Covid-19 BI Update: Denial of Access – Access Granted?

“I doubt whether the Divisional Court could or would have taken the approach it did, had it had the benefit of the Supreme Court’s reasoning on causation.”

Lord Mance

The latest Covid-19 BI decision to arrive following the conclusion of the test case provides fresh hope for policyholders with denial of access clauses whose claims currently remain declined.

It will be recalled that the Divisional Court in the test case found that such clauses provided a “narrow, localised form of cover” which did not respond to the broader circumstances of the pandemic. Many policyholders were disappointed at the FCA’s decision not to appeal these rulings, and have subsequently argued that the Supreme Court’s ultimate conclusions on causation rendered the Divisional Court’s ruling an unsound authority for declining coverage under such clauses.

In an arbitral Award issued on 10 September 2021 by Lord Mance[1], clear support is provided for exactly that proposition.

The China Taiping Proceedings

In arbitration proceedings commenced by Fenchurch Law on behalf of a group of 183 hospitality policyholders against China Taiping Insurance[2], coverage was considered under two limbs of a Denial of Access clause which responded to:

b – 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;

c – 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;”

The Issues

There were three key disputed issues. First, whether the existence of Notifiable Disease cover elsewhere in the policy (which did not extend to Covid-19) negated the possibility of the Denial of Access wording responding to the pandemic. Secondly, whether the requirement for an “emergency in the vicinity of the premises” in limb (c) meant that the clause could only respond to narrow, localised events, rather than national ones, per the Divisional Court decision in the test case. Thirdly, whether the UK Government was a ‘competent local authority’ within the meaning of the clause.

On the first issue, Lord Mance found in favour of the policyholders. The existence of the express notifiable disease cover elsewhere in the policy did not limit the cover under the prevention of access extension.  It was common for the coverage provided by various insuring clauses and extensions to overlap, and if insurers intended to exclude diseases from the scope of the prevention of access clause, they should have used clear language to do so.

On the third issue, Lord Mance agreed with insurers that the UK Government was not a “competent local authority” within the meaning of the clause, meaning that there could be no coverage under limbs (b) or (c) of the Denial of Access extension for losses caused by closures and other restrictions imposed by the UK Government in response to the Covid-19 pandemic. This issue was ultimately therefore fatal to the policyholders’ claim, which failed at the last hurdle.

Issue 2 – Emergency threatening life or property in the vicinity of the premises

On Issue 2, however, Lord Mance agreed with the policyholders, and despite the fact that it did not alter the outcome in this particular case, his discussion and conclusions on the issue are of potentially much broader significance and merit close examination.

Lord Mance noted that Clause 1(c) was drafted in materially identical terms to two of the representative sample of policy wordings considered in the test case, namely RSA 2.1 and 2.2. The RSA clauses required “an emergency likely to endanger life or property in the vicinity of the Premises”.

In the test case, the Divisional Court concluded in relation to RSA 2.1 and 2.2, that

There could only be cover under this wording if the insured could also 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 or advice of the government. […] it is highly unlikely that that could be demonstrated in any particular case[3].”

Similar conclusions were reached in relation to the other denial of access wordings under consideration, and the findings were not appealed to the Supreme Court.  In the arbitration, insurers unsurprisingly therefore relied on the Divisional Court’s judgment to resist coverage under limb 1 (c) of the China Taiping clause.

Lord Mance began his analysis of the issue by noting that, as an arbitrator, he must regard the Divisional Court’s approach to the NDDA clauses as being, at the very least, highly persuasive, and that it may even, on the face of it, bind him.  However, that was subject to, first, the relevant point having been squarely argued and decided in the Divisional Court, and second the Supreme Court’s judgment.

As to the first point, Lord Mance noted that the Divisional Court appeared to have reached its conclusions on the basis that RSA 2.1 and 2.2 were analogous with MSA 1.  However, in Lord Mance’s view, the China Taiping and RSA wordings were clearly distinguishable from the MSA 1 wording, in leaving open for consideration whether cover extends to an emergency outside the vicinity threatening life or property within the vicinity, in contrast with the MSA 1 wording that required that the emergency be within the vicinity of the premises.  It was unclear how far RSA had argued the point, but a requirement that the emergency be in the vicinity of the premises was central to the Divisional Court’s reasoning in relation to RSA 2.1 and 2.2.

In relation to the Supreme Court judgment, Lord Mance’s words speak for themselves:

“…although there was no appeal in respect of RSA2.1 and 2.2, I find the Supreme Court’s analysis of the operation of other wordings, and particularly its analysis of the correct approach to causation, hard to reconcile with the analysis of RSA 2.1 and 2.2 adopted by the Divisional Court in paragraphs 466 and 467.[…] Paragraphs 466 and 467 of the Divisional Court’s judgment indicate that it was the Court’s view of the causation required that ultimately dictated the likelihood of recovery under the relevant wordings.  The Supreme Court held that the Divisional Court had erred in significant respects in its understanding of the operation of causation under other policy wordings before it.  As I read its judgment, the Supreme Court also thought that its understanding would, at least prima facie, carry through generally into other wordings.”

“… the Supreme Court was, contrary to the Insurer’s submission, prepared to state quite generally that its general approach to causation was applicable across the whole range of wordings”

“That is particularly so, if the emergency may be outside the vicinity, so long as it threatens life or property within the vicinity.  But it is also so if both the emergency and the threat must be in the vicinity.  Once it is accepted that the emergency may at the same time be elsewhere and threaten life or property elsewhere, the Supreme Court’s analysis of the relevant elements of cover and its conclusion that a “but for” test of causation was inappropriate would seem readily transposable to a NDDA clause like Extension 1(c)”

“I therefore doubt whether the Divisional Court could or would have approached the matter as it did in paragraphs 466 and 467 had it had the benefit of the Supreme Court’s analysis.”

