DAC Beachcroft secures a win in COVID-19 business interruption insurance arbitration. - DAC Beachcroft

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DAC Beachcroft secures a win in COVID-19 business interruption insurance arbitration.

Published 21 septiembre 2021

Our global insurance team, led by partner Chris Wilkes with the support of solicitor Nelson Wang, acted for China Taiping Insurance (UK) Co Ltd (“Taiping”) in an Arbitration hearing before Lord Mance in late July, where a claim was brought by a group of 183 policyholders.

The Arbitration concerned a dispute over whether, under a non-damage denial of access (“NDDA”) clause contained in the Policy underwritten by Taiping, there could be cover for any business interruption and/or interference losses arising from the UK Government’s orders or advice, issued at various times in 2020 in response to the COVID-19 pandemic.

The Award was released on 10 September confirming conclusively that there was no cover. The parties have agreed to waive confidentiality of the Award which can be accessed here.

Key issues 

The dispute centred around two paragraphs of an NDDA clause (referred to as Extension 1 in the Award), where it is provided that cover is extended to include interruption of or interference in consequence of: 

b the closing down or sealing off of the Premises or property in the vicinity of the Premises in accordance with instructions issued by the Police or other competent local authority for reasons other than the conduct of the Insured or any director or partner of the Insured or the condition of the Premises or the carrying out of repair or maintenance work at the Premises or the Insured’s non-compliance with a prior order of the Police or other competent local authority; 

c the actions or advice of the Police or other competent local authority due to an emergency threatening life or property in the vicinity of the Premises” 

The Arbitrator considered three issues in the Award: 

  • whether the NDDA clause applies to a notifiable disease when notifiable disease is one express focus of a different clause (which does not itself cover COVID-19) in the Policy;

  • if the NDDA clause can apply to notifiable disease, whether it does so in circumstances where the notifiable disease is national, rather than localised, in scope; and

  • whether the references to instructions issued by or actions or advice of “the Police or other competent local authority” are capable of embracing measures taken or advice given by central government.

Outcome

On Issue 3, Lord Mance has found in favour of Taiping by concluding that the Policy only covers such directions of the Police or competent local authority “in the sense of a local as opposed to central or countrywide authority” (paragraph 108). 

It is further declared at paragraph 109 that “in so far as the Policyholders claim to have suffered recoverable loss in consequence of the alleged instructions, actions or advice … such claim fails in that the instructions, actions or advice alleged were not issued by or of “the Police or other competent local authority” within the meaning of either Extension 1b) or Extension 1c)” [emphasis added]. 

On Issue 1, Lord Mance’s view is that the NDDA clause applies to a notifiable disease because such application is not expressly excluded (paragraphs 26 to 28). Although the Arbitrator recognises the tension between the Supreme Court’s reasoning on causation and the Divisional Court’s approach to Prevention of Access clauses, it was unnecessary to make any further declaration on this issue because of the finding in relation to Issue 3 in favour of Taiping (paragraph 110).

Comment

Taiping has been successful on the fundamental question of interpretation regarding the meaning of “Police or competent local authority”, and Lord Mance has agreed that the proper reading of the NDDA clause is to provide limited cover and not the broad cover contended for by the Policyholders. Lord Mance also makes the very important point that the fact that with hindsight there would be no insurance cover for the unforeseen pandemic is not a reason “to interpret the key Policy wording in a sense which would distort its natural and objectively intended effect” (paragraph 107).

The Award also touches on the question of (but has not made a declaration on) whether the Supreme Court’s approach to causation (which displaces the usual “but for” test in favour of a concurrent causes analysis) in the FCA Test Case could be applied to Denial of Access clauses similar to Extension 1(c), regarding “emergency threatening life or property in the vicinity”. It should be noted that the Court at First Instance in the FCA Test Case found in favour of Insurers by holding that “vicinity” connotes the neighbourhood, and to establish cover the insured would need to demonstrate that “it was an emergency by reason of COVID-19 in the vicinity, in the sense of the neighbourhood, of the insured premises, as opposed to the country as a whole, which led to the actions or advice of the government” (paragraphs 466 and 467 of the High Court judgment).

Lord Mance concludes that because not everything was argued fully in front of him, and because it is not relevant (directly) to his overall conclusion, he would say no more about this issue (paragraph 66). Further judicial guidance is likely to be required in this regard in due course therefore.

Authors

Chris Wilkes

Chris Wilkes

London - Walbrook

+44 (0)20 7894 6844

Nelson Wang

Nelson Wang

London - Walbrook

+44 (0)20 7894 6013