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Intro: Hello and welcome to Insured Success, a podcast brought to you by Reed Smith's insurance recovery lawyers from around the globe. In this podcast series, we explore trends issues and topics of interest affecting commercial policy holders. If you have any questions about the topics discussed in this podcast, please contact our speakers at insuredsuccess@reedsmith.com. We'll be happy to assist. 

Mark: Thank you everyone for joining us and welcome to Insured Success. My name is Mark Pring and I am a partner in Reed Smith's London office. I'm delighted to be joined by my partner Anthony Crawford from our New York office. We are both proud members of Reed Smith's top tier global insurance recovery practice. In today's podcast, we are focusing on the realm of business interruption or BI insurance claims. In the time allowed we cannot delve deeply into specific policy language, but instead, we will look at some recent case law on both sides of the Atlantic and offer some practical tips and insights for those considering whether to notify or pursue a claim as well as those in the throes of negotiating their BI insurance policy. Before we get fully started um, Anthony, what would you say is the accepted definition in broad terms of BI insurance cover? 

Anthony: Hi Mark. So here in the US, we would generally say that business interruption or sometimes it is known as business income insurance, it's basically a form of property insurance covering losses of income suffered by a policyholder or business uh due to some type of loss or damage to his premises covered, that's caused by a covered cause of loss, which either causes some type of slowdown or suspension of its business operations. 

Mark: That's great. And certainly that's exactly the kind of definition we would we would adopt over here. One thing we will explore is, is the idea of stand alone BI cover where you don't necessarily have to have prior physical loss or damage or any form of loss or damage to the premises. But we'll come on to that. So this topic is obviously very relevant given recent global events such as the war in Ukraine and again, uh the COVID-19 pandemic, I wanted to look first at some of the English case law that has emerged since the pandemic starting in 2020. And I think that the effect of COVID-19 on commercial operations has really transformed the way in which we look at BI insurance. Again, I'm sure on both sides of the Atlantic. Of course, some time has passed since the last lockdown here in the UK. But the rulings made by the English courts during the intervening period have undoubtedly continued to impact on the insurance markets approach to BI insurance generally. As everyone will be aware, COVID-19 led to a surge in BI claims as a result of forced business closures due broadly to lock down and other restrictive measures. At the start back in 2020 existing BI insurance cover to the extent it was bought separately from any physical damage or damage cover had not been negotiated with any clear understanding that something like a pandemic could even operate uh as a, as a real risk. As a consequence in the absence of existing court guidance, there was a lot of uncertainty about how these policies should be construed in the context of those lockdowns and other restrictions. Again, we've talked before about the expedited proceedings in what we call FCA and Arch and others up to the level of the Supreme Court. That was the first case in which the interpretation of BI policies in the context of the COVID-19 pandemic was properly explored. The case was brought as a test case by the FCA, the Financial Conduct Authority, as key regulator for the insurance industry. The FCA was concerned that so many of the BI claims notified as a result of losses stemming from the COVID-19 lockdowns were either being denied by insurers or subject to undue delays. Just to pause here for a moment Anthony, am I right that in the US, you've got no single regulator over the insurance sector and therefore no guarantee there'll be uh as here, pro consumer or pro small business? 

Anthony: Yes Mark. That is absolutely correct. So in the United States insurance law tends to be a state law matter with a couple of exceptions for uh sort of maritime cases. Uh but uh therefore each individual state has its own regulator of insurance. Uh And so you will oftentimes can see varying degrees of the bodies of laws that are being developed depending upon the jurisdiction that you are in. Uh And there is absolutely no, unfortunately, no guarantee in either state uh that there would necessarily be pro consumer or a small business pro policy holder. 

Mark: Yeah, that's a really helpful comparison. And I know that certain of our colleagues were very surprised when I told them what the FCA was doing in terms of intervening in the test case we're talking about. 

Anthony: That would be an excellent policyholder benefit if there was some centralized government entity that was regulating insurance here. But unfortunately, or fortunately, depending on uh how you view it a long time ago, the call was made here in our laws to, to keep it something that is reserved for the States to rule on. 

Mark: Got you. Well, back in the UK, the scope of the dispute in arch is, is hard to summarize given that the FCA had selected a significant number of test as it were policy wordings for consideration by the courts. But in broad terms, the key question was whether BI cover for certain perils such as notifiable diseases and prevention of access was actually applicable in the context of COVID-19. The outcome was largely positive for policyholders with the Supreme Court finding that subject to those policyholders establishing an appropriate loss, they could validly claim under the terms of at least most of their covers. The Supreme Court's judgment which was handed down uh back in January 2021 answered many but certainly not all of the core issues in dispute relating to the interpretation of common BI language unsurprisingly. However, lawyers on both sides of the insurance divide have continued to be creative since then. And I should at this stage mention a few key decisions over the last couple of years.

