Insurers could still face ‘potentially significant’ claims exposure around BI policy interpretations, despite intention of test case judgments

When the High Court ruled in favour of hospitality group Corbin and King’s £4.4m business interruption (BI) claim against insurer Axa in February 2022, it opened up the possibility of further challenges from policyholders around rejected Covid-linked claims.

A matter that was believed to have been settled by the FCA’s test case last January – following rulings from both the High Court and Supreme Court – now looks far from being resolved.

The case involving Corbin and King, which owns London-based restaurant The Wolseley, examined the scope of the non-damage denial of access (NDDoA) clause wording within Axa’s BI policy.

According to February’s High Court judgment, the nature of this cover stated that Axa would cover any loss resulting from interruption or interference with the business where access to the premises is restricted or hindered.

Ruling in Corbin and King’s favour, Mrs Justice Cockerill said: “I conclude that Covid-19 is capable of being a danger within one mile of the insured premises, which, coupled with other uninsured but not excluded dangers outside, led to the regulations which caused the closure of the businesses and caused the BI loss.”

The judgment raises questions for insurers, brokers, lawyers, policyholders and the regulator.

According to media reports, the FCA is “considering” the impact of the Corbin and King BI ruling on future claims.

Speaking on the uncertainty arising from this latest judgment, Katherine Proctor, partner at law firm Kennedys, said: “Aside from revealing the importance of getting the argument right in the first place, this opens the door to a potential flood of further cases looking to distinguish their position from the FCA test case.

“If that is the case, one might ultimately end up questioning the usefulness of the FCA test case as a ‘test case’ – at least in relation to prevention of access (PoA) wordings.

“Insurers and reinsurers alike will be aware that this decision will have a potentially significant impact upon claim quantum and ultimate exposures, particularly once the implications of this decision across other wordings have been extrapolated.”

Brokers in the firing line?

The High Court’s decision backing Corbin and King could lead to a rush of claims from BI policyholders who now feel able to challenge their insurers on whether the wording of their policies responds to pandemic-induced losses.

Richard Webb, director at Manchester Underwriting Management, said: “It will encourage insureds to pursue a claim if they feel their insurance policy has failed to respond as they expected.

“Whether justified or not, there will always be clients who expect their insurance to pay. If the insurer is able to successfully decline the claim, then the broker is likely to find themselves in the firing line.”

However, other industry commentators are quick to point out that the Corbin and King judgment specifically relates to a less common PoA wording, so the ruling might not open the floodgates for claims around these types of clauses after all.

Richard Graham, head of claims and risk management at Aston Lark, explained: “This was a different wording, different arguments and a different decision.

“Change may come at a later point in time through further legal challenges, but not yet and not now. The High Court ruling on PoA clauses included in the test case remains firm - at the moment.

“What is clear and extremely encouraging is that this is another win for policyholders and the walls seem to be very much closing in on insurers.

“First, we had the China Taiping Insurance arbitration [last September] and then the Corbin and King judgment.

“There are other insurers with a very similar clause to Axa and we are in discussions with each [of them]. Frustratingly, they seem to be waiting to see if Axa appeals before taking next steps.”

September 2021’s China Taiping Insurance case saw the insurer successfully defend a BI arbitration claim brought by a group of insureds, consisting of restaurants, cafes, bars and public houses.

The policyholders’ claim failed because “the instructions, actions or advice alleged were not issued by or of ‘the police or other competent local authority’ within the meaning of” the policy’s extensions, according to sole arbitrator Lord Mance.

‘Required medicine’ for BI uncertainty

The decision in support of Corbin and King does look set to place BI wordings back under the microscope, with the onus now on insurers to ensure their wordings provide clarity in the future.

Webb said: “It is clear there are policy wordings that have not operated in the way an insurer intended.

“BI has never been the easiest of covers for insureds and anything to help simplify it would be a step in the right direction.”

Graham, however, added that the FCA test case impacted a minority of insurers – he believes that most insurers’ policy wordings are already “exceptionally clear” around how their BI cover should respond to Covid-19 or other epidemic and pandemic events.

He continued: “The [Corbin and King] decision is a stark reminder to the industry that policy wordings need to be clear and simple to understand. Of everything that has come out of the test case and since, like Corbin and King, this has been the most constant and important message. Let your yes be yes and your no be no.

“The justice in Corbin and King focused on the natural order, use and understanding of the terms contained in the clause.

“Insurance needs to deliver certainty of outcome. It is not acceptable that we’ve needed to involve the two highest courts in the land to decide outcomes on some policy wordings. This by itself is an admission that a number of insurers got it wrong.

“Moving forward, we’ll see far more care in the draughting of policy wordings, but this is simply what should have been the case in the first place.”

Beyond the ongoing issues around BI wordings, it remains to be seen whether the fallout from the latest High Court judgment has a material impact on the capacity available for BI cover to insureds.

Graham said: “We can expect hesitation, but this should only be temporary until the implications of Corbin and King are fully understood.

“I expect the market to learn quickly from all of this and the required medicine is simply to take proper care when draughting policy wordings, to make them clear and simple to understand.”