“The absence in the Arch wording of the words “in the vicinity” in relation to the emergency appears an inadequate basis on which to distinguish the Supreme Court’s approach in relation to that Arch wording from the present.”

Lord Mance apparently therefore concluded that he was not bound by the Divisional Court’s findings as far as relevant to Issue 2, and despite the negative outcome in the present case, set out a powerful and clear basis on which a case for coverage under the RSA 2.1 and 2.2 wordings (and others on similar terms, including the other denial of access wordings considered in the test case) might be made in reliance on the Supreme Court judgment.


Lord Mance’s comments in the China Taiping Award are far from the end of the story.  The Award is not binding on any third party, and despite his detailed and helpful analysis, Lord Mance found it unnecessary to issue any final ruling or declaration on the issue, due to his conclusions on the meaning of ‘competent local authority’ which were conclusive to the outcome of the proceedings.  Noting that the issue was complex, and because the Award was to be published and the issue may arise in other contexts, Lord Mance concluded that he should say “nothing more definite” about it.

But as an ex-Deputy President of the Supreme Court and the author of many seminal decisions on English insurance law, his clearly-expressed views on the matter will doubtless be influential in future judicial consideration of the issue, and will need to be studied closely by insurers and policyholders alike in considering the position under Denial of Access and other clauses where coverage is still in dispute.

A copy of the award can be accessed here.

[1] The arbitration proceedings were brought with the agreement of the insurer, who agreed to cover the costs of the proceedings, and not to seek its own costs from the policyholders regardless of the outcome.  Confidentiality in the arbitral award was also waived, meaning that it can be made public.

[3] Divisional Court para.467

Webinar - Covid-19 BI Litigation: the Second Wave



It is now over five months since the Supreme Court handed down its largely policyholder-friendly judgment in the FCA Test Case, but for a majority of policyholders, the end is not yet in sight.

Our webinar examines the second wave of Covid-19 BI litigation now emerging in relation to a host of issues left undetermined by the Test Case, including:

– Disease ‘at the premises’ clauses;
– Prevention of Access clauses;
– Aggregation;
– Furlough and other government support;
– Loss of Rent

Aaron Le Marquer is a partner at Fenchurch Law

Covid-19 BI Update: The Curious Case of the Missing Declarations, and litigation round up.

It is now over five months since the Supreme Court handed down its largely policyholder-friendly judgment in the FCA Test Case, but for a majority of policyholders, the end is not yet in sight.

The FCA’s latest figures, published on 14 June 2021, indicate that, of 46,854 claims reported to have been accepted by insurers, or where a decision on coverage is still pending, only 34% (16,159) have so far been paid in full. Moreover, the data published by the FCA does not include numbers of claims declined by insurers which may be disputed by policyholders, and excludes ‘contracts of large risks’ [i]. Whilst giving an indication of the (some might say slow) progress being made by insurers in settling undisputed SME BI claims, the data does not therefore shed any light on areas of ongoing dispute.

Meanwhile, an examination of cases proceeding in the courts (including the Test Case itself) reveals that the stage is set for a raft of further litigation in relation to issues that were either undetermined in the Test Case, or where a degree of uncertainty persists.

Supreme Court Declarations

Most notably, the Supreme Court Declarations, giving effect to the rulings set out in the Supreme Court’s judgment of 15 January 2021, as applied to the 21 sample policy wordings under direct consideration in the Test Case, are still awaited. It is unfortunate (whilst not intended as criticism levelled in any particular direction) that the outcome of the Test Case has yet to be finalised in this way, following the herculean efforts of the Parties and the Court in bringing the case all the way from inception to the Supreme Court on such an expedited timetable.

The Supreme Court’s conclusions on the legal issues, as set out in its 114-page judgment of 15 January, might be thought to be clear and not susceptible to further dispute between the parties. However, the Draft Declarations, published by the FCA on 15 February 2021, setting out the outstanding areas of disagreement between the parties and the alternative versions of the Declarations sought by each side, shows that not to be the case.  In particular, the FCA and Insurers have clearly reached different views on what amounts to ‘restrictions imposed‘ according to the Supreme Court’s judgment, and the final form of Declarations will therefore be welcomed by policyholders and insurers alike in bringing some finality to the issue. The FCA last announced on 30 April 2021 that the Supreme Court Declarations ‘may be available’ in the next week, but has remained silent on the matter since then.

Other litigation – Coverage and Quantum

Whilst impressive in its scope, it was always acknowledged that the Test Case would not be capable of resolving all outstanding issues in relation to Covid-19 BI coverage. For some policyholders, the issue of whether their policy responds at all to losses flowing from the pandemic and the UK government response remains undetermined.  For others who have had coverage confirmed, the focus has now turned to the issue of how much insurers are liable to pay.  Unsurprisingly, that is frequently contentious, and affected by a number of common issues.

Coverage Issues

Specified Disease

The Disease clauses under consideration in the Test Case generally responded to any disease which is required to be notified to the authorities under the relevant public health legislation. Other, more restrictive Disease clauses only respond to losses caused by an occurrence or outbreak of one of a specified list of diseases, which in all cases did not include Covid-19. In Rockcliffe Hall v Travelers [1], the Court determined by way of summary judgment that such clauses are not capable of responding to Covid-19, rejecting the policyholder’s argument that Covid-19 was a form of ‘plague.’

