COVID-19 Business Interruption Test Case – English High Court

 

Introduction

Unlike New Zealand, many business interruption policies issued in England extended cover to interruption in consequence of a notifiable infectious disease.

Many of the underwriters of those policies declined their COVID-19 related claims.

The number of declinatures was sufficiently large, and the reasons for them were sufficiently contentious, that the English financial conduct regulator (The Financial Conduct Authority) brought proceedings in the English High Court on behalf of policyholders against eight underwriters to seek declarations about coverage under their policies. While this didn’t necessarily include all underwriters involved, it covered the majority of different policy wordings applicable.

The court allowed two action groups to appear at the hearing as well: the Hiscox Action Group, representing policyholders underwritten by the Hiscox Syndicate at Lloyd’s and the Hospitality Insurance Group Action, representing a large number of hospitality businesses whose claims had been declined.

The fact that 15 Queen’s Counsel appeared at the hearing, with some parties represented by two Queen’s Counsel, demonstrated the gravitas of the proceeding.

The court released its decision recently. We highlight some of the findings that give guidance to underwriters and claims adjusters alike about the correct approach to policy interpretation.
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Financial Advice Disclosure – Issues for Insurance Brokers

 

Introduction

On 22 June 2020, the Governor-General made by Order in Council the Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations 2020 found here.  They require financial advisers (including insurance brokers/advisers) to disclosure certain information when providing regulated financial advice to retail clients.

The regulations require disclosure of information in four separate circumstances:

Circumstance 1: Information disclosed on the financial advisers Internet site at all times,
Circumstance 2: Information disclosed when the financial adviser knows the nature and scope of the advice sought and reasonably expects to give the advice,
Circumstance 3: Information disclosed when the adviser gives the advice,
Circumstance 4: Information relating to a complaint received.

Note that the disclosure required at Circumstance 3 can be given earlier and at the same time as the disclosure at Circumstance 2.

All information must:

1. Be presented in a clear, concise, and effective manner, and
2. If it is presented with other information, be given prominence, and
3. If it is presented in writing, be in a format, font, and type size that is easily readable, and
4. Be made available or given free of charge.

The information to be disclosed in Circumstances 1 to 3 above includes information about the following three matters:

1. Fees, expenses, or other amounts payable,
2. Conflict of interest,
3. Commission or other incentive.

In this newsletter, we concentrate on these three matters as we expect they will be of greatest interest to the insurance industry.

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Avoidance for Material Non-Disclosure – Recent English Case

 

Introduction

A Parliamentary Bill is due later this year to start the process of reforming New Zealand’s duty of disclosure law, as well as many other insurance law reforms.  However, given the COVID 19 pandemic, we expect this may not appear now until next year.  Even if Parliament enacts it sometime later next year, it will inevitably allow a lead in period of at least 12 months. This means the law may not change until 2022 or 2023 at the earliest.

In the meantime, the current duty of disclosure law applies.

A recent decision of the English High Court (Niramax Group Limited v Zurich Insurance Plc [2020] EWHC 535) clarifies some interesting issues about avoiding a policy for material non-disclosure under New Zealand’s current law. England’s former duty of disclosure law applied to the case.  That former law is essentially the same as New Zealand’s current duty of disclosure law.

In any event, the decision deals with interesting issues about the insurer proving inducement.  This requirement will likely remain as part of the reformed duty of disclosure law in New Zealand. [Read more…]

When New Zealand was placed into lockdown on the 25th of March, the Government issued an Epidemic Notice under s 5 of the Epidemic Preparedness Act 2006 and declared a state of national emergency under the Civil Defence Emergency Management Act 2002. This effectively granted the Government access to extraordinary powers that it would not usually have in order to ensure they were able to respond to the crisis that is COVID-19 in an efficient and uninhibited manner. It was those actions that allowed for s 70 of the Health Act 1956 to be unlocked from which the Director-General of Health, exercising the powers of a Medical Officer for Health, derived his powers to make directives to the public. All orders that were subsequent took the form of notices under s 70 of the Health Act.

The problem that arises upon reading s 70 of the act is that there appears to be a fairly big gap between the powers that Parliament intended to grant under this section and the actual restrictions that were imposed by the Director-General of Health upon the nation.

On the 25th of March the relevant notice was issued under s 70(1)(m) of the Health Act. This order required the closure of all premises apart from those that were exempt, those being private dwelling houses and essential businesses. Under this order people were also banned from congregating in certain outdoor places and people who were permitted to leave their houses for something “essential” were to practice social distancing, keeping two metres apart from one another. It was under this notice that the lockdown began, however s 70(1)(m) of the Health Act offers no legal basis to require people to isolate, this section of the Health Act merely deals with the closure of premises. There is a substantive issue with the fact that the lockdown, which required strict isolation measures, was initially grounded on legislation that granted the Director-General to close premises as he saw fit.
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Two insurers face litigation because of poor policy drafting

 
Introduction

We look at two recent court decisions, one in the Court of Appeal of Western Australia and the other in the High Court of New Zealand, where poor policy drafting led to policy interpretation disputes.

In both cases, the courts applied the law of contract interpretation to determine the dispute. However, clearer drafting by the insurers would probably have avoided the cost of fighting the court cases in the first place.
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