Covid-19: Insurance aggregation under the spotlight in business interruption cases

Joanne HarrisFriday 13 January 2023

Three connected judgments handed down in mid-October relate to some of the biggest insurance claims for business interruption caused by Covid-19 to come to trial. The judgments, on preliminary issues, were delivered by Justice Butcher at the High Court of England and Wales, with the overlapping claims brought by policyholders Stonegate Pub Company, Greggs and Various Eateries. Stonegate claimed against insurers Amlin, Liberty Mutual and Zurich; Greggs against Zurich; and Various Eateries against Allianz.

Essentially, the policy-holding companies brought claims for business interruption losses connected to Covid. The insurers, while acknowledging the businesses suffered loss from having to close during the Covid lockdowns, claim that the losses are aggregated into one single business interruption loss (SBIL), because they’re all connected with one ‘occurrence’: the pandemic.

The policyholders argued there were numerous events that caused loss, and that under their policy wording they should receive insurance payouts for each event. Stonegate’s claim is in excess of £1bn; Greggs is claiming over £150m; and Various Eateries more than £16m. The insurers contended that each company should receive just £2.5m, the SBIL limit under their policies. The judge was also asked to look at the trigger for the relevant clauses in each policy.

The Stonegate judgments came almost two years after the UK’s Supreme Court handed down judgment in a test case brought by the Financial Conduct Authority (FCA) on behalf of policyholders to decide issues relating to business interruption insurance and Covid. But David Pryce, Managing Partner of Stonegate’s solicitors Fenchurch Law, says the test case didn’t resolve the key issues in Stonegate’s claim, particularly on aggregation.

Pryce says Butcher J’s decisions were not an outright win for either side, although he points to the 60 per cent costs judgment in favour of Greggs as a sign that, overall, the decisions were more favourable for policyholders than insurers. ‘This is the most mixed bag collection of decisions since the High Court decision in the FCA test case’, he says.

At a consequentials hearing in November, permission to appeal was granted on certain points, notably aggregation and furlough, with all parties having something they want to take to a higher court. The policyholders had until January 2023 to ask the Court of Appeal for permission to appeal on the issues where permission is not yet granted. ‘Settlements are going to be difficult to achieve in the interim for other policyholders while these cases are subject to appeal, and to some extent that’s difficult for the policyholders’, Pryce says.

Sophie Fairclough, an associate at Mishcon de Reya who acted for Various Eateries, agrees that on the aggregation issue the judgments were largely a win for policyholders, although they’ll still have to prove that losses are connected to events from the period for which they’d bought cover. The insurers also claimed a win, with a statement from Amlin saying that the Court ‘fundamentally supported [the] insurers’ position’.

Policyholder Stonegate noted the ‘far from conclusive’ case outcome, adding that Stonegate ‘believe that the Court’s interpretation on a number of issues which are generally applicable to policyholders is out of step with the approach taken by the Supreme Court in the Test Case and with the approach of Courts in other jurisdictions (such as on furlough)’ and they intend to appeal those elements.

DAC Beachcroft, representing the insurers in Stonegate/Various Eateries, declined to comment directly, while Clyde & Co, representing the insurers in Greggs, didn’t respond to requests for comment. Greggs, Various Eateries and Liberty Mutual themselves declined to comment, while Zurich and Allianz didn’t respond to requests for comment.

Kiran Soar, Senior Vice-Chair of the IBA Insurance Committee at the time of writing and a partner at DWF in London, believes that the biggest impact of these decisions could be on the reinsurance market. ‘There remain a number of open claims in the reinsurance market, and numerous arbitrations underway. Insurers will be considering these decisions carefully to understand if they are able to aggregate all of their Covid exposures as one loss occurrence and collect on their reinsurance programmes’, Soar says.

Fairclough agrees. ‘It’s unclear what’s going to happen in the reinsurance market because there’s a lot of exposure for them if all these claims get paid out. The wording doesn’t quite mirror the wording in these policies. There’s quite a lot of debate over whether there is cover for these claims under reinsurance’, she adds.

The case may also have a limited impact in other common law jurisdictions such as Canada, Ireland and South Africa, where similar policy wordings – particularly on aggregation – are used. Insurers in these countries are likely to be following the appeals closely.