See our update on the case here.

Damage to /Loss of Property

The Test Case itself considered coverage under ‘non-damage’ clauses i.e. extensions of cover responding to BI losses where no insured property damage has taken place. The issue of whether the presence of Covid-19 or Sars-Cov-2 on the premises could amount to or cause damage to or loss of property, thus triggering the core BI cover under most property insurance policies, fell for consideration in the early case of TKC v Allianz[2]. The Court held emphatically (again by way of summary judgment) that it could not. See our earlier update on the case here.

More recently, a claim filed by Xerox against FM Global[3] seeks to establish coverage for BI losses flowing from ‘physical loss or damage’, although that claim is being pursued as a satellite claim to litigation under a global master policy in the USA.  It is not yet clear the basis on which Xerox will invite the Court to depart from the principles set down in TKC v Allianz.

Prevention of Access

The High Court’s findings in the Test Case in relation to Prevention of Access wordings were, by and large, negative, and many policyholders were disappointed by the FCA’s decision not to appeal the negative rulings.  Following the outcome of the largely-successful appeal to the Supreme Court on other issues, the coverage position in relation to many Prevention of Access wordings now stands in stark relief to the position under the Disease wordings, and the findings of the High Court on which most insurers have now relied to decline coverage under Prevention of Access clauses are difficult to reconcile with the Supreme Court’s analysis of the covered peril and causation issues.

Unsurprisingly, many policyholders with Prevention of Access wordings are not content to abandon their claims, and a number of disputes are now moving forward to test the point further.  The first of these to be litigated is Corbin & King v Axa[4], in which the Policyholder seeks to establish that the Covid-19 pandemic amounted to a ‘danger or disturbance’ within 1 mile of the insured premises, resulting in closure on the advice of a public authority, and triggering coverage for BI losses under a Denial of Access (non damage) clause.

The outcome of that case – and any others that may be joined to or managed with it – is likely to be highly influential on the coverage available under other typical Prevention of Access wordings in the market, and will therefore be closely watched by parties on both sides of the fence.

Disease ‘at the Premises’

The dispute as to whether Disease clauses requiring an occurrence of disease at the insured premises are capable of responding to Covid-19 BI losses in the same way as ‘radius’ clauses rumbles on.  Following the conclusions of the Supreme Court on insured peril and causation, many Policyholders have argued that an occurrence of Covid-19 at their insured premises ought to be viewed as a proximate cause of loss in the same way as occurrences of Covid-19 within a specified radius of the premises (indeed some might say that an occurrence at the premises should be viewed as more proximate than occurrences away from the premises), and some insurers appear to have accepted coverage on this basis.  A majority have not, however, and it remains to be seen how the point will be resolved.

For its part, the FCA has clearly indicated that it considers the ‘at the premises’ wordings to be capable of responding in the same way as the ‘radius’ clauses, and has instructed insurers to include such wordings in their most recent submissions confirming those policy wordings that are now capable of providing cover for Covid-19 BI losses.  Whether insurers will go one step further in confirming indemnity under such policies without further litigation remains to be seen.

Quantum Issues


Non-damage BI extensions are typically sub-limited to 10% or less of the main BI sum insured, and in light of the scale of the losses suffered by many policyholders, the issue of how the sub-limits are available to meet the covered losses is therefore key.  If Insurers’ liability is limited to a single sub-limit of liability, the policyholder is unlikely to make a material recovery in relation to the majority of its losses.  If, on the other hand, the Policyholder can establish that it is entitled to recover multiple sub-limits of liability under the relevant non-damage BI extension(s), there may be better prospects of recovering all (or the majority) of its losses.  How the covered losses are ‘aggregated’ for the purpose of the application of sub-limits is highly dependant on the individual policy wording, but typically depends on whether the sub-limit is expressed as applying ‘per loss’, ‘per claim’, ‘per occurrence’, per ‘event’, or ‘per originating cause’.  There are many other variations and permutations of these words, and a long line of complex (and often contradictory) case law considering the meaning of these aggregating terms, typically in the context of war/terrorism, natural catastrophes, and professional risks. Of disease perils, there has been very little judicial consideration in the English courts, either in terms of aggregation or more generally, and unsurprisingly aggregation of Covid-19 losses is therefore set to be a key focus of the next wave of Covid-19 BI litigation.

Because of the peculiarities of specific policy wordings and the manner in which individual Policyholders have suffered loss, the issue of aggregation is less suitable for determination as a general market test case in the same way that the FCA sought to determine the coverage trigger issue.  Nonetheless, there will be various points of principle that, once determined, will be influential in the determining the outcome under a variety of different wordings (including reinsurance contracts.)   Various cases are now proceeding in the Commercial Court, in particular focusing on the issue of aggregation under the Marsh Resilience policy wording, one of the clear winners in the Test Case (where it was referred to as ‘RSA4’), and which contains occurrence-based aggregating wording.

Government Support

Many (if not all) policyholders have received some form of government support, in the form of grants, rates relief, and furlough payments over the course of the pandemic, and the issue of whether and how these amounts are to be applied to insurance claim calculations is hotly contested.  Insurers for their part insist that any receipt of government support goes to reduce the loss suffered by the policyholder, and therefore the value of any claim under the Policy.  Policyholders, in response, point out that government support payment are neither ‘Turnover’ nor a ‘Saving’ within most Policy definitions, and are not therefore to be taken into account within a typical Specification setting out the correct basis for calculating a BI indemnity under most policies. In light of the low sub-limits of liability available under most non-damage BI extensions, the suggestion by some insurers that failing to make deductions for government support results in a ‘windfall’ for policyholders, is viewed by many policyholders as insulting and a further example of insurers’ egregious attempts to limit their own liability.

