London High Court Largely Rules in Policyholders’ Favor in Business Interruption Test Case

London High Court Largely Rules in Policyholders’ Favor in Business Interruption Test Case

The London High Court has handed down its judgment on the Financial Conduct Authority’s (FCA) Business Interruption (BI) insurance test case and has ruled in favor of the policyholders in the latest pandemic-era litigation, brought by the London International Exhibition Centre (LIEC) and Pizza Express as lead claimants among six expedited test cases.

In the litigation, Stewarts Law acted for LIEC Claimant, which was against a group of thirteen insurers represented by DAC Beachcroft, Clyde & Co, Keoghs and DWF, among others, with Barings Law, Hugh James, Dechert and Gunner Cooke acting for other claimants whose claims were heard together.

It is reported to be one of the newest rounds of test case litigation following the UK Supreme Court’s 2021 judgement on disease clauses in insurance policies brought by the FCA.

In the FCA Test Case, the issues were related to the type of policies that covered business interruption losses caused by diseases within a specified radius of the insured premises, whereas in this lawsuit, the issue is the type of business interruption insurance that covers losses arising from the premises of an insured, which were not discussed in that earlier case law.

The Court refuted to the alternative causation arguments pursued by the 13 insurers involved, who had contended that ATP clauses were qualitatively different from radius clauses, and thereafter ran two main arguments on the appropriate test of causation to be applied on such situations.

One was a traditional ‘but for’ test of causation, whereas the other was a unique causation test proposed by the following market in the LIEC litigation, which argued for a new test of causation in ATP cases that could be described as ‘direct, distinct, palpable, or discernible.’

The trial judge, Mr. Justice Jacobs, held that the same principles of causation established in the FCA Test Case also applied to ATP insurance clauses, and stated “a large proportion of outstanding BI insurance claims from the pandemic may be concerned with [such] cover” and that “no previous case in England and Wales has directly addressed this issue.”

The judge further noted that the insurers had settled several ATP claims brought by policyholders after the FCA Test Case, and, in assessing the legal arguments, the Court found the Supreme Court’s analysis validly applies on the causation argument, and that none of the insurers’ arguments in support of the contrary conclusion is persuasive.

He added, “This seems to me to be an appropriate result, since any other conclusion would give rise to anomalies which it would be difficult rationally to explain to a reasonable [small or medium-sized business] policyholder who read the policy.”

Aaron Le Marquer, Head of policyholder disputes at Stewarts, led the litigation with James Breese. Le Marquer commented, “The Court’s ruling provides some further finality, subject to any appeals, for issues left unresolved by the FCA test case and is, therefore, a helpful development for the insurance market and businesses across the UK.”

In response to the judgment, Becky Rogers, head of property claims at Allianz Commercial, said the company would need to reconsider its position, and how it would likely to impact our policyholders who have outstanding business interruption claims under disease on the premises clauses relating to the Covid-19 policy.

DAC Beachcroft’s Ian Plumley acted for insurers in the Pizza Express proceedings and Partner Tom Watkinson for AXA in Mayfair, while Clyde & Co’s Mark Wing was the lead Partner for the defendants Allianz, CNA Insurance, Aviva, Zurich and Chubb.

Viran Ram, also of Clyde & Co, was the lead Partner for another insurer in the Kaizen Cuisine element.