Covid-19 has made businesses and insurers far more aware of the large-scale risks of events such as the pandemic, but that has led to more exclusions. Pryce suggests that a scheme such as the government-backed terrorism reinsurer, Pool Re, could be a potential solution to ensuring businesses and policyholders alike are protected from future pandemics. ‘The London market is going to be as well placed as any insurance market in the world to respond to that opportunity because it’s known for writing risks on a bespoke basis and insuring the risks that won’t get insured elsewhere’, he says.

When it comes to the three cases, lawyers expect a continued fight. ‘Stonegate was so big it was inevitable it was going to go to a fight’, says Soar. ‘On any aggregation dispute there’s been in the past, appellate courts can come to different conclusions. It’s going to run and run.’

Image credit: Chansom Pantip/AdobeStock.com

The IBA and Ukraine: a year of collaboration

Monday 6 February 2023

As an organisation at the forefront of promoting and protecting the rule of law and international justice, the IBA has had a duty to support Ukraine and its legal profession, institutions, infrastructure and population as a whole since the start of the Russia–Ukraine war in February 2022.

At that time, IBA Executive Director Mark Ellis swiftly initiated the Association’s response to the crisis and set out a plan for delivering assistance to Ukraine.

At the outbreak of war, the IBA immediately issued a press release. ‘The IBA publicly condemned Russia’s breach of the most sacred principle of international law – sovereign integrity – on the sad 24 February 2022’, says IBA President Almudena Arpón de Mendívil. ‘Supporting Ukraine on all legal fronts has been a priority for the IBA since then, and will remain so until the illegal actions of Russia in Ukraine’s territory end.’

‘Beyond public statements, the IBA has focused its efforts in three areas: aiding Ukraine’s legal profession; helping to support accountability of any crime against humanity perpetrated during the war with the IBA app eyeWitness to Atrocities; and cooperating with Ukraine regarding its compliance with international legal standards in domestic trials related to war crimes’, she explains.

The IBA and IBAHRI have been involved in many different initiatives in the past year. In addition, the Association has endeavoured to inform its membership and beyond on varied aspects of the conflict and related matters through regular features, articles, podcasts and webinars.

Ukrainian bars and the legal profession

In early 2022, the IBA expressed solidarity with IBA members and lawyers in Ukraine, and the Ukrainian bars, subsequently strengthening ties with the Ukrainian National Bar Association and the Ukrainian Bar Association. The IBA has assisted them with financial contributions in support of their humanitarian efforts and bar running costs.

Given its considerable experience in training lawyers, it was logical for the IBA to undertake training for those lawyers who will be involved in defending the accused in national war crimes trials, as well as providing further training on international criminal law during 2022. Several popular sessions took place online.

In August 2022, the International Legal Assistance Consortium – of which the IBA is a founding organisation – announced the publication of a new report, with research contributed by the IBA, on the impact of the Russia–Ukraine conflict on the Ukrainian justice system.

Documenting war crimes; ensuring accountability

eyeWitness to Atrocities is a powerful IBA-initiated app intended for use as a tool to amass verified documentary evidence of potential war crimes for future trials.

The app has been prominent in IBA efforts to assist Ukraine, with significant interest from the media and support from the bar associations in Ukraine, the Prosecutor General’s Office and the Supreme Court.

A Ukrainian language version was produced early in 2022, and by October, the app had logged more than 20,000 verifiable items of potential human rights violations, with evidence submitted to the UN Commission of Inquiry on Ukraine – a body set up with the input of the IBAHRI.

Mark Ellis made an official visit to Ukraine in September 2022 with the focus on expanding the IBA’s support. He participated in meetings with the Ukrainian National Bar Association Council, Ukraine’s Supreme Court President, Vsevolod Kniaziev, and Ukraine’s Prosecutor General, Andriy Kostin, discussing among other things cooperation on training and how to establish special tribunals.

The IBA entered into a Memorandum of Understanding (MoU) with the Office of the Prosecutor General in October 2022, intended to ensure accountability for war crimes and other international crimes. Kostin welcomed ‘the specialised knowledge and wealth of experience the IBA can bring, particularly in the fields of international humanitarian and criminal law’.