The FCA has written to insurers expressing concern over the issue on several occasions, and the ABI has confirmed that some of its members have agreed not to deduct government grants from Covid-19 BI claims.  However, the position in relation to other types of support, in particular furlough payments, remains highly contentious and unlikely to be resolved without litigation. It is likely that one or more of the existing cases proceeding through the courts will seek to test the issue.

Loss of Rent

While the Test Case considered and determined which events connected with the Covid-19 pandemic were capable of triggering coverage, the case did not consider the matter of what type of loss is covered by the sample clauses. In most cases, policies respond to loss of Gross Profit in one form or another, but in the case of commercial landlords, coverage is often provided for Loss of Rent Receivable.  In relation to these policies, insurers have commonly taken the position that the landlord has not suffered a loss of Rent Receivable merely by virtue of the fact that its tenants have been unable to pay rent during periods of closure (due to a total lack of revenue); the landlord must also be able to show that the tenant has been relieved of its obligation to pay rent during the closure period, which in most cases will not be satisfied.   Otherwise, the insurers say, the loss should fall on the tenant (who may or may not have BI cover), and not the landlord.

Landlords may reasonably question the commercial utility of such clauses if their response is limited in the way insurers claim, as the coverage provided would in real life be largely illusory. The issue has fallen for consideration, somewhat obliquely, in two recent cases, that were also decided on summary judgment, unfavourably for policyholders. In Commerz Real Investmentgesellschaft MBH v TFS Stores Ltd[5] and Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others[6] it was determined that the government-ordered closure of various retail premises did not activate rent cessor clauses or otherwise relieve the tenants from their obligation to pay rent under the relevant lease. The tenant’s argument that the landlord held insurance for loss of rent was also rejected on the basis that the insurance policies were only designed to respond where the rent cessor clauses were activated, and the existence of the insurance did not therefore affect the obligations as between the tenant and the landlord.

The initial view of the courts therefore appears to be that commercial landlords will in most cases have no valid claim for a loss of Rent Receivable due to Covid-19 closures. However, considering that both cases were decided by a Master on summary judgment, and with the insurance coverage issue being determined very much as a secondary issue (the Master in one case expressing reservations over determining the issue with no insurer as a party to the case), the reasoning in the two judgments might be viewed as far from final, and in view of the importance of the issue to a large number of policyholders, it seems likely that the point will be further tested in the courts in the near future.

The Path Ahead

It is clear that the Covid-19 BI has not only given rise to a host of new coverage issues, but also reignited a number of traditional areas of dispute in the field, each of which is generating further litigation now emerging in the courts.  Although it will be regrettable for many policyholders that additional legal hurdles must be overcome before coverage of their claims can be established and or quantified, the further consideration by the courts of these issues in the round will, it must be hoped, lead to further clarification of the law underpinning business interruption insurance, and as such may be a welcome development in the longer term.

Aaron Le Marquer is a Partner at Fenchurch Law

[1] [2021] EWHC 412 (Comm)

[2] [2020] EWHC 2710 (Comm)

[3] Commercial Court Claim No. CL-2021-000138

[4] Commercial Court Claim No. CL-2021-000235

[5] [2021] EWHC 863 (Ch)

[6] [2021] EWHC 1013 (QB)

[i] i.e. where the policyholder exceeds the limits of at least two of the following three criteria: (i) balance sheet total: €6.2 million; (ii) net turnover: €12.8 million; (iii) average number of employees during the financial year: 250

Fenchurch Law boardroom

Webinar - D&O: life after the pandemic



This talk will provide a recap on the types of claims that directors can face and how D&O policies can respond to them. It will also examine some of the issues arising with D&O claims, and how Covid-19 could present further challenges ahead for the D&O market.

James Breese is a Senior Associate at Fenchurch Law

Webinar - FCA Test Case: The Supreme Court Judgment



Following the Supreme Court’s announcement that it will hand down its judgment in the Test Case on Friday 15 January, our webinar will give an overview of the key findings of the Supreme Court, including the final determination of business interruption coverage provided under Disease, Prevention of Access and Hybrid covers. Our session will also cover next steps for policyholders and consider some of the further issues that may arise in the adjustment and settlement of outstanding Covid-19 BI claims.


Aaron Le Marquer, Partner

James Breese, Senior Associate

FCA Test Case – the Supreme Court Judgment: A guide for policyholders

On Friday 15 January 2021 the UK Supreme Court handed down its judgment in the FCA Test Case. The case was brought under the Financial Markets Test Case scheme by the FCA against 8 insurers, and considered the extent to which BI coverage was available under a selection of ‘non-damage’ BI extensions provided in a sample of 21 policy wordings.

The judgment is wide-ranging and extends to 114 pages. This guide does not attempt to capture all of the Supreme Court’s findings nor to describe the legal issues in any detail, but aims to provide Policyholders with what they need to know.

Who won?

The Supreme Court found resoundingly in favour of policyholders, essentially upholding the findings of the High Court and in some cases broadening the coverage available for Covid-19 BI losses.

Did insurers succeed on any aspects of their appeals?

No, insurers’ appeals were dismissed in their entirety.

Which Policyholders does the judgment assist?

