The Legal Science of Business Interruption Insurance

A recent test case in the High Court of the Business and Property Courts of England & Wales has given food for thought not only for an international context, but also for New Zealand. The decision carries importance because it discusses the applicability of business interruption insurance policies in a COVID-19 context.

The test case The Financial Conduct Authority v Arch and Others [2020] EWHC 2448 (Comm) was decided in favour of the Financial Conduct Authority (FCA). Generally, it found for the FCA in respect of coverage triggers across several policies including clauses dealing with “denial of access”, “disease”, “hybrid”, and “public authority”.[1]

The Court also, expectedly, commented on entitlement of policyholders. The ruling was that most businesses that had business interruption policies, and had to close because of COVID-19, were entitled to compensation, subject to policy limits.[2] The extent of the compensation was to put the businesses in the position they would have been in had COVID-19 not occurred.[3] In other words, a return to the status quo and, generally, the position pre-COVID-19.

This test case has garnered attention within insurance circles.

Closer to home, the Insurance Council of Australia (ICA) have initiated a test case to determine the applicability of specific infectious diseases exclusions in businesses interruption insurance policies.

This is a development to follow closely.

In New Zealand, a number of organisations with business interruption insurance were unable to claim in the context of the lockdowns. This was because policies, generally, only offered coverage for physical damage to property. Businesses in New Zealand with policy wording that covers public authority restrictions on entering premises may take inspiration from the UK test case and the upcoming test case in Australia. This is a potential occurrence space to watch out for.

With COVID-19 continuing to affect businesses to varying degrees, some business owners will have thought about potentially claiming insurance. The UK test case and the upcoming test case in Australia display a certainty and clarity-seeking intention by relatively significant stakeholders in the insurance industry. In similar vein, it would be unsurprising to see developments in this respect within New Zealand. If such developments fructify, one would be paying very close attention.

Copyright Steve Keall, all rights reserved, 2020

Written by Bhavin Parshottam


[1] The Financial Conduct Authority v Arch and Others [2020] EWHC 2448 (Comm) at [414], [531], and [532].

[2] At [386] and [475].

[3] At [351], [386], and [475].

An Eye to Insurance Law Reform

When one thinks of insurance law in New Zealand, one may ask – where do I start and what do I need to know?

This article serves to generally outline the essentials of insurance law in New Zealand in the context of current talks about reform in this area of law.

Fundamentals

Insurance law is an area of law that is largely based on contract law, with a natural intermingling with the principles of insurance.

Some relevant statutes include:

  • Life Insurance Act 1908;
  • Insurance Law Reforms Act 1977;
  • Insurance Law Reforms Act 1985;
  • Fair Trading Act 1987;
  • Insurance (Prudential Supervision) Act 2010.

The Marine Insurance Act 1908 is another relevant statute that, in some respects, sits separately.

These statutes form part of the proposed review of insurance law in New Zealand.

The Fair Insurance Code (FIC) is another important aspect of the governance of the insurance market in New Zealand. The members and associate members of the Insurance Council of New Zealand (ICNZ), of which there are 29 and 3, respectively, agree to follow the FIC. The FIC is a code of conduct developed by ICNZ, stipulating the standards that members and associate members must follow. The most recent version of the FIC is dated 1 April 2020.

The Insurance (Prudential Supervision) Act 2010 (IPSA) defines a contract of insurance a contract that involves the transference of risk and under which the insurer agrees, in return for a premium, to pay to or for the account of the policyholder a sum of money or its equivalent, whether by way of indemnity or otherwise, on the happening of 1 or more uncertain events. This includes a contract of reinsurance.[1]

Information that forms part of a contract of insurance includes an insuring clause, identification of the particular to be insured, and the scope of indemnity; information that is usually within a policy schedule and policy wording. The policy wording specifies the nature and scope of what is covered by insurance and terms and conditions to claims, among other relevant stipulations.

Disclosure

When insurance is placed, the insured has a lawful duty of disclosure in terms of providing material information to the insurer. Expectedly, when the insured falls short of this duty, there are consequences. One consequence is the insurer being able to avoid the policy. Then again, when facts are provided by the insured that reasonably indicate further material information, the onus is on the insurer to ask further questions. For the insurer not to do so could be viewed as them having waived the disclosure requirement.

The nature and scope of the insured’s duty to disclose and the corresponding consequences form part of the review of insurance law in New Zealand.

Brokers/Intermediaries

Generally, insurance brokers act for the insured and, usually, place risk. For their work, they are most commonly paid a commission. Recent developments have caused some uncertainty in this area. Last year, the Financial Markets (Conduct of Financial Institutions) Amendment Bill was brought forth. At present, it is at the second reading stage. The relative uncertainty is brought about by 446O, in that, intermediaries will be obligated to comply with the incentive regulations. [2] What these regulations are unclear.

Prohibitions

Specific types of insurance are illegal and, therefore, have no effect. One example includes insurance intended to cover someone’s liability to pay an infringement fine or penalty in relation to employment and workplace health and safety rules. [3]

In 2015, changes were made to the Fair Trading Act 1986. One change was making unfair contractual terms in standard form consumer contracts illegal, which applied to a certain extent to an insurance context. [5] This said, the law acknowledges that there exists terms and conditions within insurance contracts that are essential to offering an insurer protection. In such a context, some terms are not regarded as unfair. [5]

How this change may continue to affect the insurance sector is something to heed.

Concluding Remarks

This article has touched upon the roots of insurance law. It has also discussed how the insurance tree branches out into several other areas of law.

Modern developments to insurance law and, generally, the insurance sector should be followed with interest.

Copyright Steve Keall, all rights reserved, 2020

Written by Bhavin Parshottam


[1] Insurance (Prudential Supervision) Act 2010, sections 6 and 7.

[2] Financial Markets (Conduct of Institutions) Amendment Bill, 446O.

[3] Employment Relations Act 2000, section 142V and Health and Safety at Work Act 2015 section 29.

[4] Fair Trading Act 1986, section 26A.

[5] Section 26A(3).