Insurers and reinsurers may have to wait several years before they know the ultimate bill for COVID-19-related business interruption claims in the U.K. as a series of potentially expensive cases head to court in 2022.
"It would not surprise me if this was a decadelong issue," Naz Gauri, principal associate in law firm Eversheds Sutherland's insurance litigation team, said in an interview.
The U.K.'s Financial Conduct Authority ran a test case to resolve the most common pandemic-related business interruption claims disputes between policyholders and insurers. The Supreme Court ruled largely in favor of policyholders in January; insurers have paid out £1.18 billion in interim and final settlements, according to data the Financial Conduct Authority published Nov. 16.
But now, a series of larger, more complex claims on issues not resolved by the test case is on the way. The Commercial Court, part of the U.K.'s High Court, is keeping tabs on six live COVID-19-related business interruption cases. Restaurant group Corbin & King's case against Axa Insurance UK PLC will be heard Jan. 24, 2022, while Parkdean Resorts' claim against Axis Managing Agency Ltd. will be heard "not before June 2022," according to the court's website. Hospitality group Stonegate Pub Co.'s case against MS Amlin Corporate Member Ltd., Liberty Mutual Insurance Europe SE and Zurich Insurance PLC is expected to be heard June 13, 2022.
A significant unresolved issue is whether policyholders can claim the relevant payout limit more than once, for example for multiple premises, lockdowns or insuring clauses. Stonegate, which has 760 venues, argues that its insurers owe it £845 million, while the companies contend that they owe £17.5 million, of which £14.5 million has already been paid.
A Sept. 10 arbitral award on a business interruption dispute involving China Taiping Insurance (UK) Co. Ltd. has given policyholders fresh hope of claiming under certain denial-of-access clauses. The High Court's verdict in the test case, which was not appealed in the Supreme Court, ruled that such clauses could only be triggered by local incidents and would not respond to national lockdowns. Lord Mance, the arbitrator, expressed doubt as to whether the High Court would have approached the situation as it did if it had the benefit of the Supreme Court's subsequent analysis of causation in the test case.
While the comments are not binding, they are "pretty persuasive authority" and mean other cases hinging on denial-of-access wordings "are likely to be successful ultimately" for policyholders, according to Aaron Le Marquer, a partner at Fenchurch Law.
The Corbin & King case against Axa has been expedited because other cases have the same or similar issues. Le Marquer said his firm was acting on behalf of "significant policyholders" with "quite big claims" that have the same wording as Corbin & King, and are awaiting the outcome of that case rather than taking their own separate action.
"There are certainly still some large groups of policyholders out there whose claims have yet to finally be determined," Le Marquer said.
A further point of contention, also part of the Stonegate case, is whether payments made under the U.K. government furlough scheme should be deducted from claims. Other issues could emerge, such how to handle wordings that require a disease outbreak at the premises, rather than within a particular perimeter, to be triggered. Law firm Mishcon de Reya said in a Nov. 17 article that an arbitration scheme proposed by the U.K. government's Commercial Rent (Coronavirus) Bill could make it easier for landlords to claim pandemic-related loss of rent under their business interruption policies if that measure becomes law.
Lack of clarity on the ultimate primary insurance claims bill means there is also uncertainty at the reinsurance level. Though insurers have started presenting claims to their reinsurers, they remain in the early stages, according to Gauri, as the final bills are not yet known. But even when the tallies emerge, resolving all the reinsurance disputes could take three to five years, Gauri added.
Lydia Savill, counsel in law firm Hogan Lovells' international insurance team, expects "significantly more clarity" on primary claims by the close of 2022 if the major cases pending result in judgments. Eventually the flow of claims and disputes will run out because of the COVID-19 exclusions that insurers wrote into policy renewals.
"This can't run on forever because there is only a finite pool of claims that need to be resolved," Savill said.