Policyholders with coverage under those Prevention of Access and Hybrid clauses that the High Court found would respond to Covid-19 BI losses are now likely to have broader coverage in two important respects:

  • Some policyholders whose coverage would not have been triggered at all under the ruling of the High Court will now be able to claim – in particular businesses that were only partially closed (for example a restaurant that was able to continue to offer takeaways services.)
  • Policyholders whose coverage would not have been triggered until the coming into force of legal Regulations on 21 or 26 March 2020 may now claim from an earlier date, if their business was affected by instructions issued by the Government.

Importantly, no policyholder with a valid claim will now have the value of their claim reduced by virtue of a downturn in business caused by the effects of Covid-19 prior to coverage being triggered, or by taking into account any Covid-19 related factors whatsoever in considering the benchmark performance of the business against which the losses should be measured.

Are there any policyholders whose position is not affected?

Policyholders with coverage under those Prevention of Access clauses which were unsuccessful in the High Court, because of findings that the clauses were intended to respond to specific localised events such as gas leaks and bomb scares, rather than broader circumstances of the pandemic, do not benefit from the Supreme Court’s decision, as the FCA chose not to appeal the High Court’s findings in relation to those policies.

Are there any policyholders who are now worse off?

No. The Supreme Court dismissed all of the Insurers’ multiple grounds of appeal which, if successful, would have resulted in a less favourable position for policyholders.

What is the effect of the decisions on causation, trends clauses and the Orient Express case?

Complex cases were argued by all the parties before the Supreme Court on the linked issues of causation, trends clauses and the Orient Express v Generali case.  Whilst the court’s findings in relation to those issues are of significant importance for the industry and English insurance law going forward, any detailed discussion is beyond the scope of this note.

The takeaway for Policyholders is that, in overruling Orient Express and taking a ‘concurrent causes’ approach generally to the issue of causation, policyholders whose coverage is triggered will now be entitled to an indemnity for the full extent of their Covid-19 related losses.  Whilst there will inevitably be room for significant disagreement as to the correct measure of those losses, the Supreme Court has made it clear that the comparison against which the actual performance of the business must be measured must not take into account any impact of Covid-19 on the business, including any downturn in business prior to the business being closed and Policy coverage being triggered.

Are there issues left unresolved that the SC does not address?

The Supreme Court decision is final and now represents the settled position under English law as far as coverage, causation and the application of trends clauses is concerned.

There are other issues that will affect the coverage and quantification of business interruption claims which the Supreme Court did not consider, including:


For the purposes of the application of sub-limits of liability and deductibles, how many ‘losses’, ‘events’ or ‘occurrences’ has the policyholder suffered? This is particularly pertinent to policyholders with multiple premises and to consideration of further local and national lockdowns.

Disease at the premises

The Test Case did not consider, and did not therefore make any ruling in relation to Infectious or Notifiable Disease clauses that respond to losses caused by occurrences of disease ‘at the insured premises’ (as opposed to occurrences within a specified radius of the insured premises). The findings of the Supreme Court may now cause coverage under those clauses to be revisited.

Loss of Rent

The Test Case only considered policies providing ‘traditional’ BI coverage i.e. for loss of gross profit and increased cost of working.  Policies providing express coverage for loss of rent by landlords were not considered. Different coverage issues arise in relation to those policies, which are not straightforward.

Deduction of government assistance

Many policyholders bringing claims will have benefited from various forms of government assistance since the emergence of the pandemic, and the correct treatment of such financial assistance for the purpose of calculating a BI claim indemnity is unsettled.  The FCA issued a ‘Dear CEO’ letter on 18 September 2020 in which it advised insurers “We therefore do not consider the Government’s treatment of the Small Business, Retail, Hospitality and Leisure or Local Authority Discretionary grants for tax purposes is a proper basis for insurers treating those payments as turnover under the policies. Nor do we see that insurers can apply these amounts as savings against fixed business expenses”. As to other forms of government support, there remains ample scope for further disagreement.

Damages for late payment

The Enterprise Act 2016 introduced into law a new right for policyholders to claim damages for late payment of insurance claims, which did not previously exist.  The right to claim damages remains untested by the courts, but the present circumstances may well lead to policyholders seeking to recover the additional costs they have incurred as a result of not being paid their claims promptly since notification in March 2020, including additional costs of financing, and in some cases costly corporate re-organisations and administration processes.

What should I do next?

The FCA and Insurers will now work with the Supreme Court to agree a set of declarations giving effect to the Supreme Court’s findings. The FCA has also indicated that it intends to issue a Q&A document for policyholders, giving guidance on who is now entitled to claim.

Previous guidance from the FCA required all insurers with ‘potentially affected claims’ to communicate with policyholders on the status of claims already submitted, and to review the coverage status of such claims following the High Court judgment in September 2020.  Policyholders who have previously received communications from insurers in this respect can expect further communications following the Supreme Court judgment.

Policyholders that submitted claims earlier but that have not heard from insurers since the commencement of the Test Case, but who believe that their claim may be affected, should contact their broker or insurer to seek clarification on the status of their claim.

Policyholders that did not submit a claim earlier but believe that they may now have a valid claim following the Supreme Court judgment should contact their broker or insurer to discuss how to notify a new claim.

For a more detailed discussion and analysis of the Supreme Court judgment, please join our webinar on 21 January. Joining details can be found here.

Aaron Le Marquer is a partner at Fenchurch Law.

Reasonable precautions conditions – what do they really mean?

Conditions which require insureds to exercise ‘reasonable precautions’ are a staple of insurance policies. However, there is often a misunderstanding as to their meaning and effect, and what an insurer must show in order to rely on a breach to decline the claim. In this article we take a look at the applicable principles.

