BI court case judges aiming for draft judgment in mid-September

However, Flaux also stressed that he was not giving “any sort of binding indication”.

He warned that while he hoped it would be available by then “inevitably there may be slippage” adding the judges were conscious of how important the issues in the case were for everybody involved and that the process would not be rushed.

He was speaking yesterday (30 July) at the end of the final day of the two-week hearing into the case which began on Monday 20 July and was brought by the regulator on behalf of policyholders against Arch, Argenta, Ecclesiastical, Hiscox, MS Amlin, QBE, RSA and Zurich.

Opening the day Colin Edelman, QC, representing the FCA targeted insurers’ use of the ‘but for’ argument as trying to knock out the case and cause it to fail at the first hurdle.

“What we as the FCA need to nail is this suggestion that somehow before you get to proximate causation … there is some snap fingers test that requires you to overcome a ‘but for’ cause hurdle, that we say that is wrong as a matter of law.”

Insurers have argued the watchdog is unable to demonstrate any meaningful connection between the action taken by the UK government on a national basis in response to Covid-19 pandemic and the locality of firms’ premises.

He rebutted criticism of the authority’s approach to the application of the causation test saying it had used a common sense approach.

“We don’t shy away from proximate cause at all,” he insisted. “What we say we have here is necessarily a unique situation in which we don’t have two contributing causes we have a multitude of contributing causes.”

Indivisible

Sharing maps of the outbreak he described a national picture arguing that you either had one indivisible mass or a jigsaw of cases that all contributed and resulted in the same effect.

Any ‘but for’ test would only apply to quantification and has nothing to do with causation, he insisted.

“The court needs to find a common sense answer to this and burying our heads in the legal niceties of ‘but for’ – which isn’t even an appropriate legal test … - is not going to give an appropriate or reliable or reasonable answer. It is going to mean lawyers tying themselves up in knots by artificial tests, which are not the statutory test anyway,” he said.

He also argued that the causation principles have to be applied with regards to the nature of the risk.

For disease wording, in particular, insurers knew they were talking about something amorphous in nature, he said. There could be one case but by far “the major range is there is going to be an outbreak”.

Those policies with a 25-mile radius clause in particular showed an anticipation that authorities will react to the outbreak of a disease.

“They [insurers] are contemplating the indivisible cause, it is in the nature of the risk,” he maintained.

“It must have been contemplated that a disease … will not necessarily confine itself to the boundaries of a particular area.”

Roadblocks

He also posed the question of what is business interruption insurance?

He accused Gavin Kealey, QC, who represents Ecclesiastical and MS Amlin, of treating it as some separate freestanding form of insurance that has its own insured peril.

“We say that is an incorrect analysis,” he countered explaining it adds a loss of profit or revenue cover to the property damage cover.

“To say that the insured peril under a BI policy is the damage and not the cause of the damage is we submit fundamentally to misunderstand what the purpose of BI insurance actually is,” he continued.

On the quantification exercise Edelman criticised insurers for using different periods in their comparisons with some using the equivalent period last year, others just before the lockdown and others over 12 months.

He noted that several insurers were saying even if policyholders were covered for the effect of Covid on their business then just before the government lockdown was a benchmark on which indemnity should be calculated.

He used the example of a collections given in a church.

In the week before lockdown only 40% of people chose to attend and the collection dropped accordingly.

Insurers were not paying out for that week’s decrease as no restrictions were in place but were using the lower figure as a starting point for the indemnity as people wouldn’t have attended anyway.

This was part of insurers’ “sleight of hand” in their submissions, he said.

His point was that the restrictions stopped everyone attending and the 60% should be added back in as they could not attend even if they wanted to.

“The entire purpose of the closure was to stop people going back to normal behaviour,” he stated.

Mis-using the trends clause would “ride a coach and horses” through insurance cover, Edelman claimed.

And he accused insurers of putting “real major roadblocks” in the way of policyholders.

