The recent Court of Appeal judgment in the case of London International Exhibition Centre versus Allianz Insurance has been hailed as a significant win for policyholders. The court upheld the landmark ‘At the Premises’ (ATP) COVID Business Interruption (BI) test case decision, marking an important development for the insurance sector.
Background and Context The ruling, which has major implications for insurers, involves a series of preliminary issues connected to six separate actions. The lead action was filed by the London International Exhibition Centre, which operates the Excel Centre. Peter Hardy, a partner at Reed Smith, provided insight into the ruling, emphasizing its importance for the broader insurance industry.
Court’s Ruling on Causation In its decision, the Court of Appeal sided with the lower court on the issue of causation, although it employed a different approach to arrive at that conclusion. The court rejected the insurers’ argument that the ‘but for’ test should apply and found that COVID-19 was a “distinct effective cause” of the losses. This wider interpretation of causation will enable more policyholders with ATP wordings to seek coverage for their COVID-19 losses.
According to Hardy, if the court had ruled in favor of insurers, different tests for causation would have applied depending on whether the policyholder had ATP or radius wording. The ruling ensures consistency in how causation is applied, irrespective of the policy wording.
While the Court of Appeal took a different approach to interpreting the policy wordings, focusing on the language and context of the ATP clauses, it largely agreed with the original judge’s reasoning on common causation issues.
Future Implications for BI Coverage Hardy pointed out that the ruling brings clarity to other key aspects of BI coverage that were not addressed in the Financial Conduct Authority’s (FCA) original test case. The first-instance judge found that the UK Supreme Court’s decision on radius disease concurrent causation – that COVID-19 was a proximate cause of subsequent closure orders – applies to ATP wording as well. This ruling confirms that a specific instance of COVID-19 at the premises does not have to be the sole cause, acknowledging that the virus spread throughout the country.
The Court of Appeal’s decision aligns with the conclusions of the High Court judge, providing much-needed clarity on the coverage provided under ATP wordings, which are generally considered more restrictive than the radius wordings or other Non-Damage Denial of Access extensions.
Impact on the Insurance Market The ruling’s implications for the insurance market are significant. Hardy advised all stakeholders to thoroughly examine the judgment. The FCA test case ruling had already indicated strong support for policyholders, and insurers should have been reserving accordingly. However, Hardy cautioned that there is a risk that some reinsurance programs might not align with insurers’ policies, potentially exposing them to greater risk.
He also noted that insurers are likely to continue scrutinizing policy wordings, and many are already excluding COVID-19 and similar pandemic-based diseases from coverage. It remains unclear whether insurers will appeal the decision, but any appeal would require a strong argument to distinguish this case from the prior UK Supreme Court analysis.
Next Steps for Insurers and Policyholders For policyholders still awaiting a final decision on their COVID-19 claims under ATP wordings, Hardy recommended reviewing policy documents and reaching out to insurers and brokers. The FCA has consistently reminded insurers of their duty to treat customers fairly and to respond promptly to inquiries and claims.
Even if coverage is confirmed, policyholders must gather detailed evidence of the occurrence of COVID-19 at their premises, working closely with brokers and specialists. Insurers are expected to closely scrutinize claims, especially in relation to the costs, expenses, and losses associated with the pandemic’s impact on businesses.
While the ruling offers policyholders a clearer path to recovering COVID-19-related losses, it also underscores the importance of maintaining comprehensive documentation to support any claim submitted under these policies.