Reasonable precautions in a Professional Indemnity policy

Professional indemnity (“PI”) insurance is designed to protect an insured which has incurred a civil liability to a third party arising from negligence.

PI policies almost always require insureds to take reasonable care or reasonable precautions not to cause loss or damage to a third party. If “reasonable care”, in this context, had the same meaning as a tortious duty of care, the policy would be deprived of any real value, since that would effectively exclude the very liability that the policies are intended to cover.

To overcome that issue, the Courts have consistently held that an insurer can only rely on a reasonable precautions clause where it shows recklessness by the insured. In particular, in Fraser v Furman [1967]1 WLR 898, the Court held that it must be “shown affirmatively that the failure to take precautions … was done recklessly, that is to say with actual recognition of the danger and not caring whether or not that danger was averted”. Therefore, acting carelessly will not be sufficient; the requirement is that the insured must be reckless and not care about its conduct.

Reasonable precautions in a property policy

Over time, reasonable precautions clauses have become more commonplace in property and other first-party insurance policies (such as travel or motor insurance); but what does a requirement to take reasonable precautions in a property policy mean? Can an insurer decline a claim if an insured fails to take reasonable care? Does negligence suffice?

The Court of Appeal has confirmed that the recklessness threshold applies equally in property insurance. So, in Devco Holder Ltd v Legal and General Insurance Society [1993] Lloyd’s Rep 567, where a driver deliberately left his keys in the ignition for a few minutes whilst visiting his place of work, the Court of Appeal found that the driver breached the reasonable precautions condition in his policy because he was “deliberately courting a danger”. On that basis, the driver was not entitled to recover under the Policy.

The Court of Appeal in Sofi v Prudential Assurance Company [1993] 2 Lloyd's Rep. 559 reaffirmed the decision in Devco Holder that mere negligence will not suffice. So, in order to prove recklessness, it must be shown that the insured appreciated the risk (and that appreciation will be assessed subjectively). If it can be shown that an insured appreciates the risk but simply didn’t care or ignored it, he will be found to be reckless.

On the basis that a reasonable care clause is intended to exclude liability, the burden is on the insurer to prove recklessness.

In which situations might reasonable precautions conditions be relevant?

The drafting of reasonable precautions conditions is usually broad. For example, the clause may require an insured to “take all reasonable precautions to prevent or diminish damage or any occurrence or cease any activity which may give rise to liability under this Policy and to maintain all Property insured in sound condition.”

The general actions expected from insureds to diminish or reduce danger are likely to vary on a case by case basis and therefore not readily summarised; however, examples in a property context would include locking all doors and windows when the premises are empty (so as to minimise the risk of theft); taking precautions against fire or alerting the fire brigade promptly in the event of a fire; and adhering to guidance from professionals such as surveyors.

It is perhaps more illustrative, by comparison, to consider the sorts of actions which have been found to constitute a breach i.e. where an insured has acted recklessly. In particular:

  • Lambert v Keymood Ltd [1990], in which an insured continued to set bonfires at its premises, despite being warned about the dangers of doing so;
  • Limit (No.3) Ltd v Ace Insurance Ltd [2009], where an insured took no steps to repair a building, notwithstanding the fact that it was warned that it might collapse;
  • Grace Electrical Engineering Pte Ltd v EQ Insurance Co Ltd [2016], where an insured ignored advice regarding cooking operations taking place in the basement of its premises.

There is however an important distinction to be drawn between reasonable precautions and positive obligations under the policy which require insureds to take specific actions, such as hot works conditions, unoccupied buildings conditions, and security conditions. In Aspen Insurance v Sangster & Annand Ltd, the Court commented that the recklessness threshold will not apply where there is “a highly defined and circumscribed set of particular safeguards which have to be put in place” which involved a detailed hot works condition clause with which the insured had failed to comply.

Reminder for brokers and policyholders – a health warning

In order to avoid the risk of insurers seeking to decline the policy for a breach of reasonable precautions conditions, it is important for brokers and policyholders to be fully aware of their continuing obligations throughout the duration of policy.

Failure to warn the insured about such policy conditions may result in a broker being held liable in the event that indemnity is declined due to breach of a reasonable precautions or other specific condition - RR Securities & Ors v Towergate Underwriting Group Ltd [2016]. In this case, following a fire caused by arson, the insurer sought to decline the claim due to failure to comply with the minimum-security standards and failure to take reasonable precautions to avoid the loss.  The Court found that the insured had not been reckless and therefore there had been no breach of the reasonable precautions condition. However, the broker was found to be liable to the insured for failing to bring the onerous security conditions to the insured’s attention.

Whilst we see insurers seeking to rely on reasonable precautions conditions in circumstances where the insured has merely been careless or negligent, equally care should be taken to ensure that policyholders are fully aware of their obligations and to distinguish between reasonable precautions conditions and other more onerous requirements defined in the policy. In short:

  1. Where the policy contains a reasonable precautions clause, the insured must not act recklessly or against advice where it appreciates that a risk exists which might cause a loss; and
  2. Where the policy contains specific obligations, such as a hot works condition or unoccupied buildings condition, the reckless threshold does not apply – the insured must therefore take extra care to fully comply with those obligations or avoid a declinature of a claim at a later date.

