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At a time when, globally, insured businesses are under severe financial strain, the availability and extent of their insurance assets take on a new significance. It is significant not just for troubled businesses and their insurers, but also for third parties with potential or actual claims against those businesses. 

An insured may, for example, notify under a professional indemnity or other liability insurance in response to a third party claim. But if the insured goes into some form of insolvency process, will any insurance proceeds (or the right to those proceeds) form part of the insolvent estate? 

In many jurisdictions, that is the case and it would leave the third party claiming on the insolvent estate in competition with other creditors. In other jurisdictions, however, the law instead affords the third party more direct access to the insurance proceeds.

The UK falls under the latter category, based on the Third Parties (Rights against Insurers) Act 1930 (the “1930 Act”) and the Third Parties (Rights against Insurers) Act 2010 (the “2010 Act”). …

Continue Reading Even positive reforms can carry hidden risks –A potential limitation period “trap” in the UK’s Third Parties (Rights against Insurers) Act 2010

The United Kingdom Supreme Court (UKSC) handed down its judgment on 15 January 2021 in The Financial Conduct Authority v. Arch Insurance (UK) Limited and Others. This test case was brought by the FCA on behalf of SME business interruption (BI) policyholders who have suffered financial losses as a result of COVID-19. The High Court judgment was handed down on 15 September 2020, with the special direct appeal to the UKSC taking place on 16 – 19 November 2020. The UKSC decision was largely seen as a victory for policyholders. As commented by Reed Smith partner, Mark Pring, in the Financial Times, “it can be said, without fear of hyperbole, that in principle at least this really is a catastrophic outcome for insurers.”

We have been reporting on these matters closely since March of last year, and have produced several more detailed alerts, which can be found on our Perspectives platform.

The court was asked to consider three broad categories of BI policy wordings, namely:

  • Disease wordings – which provide cover for BI losses sustained in consequence of, following or arising from the occurrence of a notifiable disease within a specific radius of the insured premises (COVID-19 was made a notifiable disease in England and Wales on 5 March 2020);
  • Hybrid wordings – which provide cover for BI losses sustained where restrictions have been imposed on the insured premises in relation to a notifiable disease; and
  • Prevention of access / public authority wordings – which provide cover for BI losses sustained where access to the insured premises has been prevented or hindered as a consequence of authority action/restrictions owing to an emergency in the vicinity of the insured premises.

In this post, we summarise some of the key points of the UKSC’s most recent decision and set out our views on some of the implications of the decision for policyholders (subject always to their individual circumstances).…

Continue Reading FCA v. Arch and others – The UK Supreme Court’s final word on business interruption insurance losses in light of the COVID-19 pandemic

A concert promoter cancels a sold-out show of a world-renowned recording artist, reimbursing millions of dollars in ticket sales as a result.  If the reason for the cancellation was COVID-19, does insurance cover that?

Event Cancellation Insurance Basics

Event cancellation insurance generally provides coverage only when there has been a triggering event under the policy.  Some policies are written, for example, to only cover cancellations caused by rain or bad weather.  Other event cancellation policies are all-risk policies, meaning that coverage may be triggered by any cause that is not specifically excluded.  For all types of event cancellation insurance, the triggering event must have been fortuitous, or outside of the policyholder’s control.

Good News for Policyholders

The good news for policyholders is that many all-risk event cancellation policies do cover cancellations caused by COVID-19 related shut-down orders.  For such policies, a shut-down order should qualify as a fortuitous triggering event.  Across the United States, nearly every jurisdiction has enacted some kind of order that caused the cancellation of large-scale events.

Notes of Caution

Policyholders should be cautious concerning the scope of exclusions in respect of viruses and communicable diseases.  Although these types of exclusions may bar coverage related to COVID-19, it is important to be mindful of variations in the exclusion language used.  Some exclusions apply to only specific named viruses, such as SARS and MERS.  Other exclusions contain carve-outs that may be applicable to COVID-19.…

Continue Reading COVID-19 event cancellation insurance – good news and bad news

Following on from our previous alert on the Insurance Act 2015 and the key advantages it offers to policyholders of commercial insurance, we have prepared a second alert looking at what might constitute the knowledge of the insured for the purpose of complying with the duty to make a fair presentation, and the possibility of…

The Insurance Act 2015 (the Act) came into force on 12 August 2016, introducing major changes in English law in relation to insurance and all forms of reinsurance.

It applies to all contracts of insurance and reinsurance governed by English law entered into after 12 August 2016. This includes renewals, amendments and endorsements to existing…