Hiscox had pandemic possibility 'well in mind' when it drafted BI policies, action group tells Supreme Court

Ben Lynch, QC, highlighted a number of points to the Supreme Court judges around foreseeability, the meaning of reasonable expectation and “the point that these are complex policies”.

The original judgment found in favour of policyholders on the majority of, but not all, issues debated in court.

On foreseeability he said: “It is wrong to suggest that the nationwide pandemic was not within the risk the parties contemplated.”

He suggested it was obvious that when the wording was put down the draughtsman “had well in mind a pandemic or action from an agency”.

Lynch also pointed to the factual matrix which refers to Sars and the 1987 Great Storm highlighting the public authority clause which refers to a “notifiable disease”.

Lynch noted: “The public authority clause refers to ‘notifiable disease’ rather than a closed list.”

He argued: “This allows for new diseases.”

Lynch also contemplated the nature of insurance which does not always describe events specifically but merely categorises them, adding: “There is much variation in how events occur in life.”

One of his key points was around “reasonable expectation of interpretation of the trends clause” and argued the very notion of reasonableness was interlinked with community standards.

He also flagged some salient points around construction of contracts in relation to who Hiscox customers are, pointing out the following “facts”:

• They are SMEs
• They have low levels of sophistication when interpreting insurance
• The policies are “off-the-shelf”

Lynch explained that this indicates all parties expect compliance with government statements regardless of the law – a point referencing the first lockdown in March when the government asked businesses to close but the law did not yet require them to do so.

In addition he said the “simple nature of the policies” should be construed “in a straightforward and uncomplicated way as befits the policyholder”.

Lynch argued: “The Hiscox construction is extremely complex and unworkable.”

He also posited that at the time of the contract construction the parties could never have intended the counterfactual “which would never have existed in the real world”.

He also addressed the court’s treatment of the phrase “inability to use”.

He commented: “The court takes an unduly narrow approach to the inability to use wording.”

Lynch said there is a natural and ordinary meaning of inability to use and stated that meaning is “non-binary and fact sensitive”.

He also considered there should be a “qualitative assessment on a sliding scale” of the volume and nature of work that is possible.

“These questions of nature and degree are not difficult, adjusters have been doing so for a number of years.”

According to him Hiscox had suggested it was a binary question.

“The word inability does not show a specific extent that a business is unable to use premises,” he argued. He also pointed out that in other clauses e.g. a bomb threat clause Hiscox refers to “total inability” which, he said, indicated that, in not specifying in other clauses, the insurer did not mean total.

Additionally he also highlighted that Hiscox contracts state that businesses were obligated to “take reasonable steps to minimize loss, damage or liability”.

“That may mean branching out into other areas of work. But is it right that this should be held against them?” He asked the judges.

The Supreme Court hearing has been running since Monday in front of Lords Briggs, Hamblen, Hodge Leggatt and Reed. The FCA has already appealed a number of points on behalf of policyholders.

Insurers, Arch, Hiscox, Zurich, QBE, RSA, MS Amlin, Argenta, are currently responding and there will be further submissions from the FCA and Hiscox Action Group this afternoon (19 November).