Webinar - FCA Test Case: the Appeal

The Test Case brought by the FCA to determine coverage issues in relation to Covid-19 Business Interruption losses has been unique in a number of respects. It was the first case of its kind to be brought under the Financial Markets Test Case Scheme. It was brought, heard and decided on an unprecedented accelerated timetable. And it affected an enormous number of policyholders – over 370,000 according to the FCA’s estimate. The judgment issued in September produced some important results for policyholders, but many of the key findings are now under appeal at the Supreme Court.

Following the conclusion of the Supreme Court appeal hearings on 19 November, this session examines the main issues under dispute, the positions of the parties, and the implications of the outcome for policyholders and the insurance industry.

Aaron Le Marquer is a Partner at Fenchurch Law

Covid-19 BI Update: TKC London Ltd v Allianz – Covid-19 closure not “accidental loss” of property

Hot on the heels of the FCA Test Case judgment, on 15 October 2020 the Commercial Court granted summary judgment in favour of Allianz Insurance Plc, in a case brought by The Kensington Creperie (‘TKC’) seeking coverage of its BI losses arising from enforced closure in the wake of the Covid-19 pandemic[1].

In contrast to the FCA Test Case which examined coverage under ‘non-damage’ business interruption extensions, but echoing many of the cases currently being pursued in various US jurisdictions, TKC sought to establish coverage on the basis that it had suffered an “accidental loss of property”.

TKC’s Arguments

The Policy provided cover for loss resulting from business interruption “in consequence of an event to property”, “Event” being defined as “Accidental loss or destruction of or damage to property used by the Insured at the Premises for the purpose of the Business.”

Seeking to establish that the mandatory closure of its business from 21 March to 4 July 2020 could amount to an Event within the meaning of the Policy, TKC argued that “accidental” meant nothing more than “unlooked for or unintended”, and that “loss of property” included temporary loss of use. TKC pointed to the use of the words ‘All Risks’ in the titles of the relevant insuring clauses, and various judicial authorities supporting an interpretation of ‘loss’ going beyond pure physical damage.

Additionally and alternatively, TKC argued first that the business interruption cover was triggered by loss of or damage to stock, and secondly that the right to carry on business from the premises could itself amount to intangible property which, by virtue of the Regulations, was lost or damaged.

Allianz’s Position

Allianz, represented by Gavin Kealey QC, submitted that the temporary closure of the premises did not amount to “accidental loss of property”, both because accidental loss referred only to physical loss and because something more than merely transient deprivation was required. The temporary closure of the premises failed on both counts.

Relying on an extensive line of case law considering the meaning of the word “loss” (including, probably uniquely, two different cases concerning lost pearl necklaces), Mr Kealey reminded the Court of Sir Martin Nourse’s memorable comment in Tektrol Ltd v International Ins Co of Hanvover Ltd:

““Loss” is a word whose meaning varies widely with the context in which it is used. If a man said to you: “I have lost my wife”, you would understand him to mean one thing outside the maze at Hampton Court and another outside an undertakers in the high street.”

In the context of the Policy, Allianz submitted that a number of further authorities supported an interpretation of loss limited to physical damage, as well as to circumstances where recovery was at least uncertain (and not therefore temporary). This, Allianz argued, was also the only interpretation of the Policy that made commercial sense of the Policy as a whole, since any other construction would render the proviso and Denial of Access provisions in the policy redundant.

The Judgment

The Court gave TKC’s arguments short shrift. As to what was meant by the word “loss”, the Court found that:

the immediate context of the word “loss” within the definition of “Event” is that it is followed by the words “or destruction of or damage to”.  I again accept Mr Kealey’s submission that those words strongly suggest that “loss” here is similarly intended to have a physical aspect. … Taking these contextual matters into account as a whole, it therefore seems to me that the expression “loss … of … property” in the definition of “Event” cannot sensibly be interpreted as including mere temporary loss of use of property.”

As to TKC’s alternative submission that the Policy was triggered by damage to TKC’s stock, the Court found that:

the factual assertion that the deterioration in TKC’s stock caused (proximately or otherwise) any relevant interruption or interference with TKC’s business is one which … I can summarily reject as wholly unrealistic even at this preliminary stage.” 

As a result the Court found that TKC’s action was bound to fail and granted summary judgment in favour of Allianz.


The case is of general importance to policyholders seeking recovery of their BI losses flowing from Covid-19 related closures.  Whilst the FCA Test Case has established (subject to appeal) that certain ‘non-damage’ business interruption extensions will respond to losses caused by the consequences of the Covid-19 pandemic, a majority of policyholders will not have had the benefit of policies containing such extensions, and those that do are in most cases subject to sublimits of liability that fall far below the main policy limits. A favourable finding in relation to the meaning of “accidental loss of property” could potentially have opened the floodgates to many thousands of additional claims and dramatically increased insurers’ exposure.

The relevance of the present case was recognised by the Court in the Introduction to its judgment:

“The decision in the present case may therefore be of consequence for other potential claimants. To that limited extent, this judgment is therefore something of a footnote to the comprehensive and (subject to any appeal) authoritative statement of the law and exegesis of the various policy provisions in the judgment of Flaux LJ and Butcher J in the FCA test case.”

The Court’s findings are therefore unsurprising, particularly in light of the detailed conclusions reached by the Court in the FCA Test Case. If the Court had found in favour of TKC in this case, the issues determined in the Test Case would largely have become irrelevant, since a majority of policyholders would be covered under the main property damage sections of their policies, and would have no need to turn to the ‘non-damage’ extensions for cover.

Although not on the face of it a positive outcome for policyholders, the Court’s decision is therefore useful in further clarifying the legal position in relation to the cover available to businesses for their Covid-19 business interruption losses.

