Covid-19: Insurance aggregation under the spotlight in business interruption cases

Joanne HarrisFriday 13 January 2023

Three connected judgments handed down in mid-October relate to some of the biggest insurance claims for business interruption caused by Covid-19 to come to trial. The judgments, on preliminary issues, were delivered by Justice Butcher at the High Court of England and Wales, with the overlapping claims brought by policyholders Stonegate Pub Company, Greggs and Various Eateries. Stonegate claimed against insurers Amlin, Liberty Mutual and Zurich; Greggs against Zurich; and Various Eateries against Allianz.

Essentially, the policy-holding companies brought claims for business interruption losses connected to Covid. The insurers, while acknowledging the businesses suffered loss from having to close during the Covid lockdowns, claim that the losses are aggregated into one single business interruption loss (SBIL), because they’re all connected with one ‘occurrence’: the pandemic.

The policyholders argued there were numerous events that caused loss, and that under their policy wording they should receive insurance payouts for each event. Stonegate’s claim is in excess of £1bn; Greggs is claiming over £150m; and Various Eateries more than £16m. The insurers contended that each company should receive just £2.5m, the SBIL limit under their policies. The judge was also asked to look at the trigger for the relevant clauses in each policy.

Stonegate and Greggs’ insurers also raised the issue of furlough payments the companies had received under the UK government’s job retention scheme, contending that these payments should be taken into account when calculating losses. The Court found in their favour; the policyholders are appealing. Stonegate also argued that it should recover additional increased cost of working (AICW) losses. The Court found that AICW applies to each single occurrence of loss, but it’s limited to non-‘economic’ losses.

Butcher J’s judgments didn’t deal with quantification, and the amount the companies may eventually recover is still to be decided. He did, however, make several key decisions. Notably, the judge said that every time a location had been closed due to a government order or because Covid-19 was found on the premises, this would constitute a ‘covered event’.

He also listened to arguments about when those events should be aggregated into ‘occurrences’, disagreeing with the insurers that there was a single occurrence. Instead, he held there were at least two occurrences by reference to which losses may be aggregated: namely the instruction on 16 March 2020 for people to stop non-essential contact, and the instruction of 20 March 2020 for all pubs, bars and restaurants to close and not reopen.

On any aggregation dispute there’s been in the past, appellate courts can come to different conclusions. It’s going to run and run

Kiran Soar
Senior Vice-Chair 2021–22, IBA Insurance Committee

The Stonegate judgments came almost two years after the UK’s Supreme Court handed down judgment in a test case brought by the Financial Conduct Authority (FCA) on behalf of policyholders to decide issues relating to business interruption insurance and Covid. But David Pryce, Managing Partner of Stonegate’s solicitors Fenchurch Law, says the test case didn’t resolve the key issues in Stonegate’s claim, particularly on aggregation.

Pryce says Butcher J’s decisions were not an outright win for either side, although he points to the 60 per cent costs judgment in favour of Greggs as a sign that, overall, the decisions were more favourable for policyholders than insurers. ‘This is the most mixed bag collection of decisions since the High Court decision in the FCA test case’, he says.

At a consequentials hearing in November, permission to appeal was granted on certain points, notably aggregation and furlough, with all parties having something they want to take to a higher court. The policyholders had until January 2023 to ask the Court of Appeal for permission to appeal on the issues where permission is not yet granted. ‘Settlements are going to be difficult to achieve in the interim for other policyholders while these cases are subject to appeal, and to some extent that’s difficult for the policyholders’, Pryce says.

Sophie Fairclough, an associate at Mishcon de Reya who acted for Various Eateries, agrees that on the aggregation issue the judgments were largely a win for policyholders, although they’ll still have to prove that losses are connected to events from the period for which they’d bought cover. The insurers also claimed a win, with a statement from Amlin saying that the Court ‘fundamentally supported [the] insurers’ position’.

Policyholder Stonegate noted the ‘far from conclusive’ case outcome, adding that Stonegate ‘believe that the Court’s interpretation on a number of issues which are generally applicable to policyholders is out of step with the approach taken by the Supreme Court in the Test Case and with the approach of Courts in other jurisdictions (such as on furlough)’ and they intend to appeal those elements.

DAC Beachcroft, representing the insurers in Stonegate/Various Eateries, declined to comment directly, while Clyde & Co, representing the insurers in Greggs, didn’t respond to requests for comment. Greggs, Various Eateries and Liberty Mutual themselves declined to comment, while Zurich and Allianz didn’t respond to requests for comment.

Kiran Soar, Senior Vice-Chair of the IBA Insurance Committee at the time of writing and a partner at DWF in London, believes that the biggest impact of these decisions could be on the reinsurance market. ‘There remain a number of open claims in the reinsurance market, and numerous arbitrations underway. Insurers will be considering these decisions carefully to understand if they are able to aggregate all of their Covid exposures as one loss occurrence and collect on their reinsurance programmes’, Soar says.

Fairclough agrees. ‘It’s unclear what’s going to happen in the reinsurance market because there’s a lot of exposure for them if all these claims get paid out. The wording doesn’t quite mirror the wording in these policies. There’s quite a lot of debate over whether there is cover for these claims under reinsurance’, she adds.

The case may also have a limited impact in other common law jurisdictions such as Canada, Ireland and South Africa, where similar policy wordings – particularly on aggregation – are used. Insurers in these countries are likely to be following the appeals closely.

Covid-19 has made businesses and insurers far more aware of the large-scale risks of events such as the pandemic, but that has led to more exclusions. Pryce suggests that a scheme such as the government-backed terrorism reinsurer, Pool Re, could be a potential solution to ensuring businesses and policyholders alike are protected from future pandemics. ‘The London market is going to be as well placed as any insurance market in the world to respond to that opportunity because it’s known for writing risks on a bespoke basis and insuring the risks that won’t get insured elsewhere’, he says.

When it comes to the three cases, lawyers expect a continued fight. ‘Stonegate was so big it was inevitable it was going to go to a fight’, says Soar. ‘On any aggregation dispute there’s been in the past, appellate courts can come to different conclusions. It’s going to run and run.’

Image credit: Chansom Pantip/AdobeStock.com