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Covid BI claim jurisdiction overturned on appeal

13 March 2023

By Amy Lacey

In Al Mana Lifestyle Trading LLC & others v United Fidelity Insurance Co PSC & others [2023] EWCA Civ 61, the Court of Appeal (by a 2:1 majority) held the English courts did not have jurisdiction to hear business interruption claims pursued under multi-risk insurance policies issued in the Middle East, reversing the first instance decision.

The claimants operate in the food, beverage and retail sectors and sought recovery of around $40 million losses arising from the pandemic, against defendant insurers located in the UAE, Qatar and Kuwait.  A dispute arose concerning interpretation of the following clause contained in the policies:

“APPLICABLE LAW AND JURISDICTION

In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued. Otherwise England and Wales UK Jurisdiction shall be applied,

Under liability jurisdiction will be extended to worldwide excluding USA and Canada.”

The Commercial Court construed this as a non-exclusive jurisdiction provision, allowing proceedings to be brought either in the country where the policy was issued or England & Wales.  The policies had been issued as part of a suite of insurances intended to provide comprehensive cover for group operations in numerous jurisdictions, reinsured in the international market, and the court was influenced by the commercial advantage of facilitating resolution of disputes through a single neutral venue.  In reaching this decision, Cockerill J noted that English courts are: “particularly well-versed in the issues relating to claims for indemnity for Covid-related business interruption losses [and] highly experienced in dealing with issues of foreign law, where they arise.”

The Court of Appeal agreed that the question to be determined was how the words of the contract would be understood by a reasonable policyholder.  Of central importance was the adverbial conjunction “otherwise” – which could be taken to mean, for example, “or”, “or else”, “alternatively”, “if not” – and its impact on surrounding provisions in the context of this clause.  A degree of choice was implicit but did the clause provide for a true “either/or” alternative; or a conditional “primary/secondary” position?

By a majority (Males LJ and Nugee LJ), their Lordships allowed the appeal and decided that the clause gave exclusive jurisdiction to the courts in the country in which each policy was issued.  Only if the jurisdiction of the local court is not available would the courts of England & Wales have jurisdiction in relation to claims under the policy.  Males LJ saw no reason why parties should not agree to confer jurisdiction on one court, with another as a fall-back in case the primary choice was not available.  The word “otherwise” was therefore construed as equivalent to “if not available”, as opposed to “if not fancied by whichever party is the claimant”.

In a dissenting judgment, Andrews LJ took a different view: “Whereas the defendants’ interpretation might commend itself to a commercial lawyer, I doubt it would even occur to the reasonable policyholder, appraised of all the relevant circumstances, that it could be understood as meaning that it was mandatory to bring proceedings in the local forum, and that they could not go to the English court unless they could establish that the local court had declined, or would decline jurisdiction. They would understand it to mean that if, for whatever reason, they did not bring proceedings in the local forum, they would have to do so in England and Wales.”

It is striking to note the opposing conclusions reached by senior judiciary in this case, applying the same test of contractual interpretation.  The inherent complexity of construing ambiguous language was acknowledged by Nugee LJ (at paragraph 63): “It must be admitted … it is not always easy to articulate with precision why one reading of a disputed provision seems more natural and ordinary than another, as the way in which language strikes a reader is an accumulation of experience of how language is ordinarily used. And, as the present case illustrates, the same words may strike different readers differently”.

Policy wordings should be carefully considered prior to inception of the indemnity period to ensure the parties’ intention is clearly expressed.  Jurisdiction and other important provisions dealing with alternative scenarios in a single clause require proper explanation as to triggering events and orders of application.  Particular caution should be exercised in the use of words with multiple meanings, to minimise the prospect of disputes.

Amy Lacey is a Partner at Fenchurch Law