First in February 2022 the court in Corbin and King looked at a denial of access, non damage or fare's NDDA clause. Broadly, the clause provides cover where access to business premises has been restricted or hindered due to actions taken by a statutory body in response to using the language uh examining in Corbin and King, a danger or disturbance within a one mile radius. While in the FCA test case proceedings, it had generally been decided that so-called prevention of access clauses like the NDDA did not provide cover in the COVID-19 context. So that was one of the limited areas where policyholders were disappointed by the Supreme Court. In this instance, the divisional court, the High Court in Corbin and King found that insurers were liable to provide cover in circumstances where businesses were forced to close as a result of lockdown and other measures put in place to stem the spread of disease. So in this instance, COVID-19 was found for the purposes of that policy language from which I quoted, it was found to be a danger uh within that language. And while the relevant clause only provided localized cover, remembering the one mile radius language, it could extend to a disease such as COVID-19 if there were actually cases within the agreed radius. In addition, adopting the Supreme Court's approach to what we refer to as causation in the FCA test case, Uh the judge in Corbin, Mrs. Justice Cockerill found prevention of access clauses and this particular one, the NDDA clause did provide cover for BI losses suffered as a result of the pandemic. Inevitably however, given the amounts involved, many insurers have sought to distinguish the Corbin policy language from their own and have effectively forced various policyholders. Many of them to pursue a further test case this time brought by Gatwick Investment Limited and others against Liberty Mutual and others which was heard last October, its outcome will hopefully resolve or at least reduce ongoing uncertainty for numerous policyholders.

Second in June 2023 Mr. Justice Jacobs handed down judgment on certain what we call preliminary issues in the so-called at the premises or ATP test case proceedings for which six separate claims had been accelerated. In this instance, the policyholders argued that the Supreme Court's finding on concurrent causation, which effectively was to the effect that each and every occurrence of COVID-19 in the country the UK was an equal effective and therefore proximate cause of the government action that led potentially to loss. The policyholder argued that that finding applied in the same way to so called at the premises clauses as it already did supported by the Supreme Court to the so called radius clauses. And we saw reference earlier to radius clauses. So if a single occurrence of COVID-19 within one mile of the insured premises was a proximate cause of government action and therefore business interruption, the same must be true. So the policyholder said for a single occurrence at the premises themselves, not just within the one mile radius, the court supported this while some insurers with the FCA's forceful encouragement drew the analogy between those Radius claims and the ATP claims, other insurers refused to meet those ATP claims. The June decision should in principle unlock a significant amount of cash. Although as I say, a number of insurers with permission are pursuing appeals. So those are the first two key areas uh in terms of further cases that are going through the courts. Finally, for today's purposes, there are the high profile Stone Gate and two related cases heard by Mr. Justice Butcher in mid 2022 and dealing with among other matters, what we refer to as the aggregation of losses. ie. how in practice should the courts identify losses that in this case and I quote, arise from, are attributable to or are in connection with a single occurrence. First of all, there has to be an agreement on what we mean by the single occurrence in each particular instance. So two of the three insured including Stonegate sought to argue that there were multiple occurrences in order that they could claim that the applicable sublimits under their policy for business interruption losses applied on a per premises basis. Their primary argument was that each infection was a separate occurrence and therefore there were separate occurrences for the purpose of the policy in the vicinity of each premises which allowed them then to claim multiple sublimit. If we want to look at the practicalities, Stonegate alone would if correct in their arguments have separate claims of up to £2.5 million in respect of each of its roughly 760 venues. That's £2.5 million times 760 or leave others to do the math. In fact, Stonegate settled its claims just before the court of appeal hearing. But the relevant insurers involved in all three of these cases primarily sought to argue that there was only one or if necessary, a small number of occurrences such that only a single 2.5 million limit in the Stonegate case or a small number of limits of liability would be payable.