Certain initiatives are focusing on the long-term. Through its Anti-Corruption Committee, the IBA has set up a task force to help Ukraine address and avoid the common pitfalls countries make during the reconstruction process following war or natural disasters. By leveraging the IBA’s vast network of international legal professionals, alongside Ukrainians, the IBA is laying the groundwork for this endeavour and will deliver training, consultation and capacity building in a number of areas.

Strengthening links with Ukrainian institutions

In addition to its MoU with the Office of the Prosecutor General, the IBA signed another MoU in late 2022 with Ukraine’s Ministry of Justice (MoJ) and the Coordination Centre for Legal Provision (CCLAP), setting out terms of support for free legal aid provision to ensure the effective representation of cases concerning war crimes.

Ellis stated that: ‘At the end of this conflict, the international community will undoubtedly assess Ukraine on its domestic trials, and whether they met international standards of fairness and impartiality. I am very pleased that the IBA is partnering with the MoJ and CCLAP in accomplishing this mission.’

A third MoU, being drafted at the time of writing with the Ministry of Defence and the All-Ukrainian Non-Governmental Organisation, aims for the improvement of the legislative framework and ensuring proper defence in cases concerning military crimes. The signatories for the IBA will be Arpón de Mendívil and Ellis.

Ukraine was of course a huge focus at the IBA Annual Conference 2022 in Miami, most prominently with President Volodymyr Zelensky addressing delegates at the Opening Ceremony via video message. The President highlighted the importance of the legal profession, saying that ‘lawyers will ensure that all those guilty of terror are brought to justice […] together we can prove that the law is effective and that the law works’.

Arpón de Mendívil underlines the Association’s crucial obligations: ‘In the end, the law will have the final word about this terrible conflict’, she states. ‘The IBA, representing its members, has a duty to ensure that legal principles are clear, visible and respected.’

Covering the issues

IBA committees and other groups are addressing specific issues of relevance to their fields of expertise, with the IBA Section on Energy, Environment, Natural Resources and Infrastructure Law contributing to a project on accountability for environmental crimes, and the Anti-Corruption Committee’s Asset Recovery Subcommittee investigating the recovery of assets frozen under sanctions – both collaborating with the Office of the Prosecutor General. Elsewhere, the War Crimes Committee has created a legal resources list showing efforts to document and collect evidence at a criminal law standard and ways for lawyers to contribute through pro bono efforts. The Committee's members have also actively participated in the IBA’s training programmes on accountability for war crimes being committed in Ukraine.

The IBA has produced a wealth of Global Insight articles covering issues including Ukraine at war, anti-corruption and autocracy, accountability for atrocities, food security and Ukraine’s potential accession to the EU; and podcasts addressing issues of refugees from Ukraine, international law, sanctions against Russia and holding Russia to account. See more details here.

The IBA has also held webinars by the Art, Cultural Institutions and Heritage Law Committee, Immigration and Nationality Law Committee, Professional Ethics Committee and Rule of Law Forum among others, and has published numerous committee articles exploring the crucial human element of the war, including interviews with Ukrainian lawyers and their experience of living and working through the war.

The IBA will continue its Ukraine-focused projects during 2023 – and for as long as is necessary. As Ellis says, ‘When Russia invaded Ukraine, I was determined that the IBA play a leading role in speaking out against Russia as well as assisting Ukraine during the conflict. We will continue to do both until the war has finished’.

Visit the Ukraine hub here.

ESG: Regulators adopt focus on tackling greenwashing

Rachael JohnsonThursday 5 January 2023

Recent investigations by the Netherlands Authority for Consumers and Markets (ACM) highlight how regulators are taking action against ‘greenwashing’ – the making of false or misleading claims about the green or sustainable credentials of a product. Regulators across jurisdictions are increasingly focused on tackling this practice.

In September the ACM announced that sporting goods retail chain Decathlon and clothing retail chain H&M had ‘made commitments to [ACM] promising to adjust or no longer use sustainability claims on their clothes and/or websites’, as well as to inform consumers more clearly to minimise the risk of misleading practices. An ACM investigation led to the brands’ commitments and to their donations of €400,000 and €500,000 respectively to different sustainable causes ‘to compensate for their use of unclear and insufficiently substantiated sustainability claims’. Consequently, ACM won’t be imposing sanctions.

