UK case may give rise to insurance payouts in Australia

By Jerome Doraisamy|17 September 2020
UK case may give rise to insurance payouts in Australia

A recent High Court decision in the UK on business interruption insurance coverage in the wake of COVID-19 might pave the way for similar cases in Australia, says one global law firm.

In the matter of The Financial Conduct Authority v Arch and Others [2020] EWHC 2448, in which the UK Financial Conduct Authority brought proceedings on behalf of policyholders, it was found that various policy extensions can provide coverage for financial losses suffered as a result of the UK’s COVID-19 lockdown, thereby minimising the ability for insurers to reduce recoveries in reliance on causation arguments.

Findings of the case

In a briefing note, Herbert Smith Freehills – whose insurance group acted on behalf of the UK Financial Conduct Authority – outlined the key findings made by the High Court on the application of particular coverage extensions to COVID-19 losses and causation issues relating to the impact of the pandemic, including in relation to both coverage and causation.

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Regarding coverage, HSF wrote, the court considered a variety of extensions which are said to give rise to coverage either as a result of a notifiable disease occurring within a specified area or as a result of prevention of access/action by public authorities.

“The court confirmed that various extensions would provide coverage. Disease extensions had particular success, with the court confirming that individual outbreaks are indivisible from the general pandemic, meaning that cover was not limited to outbreaks wholly within the geographical area specified in the policy,” the firm noted.

When it came to causation, HSF continued, the court had “little sympathy” for an argument from insurers that the broader impact of the pandemic on the business must be taken into account as a trend which would otherwise have affected the policyholder’s business – effectively negating any cover for the immediate local impact of the pandemic.

The court ultimately precluded insurers, the firm noted, “from artificially distinguishing between local and national impacts to reduce claimable loss”.
A hearing will shortly be fixed with the UK High Court, where any applications for appeal will likely be made.

Significance for Australia

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According to HSF partner Mark Darwin, the issues raised in this case highlight real pressure points for insurers – not just in the UK, but also in Australia.

“Policyholders should re-examine their policies to see what might be claimable for COVID losses and carefully assess any coverage positions advanced by insurers on these types of losses,” he said.

HSF special counsel Guy Narburgh added: “This is an important decision for Australian policyholders. The decision is highly persuasive and erodes a number of the more significant arguments insurers may have for resisting or adjusting claims.”

The UK proceedings come while there are two ongoing Australian cases pertaining to business interruption claims in the wake of COVID-19: the Australian Financial Complaints Authority and Insurance Council of Australia case in the NSW Supreme Court, and the Star Entertainment Group case in the Federal Court are both in their early stages.

HSF said it is likely that there will be some overlap between the UK decision and these Australian test cases, “but that a number of additional issues will be dealt with in the Australian cases”.

UK case may give rise to insurance payouts in Australia
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