The third insured Greggs, the well known bakers, which has now also settled its claims, primarily argued that each of the various government announcements or measures was a separate occurrence. The court rejected the policyholders arguments at first instance and by policyholders there, I mean, the main arguments pursued by Stonegate, in particular to some degree, the court supported Gregg's position. Many insurers relied upon the court's rejection of the argument that losses should only be aggregated if at all on a per premises basis. Uh The court was particularly mindful of the argument that any new government response to the pandemic would likely impact businesses in a unitary way across the country and from the insurer's perspective. Therefore, they took advantage of the idea that you should aggregate all losses that flowed from any particular government response. Perhaps more importantly than the position of the insurers. Their reinsurers have reinforced decisions that already taken to aggregate many covered claims. The appeals from Mr. Justice Butcher's findings in October 2022 even though reduced to various eateries by then uh were heard last November and much attention is focused on the outcome of that remaining appeal on aggregation issues given the very significant amounts at stake amongst policyholders generally. So these three decisions and their relevant appeals will offer some important guidance to all of us and our clients. The message more generally is that while some decisions that followed the Supreme Court judgment did bring a significant amount of clarity, there are still a number of key issues that are not fully resolved. The challenges and the appeals continue. So pausing there, Anthony uh and, and moving away from the UK, there may have been some similar issues but I think you, you, you've faced a somewhat different position in the states. What have you found to be to have been the impact of COVID-19 on the approach of the US courts to BI cover? 

Anthony: Well, Mark, unfortunately, on this side of the pond, uh policyholders have not fared as well uh with their COVID related BI claims. So it's important to note a couple of uh nuances with the US court system as I mentioned before. Uh Generally insurance law is a state law matter. Now, federal courts in the United States will also hear insurance cases provided that certain jurisdictional criteria are met. Uh However, when they are hearing these cases, federal courts generally have to apply the law of the state where they're located with and within uh with the certain certain exceptions. And what they will do is that they will look to, you know, any ruling from the, either the state's highest court or then moving down to state appellate courts, if the high court hasn't ruled on a particular issue. The problem here is that with the COVID cases, there was often little or no guidance in state law as to how to rule, uh given the unique nature of the COVID insurance claims that were coming in. And this led to a number of the federal courts having to sort of guess, uh as to how state courts would rule. And unfortunately, the vast majority of federal courts early on started to find that there was no coverage related to property damage. The COVID BI claims and property claims that were coming in. Now, arguably, you know, policyholders would say that the federal courts were ignoring certain procedural rules uh by outright dismissing cases rather than accepting as they should. The allegations in the complaint is true, uh which is a general interpretation and procedural way that you go about, uh looking at motions to dismiss, you know, it's become so much so that even in the recent cases that in litigations that policyholders were initiating, they would go far beyond what would be the normal requirements in their pleadings to include um scientific data to include, you know, evidence from experts, but to no avail the courts were uh and continue to dismiss these cases outright. In a parallel you started to see uh the cases work their way up through the state court systems as well with similar uh disappointing results. Uh in general, what you have found is that the cases have raised a couple of issues. So if number one can the presence of COVID cause uh physical loss or damage to property or was it the case that the various state government shutdown orders that were issued to address the pandemic, that they cause some type of physical loss, uh triggering coverage. Now, we have now had some time over the few last few years to see these state court decisions start to come in as well. And again, unfortunately, uh they have not gone, you know, the way that the policyholders would like them to go. There are still a few notable jurisdictions such as California and here in New York where I am that have cases pending before them and we should see decisions there soon. Now there are some successes that have been had by policyholders. Those are generally policyholders that have specialized policies where the coverage is either not contingent on some type of physical loss or damage or there are other policies that have certain coverage extensions, for example, uh communicable disease extensions. Policyholders have started to see some success with those and those have been moving forward. But the general lay of the land is that again, as I said before, it has not necessarily been that more favorable for the policy all this year. 

Mark: Thanks Anthony. It's a depressing picture potentially for policyholders, but obviously very important to know. Now, if we're talking about someone who suffered losses back in 2020 2021 we wouldn't be worrying about or shouldn't be worrying about notification of claims, but obviously businesses can get interrupted, disrupted and so on for all sorts of reasons and continue to do so. So just maybe broadening the picture a little bit and to a degree with the, with the benefit of hindsight based on our experience of the pandemic, what advice would you be giving to a policyholder looking now to notify a claim under a BI policy? What practical considerations do you think they should make sure they get clear before you know before even getting embroiled in a dispute, how do they sort of do their housekeeping first? 