H&M acknowledges that ‘the information on sustainability on our website could have been provided more clearly and [been] more comprehensive. Changes are being made through which we commit to better informing our customers about the composition of our products and thus improving our sustainability communications.’ The company highlighted that the ACM’s concerns weren’t about providing false information.

Michael Showalter, a partner at ArentFox Schiff, says that US regulators have been more focused on greenwashing related to securities, compared to product-related greenwashing. He explains there’s ‘concerted regulatory focus from the US Securities and Exchange Commission and other financial regulators happening at least at a nascent level, while product-related greenwashing issues are not advancing at the same speed – at least federally’.

Gerbrich Kozijn, a senior enforcement official at the ACM, says the ACM ‘chose clothing and the energy sector because […] behavioural studies showed that consumers mostly paid attention to sustainability’ in those sectors. The ACM, she says, aims to create a level playing field, ‘so that businesses who are green can honestly claim their sustainability performance’. As Parker Aranha highlights, greenwashing is ‘bad for those businesses who are innovating’ as ‘there’s a risk of them being drowned out’.

Ouiam Zirar, also a senior enforcement official at the ACM, believes it’s important to acknowledge that ‘companies are the ones with the power of information, not consumers’. As consumers begin to demand more green or sustainable products, ‘companies need to be honest about their green claims or broader sustainability claims’, she says.

Tackling greenwashing also helps to build and maintain consumer trust in green products. Tonje Drevland is Head of Section, Supervisory Department, at the Norwegian Consumer Authority (NCA). She says that as consumer demand for more environmentally friendly products has grown, so too has ‘green’ marketing, and believes it’s hard for consumers to determine whether green claims are true. ‘If we do not work to prevent false green claims on behalf of the consumers,’ she says, ‘consumers may lose trust in green claims in general.’ This could undermine efforts to develop and sell legitimate green and sustainable products.

She highlights work the NCA has done on the use of the Higg Material Sustainability Index (MSI) in the clothing industry. Following an investigation into a Norwegian clothing company’s use of the data tool in its marketing, the NCA ‘concluded that the trader’s use of Higg MSI data in marketing was misleading, and therefore prohibited under the Norwegian Marketing Control Act’.

Restoring consumer trust is central to the UK Financial Conduct Authority’s (FCA) work on greenwashing. Mark Manning, a technical specialist in sustainable finance and stewardship at the FCA, says consumers want to invest in funds that have a sustainability aspect but ‘they don’t know which products to trust’. The FCA is proposing rules on greenwashing for companies that offer sustainable or green funds. These include a general anti-greenwashing rule covering all regulated companies to address misleading marketing. There would also be three categories of sustainable investment product labels and restrictions on how terms such as ‘sustainable’ or ‘green’ can be used for products that don’t qualify for these labels.

Manning says applications to the FCA’s funds authorisation gateway ‘that really were not of the quality we would expect’ prompted it to write to fund managers in 2021. Its proposed rules followed. The regulator’s work is also informed by research on how consumers understand information and make decisions.

The structure that regulation offers can also help businesses assess their exposure to greenwashing risk. Manning argues the FCA’s proposed rules could boost companies’ confidence in their labelling of sustainable products by giving them a framework through which they can evidence their claims.

Parker Aranha says the CMA has advised the UK government on how the country’s consumer protection regime could better support its net zero and sustainability goals – for example, by implementing statutory definitions of environmental terms that are commonly used in marketing and labelling, such as ‘carbon-neutral’ or ‘biodegradable’. She believes that ‘businesses would welcome some degree of standardisation’ as ‘it would be helpful to consumers and […] regulators to have that kind of firm standard to hold people to’.

Some regulators have published guidance for companies on making green claims. For example, the ACM’s sustainability claims guidelines outline five rules of thumb for businesses. The CMA has also produced a green claims code. Lina Pimentel, former Co-Chair of the IBA Environment, Health and Safety Law Committee and a partner at Mattos Filho in Brazil, argues that ‘the rules related to responsible disclosure of sustainability information are part of a great transition of our economy based on awareness of […] the impact of goods and services.’

Parker Aranha stresses that any evidence used to back up green claims should be robust and up to date. Businesses should also engage with their audience. ‘Test what you’re saying,’ she says, ‘because very often consumers will draw different conclusions from what you’re saying than you might expect.’

Image credit: fascinadora/AdobeStock.com