The Declarations
The court is due to make a series of declarations as to the effect of the Judgment (the Declarations). There were a number of disputes between the FCA, the Insurers and Hiscox Action Group and Hospitality Insurance Group Action (the Interveners) as to the language properly required to give effect to the findings in the Judgment. In particular, all parties were cognisant of the need for clarity and certainty as the Judgment would be relied upon by many, including other insurers, policyholders and fact-finding tribunals, who were not directly involved in these proceedings.
Prevalence
There was significant debate surrounding the court’s findings regarding prevalence and the evidence that a policyholder would need to produce to demonstrate an occurrence of COVID-19. This highlighted one of the limitations of the test case: evaluating the evidence regarding occurrences of COVID-19 as required by the terms of a specific policy will ultimately be a fact-specific exercise.
Insurers had sought to include language to the effect that such evidence was ‘reliable’. The court had not heard evidence on the issue of ‘reliability’ at the trial and accordingly, supported the FCA’s position that it would be inappropriate to include the word ‘reliable’ in the Declarations.
There were also submissions as to whether the Declarations could specify the types of evidence that would discharge the burden on a policyholder. The FCA preferred this approach as it would create certainty for policyholders, but Insurers strongly resisted the notion that specific types of evidence should be referenced in the Declarations.
Ultimately, there appeared to be significant caution on the part of the court as to whether the Declarations could go so far as to say that any piece of evidence ‘will’ discharge the burden of proof in circumstances where they had not considered the specific evidence on which to base that conclusion. The court found that the wording ‘may discharge’ would be more appropriate.
Trends clauses
One of the most important clarifications in the Judgment relates to the operation and effect of trends clauses (which are sometimes included in insurance policies to adjust the loss to reflect, for example, what the earnings of the policyholder business would have been if the insured peril had not occurred).
In this regard, the FCA sought clarification as to the court’s intention regarding the effect of a trends clause in respect of policyholders who a) have a policy for which cover is only triggered by legislation, b) had closed their business a few days prior to any Regulations being imposed and c) had received nil income.
The FCA clarified that they were not seeking to enable a policyholder to recover loss before the insured peril occurred. However, they wanted the Declarations to provide certainty to policyholders in circumstances where their business closed because the government made an announcement with the imminent prospect of legislation and that legislation was then enacted shortly thereafter.
During the trial, the court had not been asked to consider evidence on businesses that closed in anticipation of legislation. However, Hiscox had noted a trend where businesses had voluntarily closed following the announcement of the 21 March and 26 March Regulations, but before the Regulations actually came into effect. The court was not willing to make declarations in respect of matters on which it had not heard evidence at trial.
It was evident at the hearing that the FCA and Insurers have been having ongoing discussions regarding trends clauses following the Judgment. That there have been continued discussions between the parties highlights the nuances that will apply to policyholders when seeking an indemnity under a business interruption (BI) policy. The timing and scope of the responses of individual businesses to the evolving pandemic and the government’s response to it are key issues and we recommend that policyholders set out clearly in communications with their insurers what they did, when and why.
The court will now consider the submissions in further detail and finalise the Declarations, which will be included in the terms of an order. The order, once issued, will be available on the FCA’s website.
‘Leapfrog’ certificates
The court was quick to make clear that it would grant leapfrog certificates to all parties, including the Interveners.2 The certificate enables a party to make an application for permission to appeal directly to the UKSC, rather than the Court of Appeal. For those parties who wish to appeal, the application for permission and the grounds of appeal must be filed with the UKSC by 2 November 2020, although, given the expedited nature of the proceedings to date, it is anticipated that any applications will be filed promptly.
The court granted all leapfrog certificates, but initially noted an issue with RSA’s intention to appeal in respect of General Exclusion L (in particular, RSA focused on the word ‘epidemic’ within that exclusion). The commentary by the court was that this was not a proper ground of appeal. Nonetheless, having heard submissions from RSA, and seemingly in recognition of the spirit of the proceedings more generally, RSA was granted a leapfrog certificate in respect of General Exclusion L.
The next step is for the parties to file applications for permission to appeal to the UKSC. The UKSC will then determine whether the appeals are to proceed which will involve consideration of whether the proposed appeals have a reasonable prospect of success, or whether there is another compelling reason why the Judgment should be appealed.
Application to intervene by QIC Europe Limited (QIC)
Less than 24 hours before the FCA’s submission was due to be filed for the consequentials hearing, the FCA discovered on the court file that QIC Europe Limited (an insurer) had applied to be joined as a party for the purposes of an appeal.
QIC said it was bringing the application because of the difficulties it was facing due to the High Court’s decision being, in its view, “wrong”. QIC’s concerns were linked to RSA’s indication that it might not appeal the court’s decision relating to RSA 3, which was the same or similar to QIC’s policy wording. QIC effectively sought to ‘stand in the shoes’ of RSA should it not appeal RSA 3. The FCA appeared slightly bemused by QIC’s application and objected to its intervening in the case.
The court was highly critical of QIC’s late application. The court was of the view that QIC could and should have sought to intervene by the deadline of 26 June 2020, so that its application could have been dealt with at the second case management conference. The court did not consider that the circumstances had changed sufficiently since then to justify QIC’s late intervention in these very public proceedings and, for this and other reasons, refused to allow QIC to intervene.
Conclusion
A consequentials hearing is often a straightforward hearing following the handing down of a judgment. In this case, the issues that were discussed at the consequentials hearing, and that are to be determined following the Judgment, gave some insight into the hurdles that insurers and their policyholders still have to overcome in dealing with COVID-19 related losses and coverage under BI insurance.
The Judgment has provided some important certainty as to the interpretation of key policy wording, but applying each element of the wording to the particular facts of an insured’s business will likely be an involved process. Delays and hurdles simply make it all the more difficult for policyholders to cling on to their businesses during the continuing pandemic.
QIC is clearly unhappy with the outcome of the test case, as may be a number of other insurers. The FCA has, however, made its position clear in its recent “Dear CEO” letter: it expects all insurers to conform to the Judgment, unless there is an appeal. In line with the FCA’s expectations, policyholders should engage with their insurer to clarify and confirm the coverage position with the aim of agreeing the indemnity due.
- [2020] EWHC 2448 (Comm)
- Hospitality Insurance Group Action indicated its intention to continue as an Intervener rather than initiating an independent appeal.
Client Alert 2020-555
