International law firm CMS has achieved a significant victory in a groundbreaking case related to non-damage COVID-19 business interruption (“BI”) losses. The High Court, in its first-ever consideration of the reinsurance recovery of such losses, ruled in favour of CMS's client, Markel International Insurance Company Limited (“Markel”).
The case involved appeals against two separate arbitral awards under the Arbitration Act 1996, with the parties being Markel and its reinsurer, General Reinsurance AG (“Gen Re”), as well as Covéa Insurance Plc (“Covéa”) and its reinsurer, UnipolRe Designated Activity Company (“Unipol”).
Both Markel’s and Covéa’s losses were suffered by nurseries and childcare facilities, which had been forced to close by the UK government’s decision of 18 March 2020 to close such businesses from Friday, 20 March 2020 onwards (the “18 March Order”).
The High Court’s findings favoured the reinsureds, allowing them to recover their losses under the reinsurances.
The judgment addressed two crucial issues:
The Catastrophe Issue: The Court determined the meaning of "catastrophe" under property reinsurances, marking the English Courts' first decision on this matter. The Court held that the Tribunals had not erred in law in determining that there was a “catastrophe” for the purposes of the reinsurances. The Covéa Tribunal had identified the outbreak of COVID-19 in the UK in the period up to 18 March 2020, whereas the Markel Tribunal had identified the relevant government order “as necessitated by the pandemic”.
The Hours Clause Issue: The Court clarified the operation of the reinsurances' hours clauses, providing its most detailed assessment of such clauses to date. The Court held that the Markel Tribunal had erred in law in finding, in effect, that Markel was only entitled to recover 168 hours of BI losses (i.e. the relevant hours period), notwithstanding that the BI had lasted several months. This meant that Markel had been unable to recover because its covered losses fell below the relevant attachment points. The Court held that the Covéa Tribunal was correct that, for the purposes of the hours clause, the individual loss “occurred” when the insureds lost the ability to use their premises, with the effect that all BI losses arising from the 18 March Order fell within the hours clauses.
Commenting on the outcome, Ed Foss, Partner in the Insurance and Reinsurance Group at CMS, said, "This landmark decision is of significant interest to the reinsurance market, especially those involved in ongoing COVID-19 business interruption recoveries. It provides clarity on the interpretation of 'catastrophe' and the application of hours clauses, offering valuable guidance for such recoveries."
The CMS team was led by Ed Foss and included Neil Beighton, Andrew Starling and Saskia Walsh.
Detailed analysis on the case can be found here: High Court rules in favour of reinsureds seeking recovery of UK COVID-19 (cms-lawnow.com)
