An arbitration Award published yesterday will be potentially relevant to policyholders with Business Interruption Insurance claims due to COVID-19 whose claims have been denied based upon policy wordings referring to:
- "the vicinity of the Premises",
- "an emergency threatening life or property", or
- "actions or advice of the Police or other competent local authority".
Background and significance of the decision
The decision concerns a dispute between China Taiping Insurance and a number of its policyholders over cover for COVID-19 related losses. The policyholders concerned are hospitality businesses based in England (Restaurants, bars and public houses), although the decision is not specific to those types of businesses.
Similarly to the FCA Test case, the proceedings sought to decide a number of issues of principle (presumably with the intention that this would then help to resolve specific claims). The proceedings were based on the same assumed facts as the FCA test case and did not consider the individual positions of any specific policyholders.
Ordinarily an arbitration decision such as this would be confidential to the parties but in this case, due to wider implications for numerous policyholders, e.g., other China Taiping policyholders who had not joined the arbitration, the parties have agreed to make it public.
Although an arbitration decision does not stand as binding authority in a strict legal sense, the arbitrator who has made the decision (Lord Mance) is a former Senior Court Justice. His reputation and experience means that his decision and his reasons for it (which he sets out in a detailed 50 page Award) will undoubtedly be carefully considered by other judges or arbitrators tasked with deciding similar questions.
Insurers whose policy wordings raise similar issues may well consider whether or not the Award supports the decisions they themselves have taken on insurance coverage to date in relation to their own policyholders' claims.
The issues
The China Taiping Policy wording provided cover in the following terms under the heading "Denial of Access":
"...interruption of or interference with the Business in consequence of…
- ...
- the closing down or sealing off of the Premises or property in the vicinity of the Premises in accordance with instructions issued by the Police or other competent local authority for reasons other than the conduct of the Insured or any director or partner of the Insured or the condition of the Premises or the carrying out of repair or maintenance work at the Premises…;
- the actions or advice of the Police or other competent local authority due to an emergency threatening life or property in the vicinity of the Premises; " [emphasis added]
Interestingly, the standard policy wording did also specifically provide cover for "Disease, Infestation and Defective Sanitation". That disease cover was however limited to a list of specific diseases (a 'closed' list), which did not include COVID-19.
On the basis Lord Mance disagreed with the insurer that inclusion of the disease clause meant that the denial of access wording could not respond, the argument focused on coverage afforded by the non-damage denial of access covers referenced above.
The primary position taken by the insurer was that it was implicit in these wordings that there was only cover for localised events or occurrences, not (for example) pandemics. The insurer's arguments centred in particular on references to the words "in the vicinity of the premises" and "an emergency threatening life or property" to support its view. In doing it also relied on the decisions reached by the Divisional Court in the FCA Test case, which had considered similar wordings in the context of policies issued by other insurers including Hiscox, MSA, RSA, and Zurich. Whilst the answer in any particular case could potentially also be affected by extraneous factors including other wording elsewhere in the policy, Lord Mance agreed that the Divisional Court did appear already to have reached an answer on this issue in the FCA Test case, stating:
"On the Divisional Court’s approach, the Policyholders would have therefore to demonstrate that it was “an emergency by reason of COVID-19 in the vicinity, in that sense of the neighbourhood, of the insured premises, as opposed to the country as a whole, which led to the actions of the government”.
He also noted "The Divisional Court thought it “highly unlikely” that this could be shown."
Although he expressly did not state a definitive view (recognising the wider significance of the point and, as explained below, the fact that it did not in fact ultimately affect the outcome of this specific case), Lord Mance made clear that he did not consider the Divisional Court's view to be correct.
Lord Mance's disagreement with the conclusion of the Divisional Court was based upon the reasoning applied by the Supreme Court in the FCA Test Case. Although the Supreme Court was not asked to consider this point as it was not appealed to them, Lord Mance is very clear in his Award that the Supreme Court's rationale on causation (which it did consider) can and should be applied to answer the same point. Lord Mance appears firmly of the view that if the Divisional Court had been aware of the Supreme Court's views on causation when it decided the issue it would have reached a different conclusion. As Lord Mance puts it, the Supreme Court found on causation that: "All the cases of COVID-19 countrywide were concurrent causes of any business interruption loss; and there was no requirement that the business interruption "has resulted only from cases of a notifiable disease within the radius, as opposed to other cases elsewhere"".
Absent additional wording to the contrary or other extraneous factors, Lord Mance's view appears to be that the government response to the occurrences of Covid nationally were also caused by local occurrences and the wording could in principle therefore respond to such occurrences.
The reason Lord Mance did not decide the issue definitively was that he found there was no cover in this instance due to the inclusion of the requirement that the interruption be linked to "actions or advice of the Police or other competent local authority".
Lord Mance found that unlike the other words or phrases discussed, reference to the Police or competent local authority did in fact limit coverage to a response by a local body or authority and did not include the response of national government or central or countrywide authorities to the pandemic.
Other questions remaining unanswered
Having found there was no cover based on reference within the policy wording to: "Police or other competent local authority", Lord Mance specifically noted that he did not address other questions which would otherwise also have been disputed. Those included whether the words "closed down" included in this context the impact of various government regulations/advice/guidance published throughout 2020 both in terms of requirements to close or in relation to restricted hours of operation, given that they were later permitted to re-open.
If you have any questions relating to this briefing, please contact Sonia Campbell or Ralph Fearnhead.