“They are not even countenancing the claims or they are saying ‘you would have lost it all anyway because of Covid’ in circumstances where the clause is contemplating the disease.”

Off the rails

Over the course of the day Edelman also renewed his criticisms of the Orient Express judgment and the way the case was used by insurers saying they had relied upon it. While they had jumped on the “bandwagon” the Orient Express had “completely gone off the rails, he said.

Colleague Leigh-Ann Mulcahy, QC, took judges Flaux and Mr Justice Butcher through responses to the submission provided by Arch and Zurich.

Arch, she said, had argued for many businesses there was no prevention of access because they were not told to close or could carry on in part, so the closure clause was not engaged.

“We say that requires nothing short of a distortion of the meaning of prevention of access,” she stated.

She noted the government’s advice on 16 March and the Prime Minister’s subsequent statement one week later as she pointed out that Arch referenced “advice” in its own clause.

Mulcahy highlighted that closure was not the language of the clause, prevention was as she asked for the ordinary meaning of words to be applied.

In her view any reasonable reader would say there had been a prevention as she went on to accuse insurers of being “completely divorced from the reality of the situation” as they argued businesses chose to shut their doors.

She addressed Arch saying that no cover existed for businesses that were able to operate in part. This, according to Mulcahy, would be viewed with “incredulity” by, for example, a restaurant that used to have 90% of its business coming from diners and only 10% from takeaways that could be continued.

Being able to keep a section going was a question for quantification of loss, she said, listing that the policy did not indicate that only a total catastrophe situation would be covered.

She invited the court to rule that material level of prevention counts and that a fundamental change to a business and dropping a real part was relevant to a fact sensitive approach.

Legally impossible

She also accused Zurich of “seeking to strain its terms”.

“A construction of prevention of access as being only where access to premises is physically or legally impossible will almost never be satisfied,” she observed.

The key point for her was that business owners access a business to make money, if not they should be covered and the test should be practical around the ability of owners, employees and customers being able to get into a business.

Edelman tackled RSA, MS Amlin, QBE and Hiscox.

On the latter he said the FCA still remained troubled by its “rather extreme and highly restrictive approach to the meaning of interruption”.

He also addressed the assertion by the provider’s QC, Jonathan Gaisman, that an occurrence meant it must happen in a locality.

“They have linked this clause to the insured premises because there has to be an effect on the insured premises but if they haven’t put in a relevant policy area like others have then they haven’t and they can’t get it in through the back door through the word occurrence,” said Edelman.

Nothing more, nothing less

In the remainder of the final session Ben Lynch, QC for the Hiscox Action Group, urged the judges to pay close attention to the policy wordings.

He cited the terms “prevent or hinder” in the document as being at odds with Gaisman’s assertion earlier in the week that interruption meant a complete cessation. They showed it could be partial he said calling for words to be given their natural meaning.

“You are not in fact being asked to rule on the case of the century on causation but instead to set out some principles on fairly straightforward wordings to be applied in the light of government restrictions following an outbreak of a contagious disease. Nothing more and nothing less,” Lynch summed up.

“Here we have real claims from real policyholders with real livelihoods and real families to support, who suffered loss as a result of government-imposed restrictions who quite understand their claims will have to be adjusted.

“It cannot be right the sort of convoluted counter-factual analysis has to run on each of these claims on basic simple low-level BI cover. These are simple claims under simple wordings and with properly construed application of the wordings the policies should respond.”

The case concluded with Susannah Jones addressing the court regarding RSA 4 and Josephine Higgs doing so on behalf of the Hospitality Insurance Group Action.

Higgs challenged that the viewpoint given by insurer QCs that BI with infectious or contagious diseases were adjuncts to adjuncts.

Such policies were not add-ons or extensions to extensions, she said.

The cover was not normally available in a standard policy she detailed stressing that insureds had selected to buy them.

“Many purchased diseases extensions because that is the cover [they] wanted,” said Higgs.