Anthony: Ok. Very, very good question Mark. So in general, I would give policyholders the same advice pre-COVID as I would give them post-COVID because at the end of the day, they are presenting insurance claim. So things that I tell policyholder is give notice as soon as possible. So you don't run a file of notice procedures that any notice requirements that you will find in your policies. Uh You also wanna make sure that you're given broad notice to the carriers in your insurance program because what you don't want to do is you find yourself thinking that coverage may only exist in one type of policy. When in reality, you may have coverage that's available to you in under a variety of policies within your program. Other things that you should do is policyholders should always make sure that they're taking steps to mitigate any further losses. As a practical matter, policyholders need to organize a team both internally and working with whatever broker or insurance professional that they're going to be using in order to present and put together a comprehensive approach that will help with their claim presentation to help hopefully ensure success with the claim that they're bringing. You wanna make sure that you got all your relevant documentation. BI claims are notoriously document heavy and it is important that you need a team getting all that information together, organizing it, putting it together in a way that you can present, you know, the best claim that you have for it in order to make sure that it is paid. And I always, always, always recommend that policyholders should work with insurance professionals to make sure that they are presenting their claims in the best light to recover the damages that they suffer as well as understanding all of the coverages that are available. And uh you know, in general, because insurance claims, particularly large uh business interruption claims can be complicated and you wanna make sure that you have as much help as possible to ensure the success of your claim, 

Mark: Anthony, many thanks for that incredibly helpful and it won't come as any surprise to know that, you know, that's exactly the sort of advice, I wouldn't have articulated it quite as well, but exactly the sort of advice we would be giving our clients over here. It crosses borders and certainly, you know, in terms of overall lessons learned and lessons that, you know, equally apply to where you may be negotiating new cover, not just making a claim under existing cover policy, language is key to the extent your insurers are open to negotiation in what are tough times. You're gonna want to look very carefully with the help of your insurance broker at the scope of any exclusions, whether the limits and the sublimit of cover available to you are sufficient for your purposes. That of course requires you to understand your business. Any prudent business should continue regularly to identify its risk profile and implement appropriate mitigating steps and insurance is just one of the ways in which you can do that. I will say in, in, in the UK, by way of sort of conclusion to some of the cases, we've talked about the sort of stand alone BI policies that were considered by the Supreme Court are no longer available and the insurance markets if they didn't before certainly take the view now that a pandemic represents if you like a fundamental societal risk that someone else, a government should underwrite rather than the markets themselves and they appear to have little or no appetite for non damage cover. Certainly uh in the pandemic or, or broader disease based contexts. So we're in a very, very different world now. Um Anthony, I mean, just finally, what are you seeing uh from the US perspective in terms of the scope of BI cover following the pandemic? 

Anthony: Yeah so even though the insurance industry here in the States has been successful, uh largely in defeating a number of the large COVID claims they have moved as an industry to take steps to explicitly exclude coverage for sort of pandemic claims. There were always virus exclusions that could, that could have been used in policies and a lot of the policies we we found those there. Uh but they, you know, are taking steps to make that a little bit more explicit. But at the same time, uh they're also offering as the industry tends to do coverage extensions that policyholders can purchase. Uh that would actually provide some limited coverage in the future, going ahead for pandemic losses. But the thing I'll note that, you know, COVID was unique. Various steel broad business interruption coverage that remains available to policyholders and always will, just policyholders will have to be cognizant of what their policies say and what their policies are covering. But these recent losses with coverage over COVID claims should not in any way dissuade policyholders uh on the merits of maintaining this type of insurance coverage. 

Mark: Yeah, completely agree. Those are, those are very wise words. So wrapping up, there's a lot more to explore here clearly and, and will no doubt be exploring BI insurance in future podcasts. So I look forward to returning. But in the meantime, listeners should be having conversations with their brokers and insurers well, before their renewal date, uh in order again to ensure that their policies actually meet their needs. So thank you to everyone for listening. Uh It's been a pleasure and do look us up on reedsmith.com and enjoy what will no doubt be a very exciting series in terms of Insured Success podcasts. Thank you very much again. 

Outro: Insured success is a Reed Smith production. Our producer is Ali McCardell. This podcast is available on Spotify, Apple Podcasts, Google Podcasts, PodBean and reedsmith.com. To learn more about Reed Smith's Insurance Recovery Group. Please contact insuredsuccess@reedsmith.com. 

Disclaimer: This podcast is provided for educational purposes. It does not constitute legal advice and is not intended to establish an attorney-client relationship nor is it intended to suggest or establish standards of care applicable to particular lawyers in any given situation. Prior results do not guarantee a similar outcome, any views, opinions, or comments made by any external guest speaker are not to be attributed to Reed Smith LLP or its individual lawyers. 

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