within the scope and level of cover available under a policy.

Pre-inception: non-disclosure and misrepresentation

The Insurance Act 2015 replaced archaic rules that allowed insurers to avoid policies for non-disclosure of a material fact, even in circumstances where they would have written the policy anyway. Now, a causation-based test applies. Unless the non-disclosure was deliberate or reckless, if the insurer would have written the policy – albeit on different terms – those terms or an additional premium apply.

Despite this, disputes continue to arise, particularly around the non-disclosure of a company’s prior liquidations, or county court judgments against relevant persons.

Breach of condition: notification in D&O and professional indemnity policies

Professional indemnity and D&O policies (as well as certain other liability policies) operate on a “claims made” basis, meaning that notification determines the policy year to which a claim attaches.

In addition to the notification of a claim, policyholders must notify insurers of any circumstance that has the potential to give rise to a claim. Thresholds for notification vary and disputes often arise over what is notifiable, when it must be notified, and whose knowledge is relevant. Ultimately, the test is objective but not binary, which has lead to a wave of differing interpretations.

Scope of cover

Most construction contracts require that an employer and/or contractor carry contractors’ all risks (CAR) insurance, which typically covers loss caused by damage but excludes loss caused by design defects or defective workmanship. Conversely, property damage policies cover perils such as fire and flood but exclude losses from gradual deterioration or wear and tear, and contractors’ professional indemnity policies cover design errors but exclude defective workmanship.

The rationale underpinning each type of cover is that insurance is intended to cover the risk of fortuitous events occurring, rather than provide protection for losses that are certain to happen. The result, however, is that coverage disputes relating to construction projects frequently hinge on whether the loss was caused by damage or defect.

Aggregation and policy limits

Further, aggregation remains a key focus of disputes. Aggregation is a principle that allows more than one loss or claim under an insurance policy to be treated as a single loss or claim when applying a limit of indemnity or excess. An aggregation provision will have a unifying factor that links the claims/losses – for example, they must arise from the “same originating cause”, “same event” or “a related event or transaction”.

Although the recent COVID-19 litigation has provided some helpful guidance in relation to aggregation, it has also triggered further questions – particularly where the loss that a policyholder/insurer is seeking to aggregate is of an entirely different nature to a COVID-19 business interruption claim. By way of example, the aggregation of claims under a professional indemnity policy may be very difficult to rectify with some of the guidance/decisions in the test cases.

Looking ahead

Looking ahead, the advent of generative AI brings with it new risks, requiring insurers to address challenges such as algorithmic bias, data privacy and regulatory scrutiny, while implementing strong governance to ensure ethical use and compliance. Further, insurers must implement robust governance to ensure ethical use and compliance, and questions could also arise over whether a business that is heavily reliant on AI to produce its work product should disclose that fact to its insurer.

Otherwise, climate change and cyberwarfare are increasing the frequency and severity of claims. The increased governance and scrutiny of the strategies companies and their directors adopt to combat climate change has already seen an increase in climate litigation, which will have a knock-on effect for the insurance market. The evolving risks associated with climate change have resulted in policyholders seeking to mitigate their exposure to physical damage caused by severe weather events. This increased risk will lead insurers to seek to mitigate their exposure through policy wordings, exclusions and sub-limits.

The bigger picture seems to be that a growing number of insurance coverage disputes will continue to present themselves and, if recent years are anything to go by, the courts will respond by placing increasing emphasis on due process. From COVID-19 business interruption and Russian aviation to the examples referred to earlier, such cases serve as pertinent reminders of the need for policyholders to understand the scope of cover available under – and the conditions placed upon them by – their various policies.