[1] TKC London Ltd v Allianz Insurance Plc [2020] EWHC 2710 (Comm)

Fenchurch Law city

The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #10 (The Bad). Orient-Express Hotels v Generali

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.

#6 (The Bad)

Orient-Express Hotels v Generali – an update

This note is an update to that which we provided on Orient Express on 1 July 2019. The Commercial Court considered Orient Express during the FCA Test Case in July 2020. The Test Case concerned the business interruption losses that arose following the outbreak of Covid-19 in the UK. Orient Express was a hotly contested issue, and we look here at how the Test Case may affect its application.

In Orient Express Hotels Ltd v Assicurazioni Generali SPA t/a Generali Global Risk [2010] EWHC 1186 (Comm), the Commercial Court held that the ‘but for’ causation test applies under standard BI policy wordings where there are two concurrent independent causes of loss, and there could be no indemnity for financial loss concurrently caused by: (1) damage to the insured premises – a luxury hotel in New Orleans, and (2) evacuation of the city as a result of Hurricanes Katrina and Rita.

Orient Express Hotels Ltd (OEH) was owner of the Windsor Court Hotel (the Hotel), which suffered significant hurricane damage in August and September 2005 leading to its closure for a period of two months. The surrounding area was also devastated by the storms, with the entire city shut down for several weeks following the declaration of a state of emergency, and the imposition of a curfew and mandatory evacuation order.

The arbitral Tribunal held that OEH could only recover in respect of loss which would not have arisen had the damage to the Hotel not occurred, and this meant that OEH was to be put in the position of an owner of an undamaged hotel in an otherwise damaged city. Since New Orleans itself was effectively closed for several weeks due to widespread flooding, with no-one able to visit the area or stay at the Hotel even if it had (theoretically) been undamaged, OEH could not recover under the primary insuring provisions for BI loss suffered during this period. A limited award of damages was made under separate Loss of Attraction and Prevention of Access extensions to the policy.

OEH appealed to the Commercial Court, arguing that the Tribunal’s approach was inappropriate given the wide area damage to the Hotel and the vicinity caused by the same hurricanes. OEH sought to rely upon principles established in: Miss Jay Jay [1987] and IF P&C Insurance v Silversea Cruises [2004], that, where there are two proximate causes of a loss, the insured can recover if one of the causes is insured, provided the other cause is not excluded; and Kuwait Airways Corpn. v Iraqi Airways Co. [2002], that, where a loss has been caused by two or more tortfeasors and the claimant is unable to prove which caused the loss, the Courts will occasionally relax the ‘but for’ test and conclude that both tortfeasors caused the damage, to avoid an over-exclusionary approach.

Mr Justice Hamblen dismissed the appeal, concluding that no error of law had been established in relation to the Tribunal’s application of a ‘but for’ causation test under the policy on the facts as found at the arbitration hearing, whilst recognising “as a matter of principle there is considerable force in much of OEH’s argument”. The insurance authorities mentioned above were distinguished as involving interdependent concurrent causes, in which case the ‘but for’ test would be satisfied. The Court did appear to accept that there may be insurance cases where principles of fairness and reasonableness meant that the ‘but for’ causation test is not applicable, but OEH was unable to establish an error of law by the Tribunal where this argument had not been raised at the arbitration hearing. Given these evidential constraints on an appeal limited to questions of law, OEH was unsuccessful in the Commercial Court.

Permission to appeal was granted, indicating that the Court considered OEH’s grounds for further challenge had a real prospect of success. Settlement on commercial terms was agreed between the parties prior to the Court of Appeal hearing, however.

The decision in this case has been criticised by commentators as unfair, giving rise to the surprising result that the more widespread the impact of a natural peril, the less cover afforded by the policy. The High Court appears to have agreed in the Test Case that concluded in July 2020.

In a judgment handed down on 15 September 2020, Flaux LJ and Butcher J said at paragraph 523:

We consider that there are several problems with the reasoning in Orient Express. First and foremost, as we see it, there was a misidentification of the insured peril… It seems to us that the error in the reasoning may have come about because the judge focused only on the “but for” causation issue and, to our minds surprisingly, did not pose the question of what was the proximate cause of the loss claimed…”

The judgment continues at paragraph 529:

“It follows that, if we had thought that the decision in Orient Express somehow dictated the consequences in terms of cover and the counterfactual analysis for which the insurers contend in the present case, we would have reached the conclusion that it was wrongly decided and declined to follow it…”

This is welcome news for policyholders. It is clear that Flaux LJ and Butcher J disagreed with the principles that underpinned the decision in Orient Express, and this can only be positive for the adjustment of insurance claims moving forward. However, importantly, the Court’s comments regarding the correctness of the decision in Orient Express are strictly obiter, since the case was distinguished from the fact under consideration in the Test Case.  On that basis the ‘wide area damage’ principle set down in Orient Express, at least as applied to property-linked BI claims, remains good law and it is likely that Insurers will continue to rely on it unless and until the decision is overturned by a superior Court.

That said, readers will likely be aware that there is a chance that the insurers that participated in the FCA Test Case will appeal. We anticipate that we will learn of any such appeal on 2 October 2020, with the leapfrog appeal to the Supreme Court being heard in December 2020 / January 2021. While it may be frustrating for policyholders that there remains a risk that Orient Express could have some application moving forward, the possibility of the Supreme Court deciding the outcome one way or another must be welcomed. The law as it stands as now unsettled and ultimate clarification from the Supreme Court will provide the finality required by all stakeholders.