Opinion
Financial Conduct Authority takes action on behalf of policy-holders U
nlike 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. Principles of construction Given that tens of millions of pounds, and possibly hundreds of millions of pounds were riding on its decision, the court went to some lengths to recount the principles of construction that apply to insurance policies at law. The court stated that the overriding test is to ascertain what a reasonable person, that is, a person who has all the background knowledge that would reasonably have been available to the parties when the contract was formed, would have understood the contracting parties to have meant by the language used. This means the court must disregard evidence about the subjective intentions of the parties. 24
December 2020
The court noted two further principles that apply within that overriding test: ejusdem generis (of the same kind) and noscitur a sociis (known by its associates). A recent example of noscitur a sociis was referred to as follows: In Tektrol v International Insurance Co of Hanover Ltd [2005] EWCA Civ 845, an insurance policy excluded liability for "erasure loss distortion or corruption of information on computer systems". The court held, relying on noscitur a sociis, that in the context "loss" was a reference to loss by electronic means, rather than burglary of the computer. The court also considered the meaning of "malicious person" within an exclusion for "rioters, strikers, locked out persons taking part in labour disturbances or civil commotion or malicious person". In the context, given the other categories of persons listed, malicious person was held not to be a reference to someone who hacked in remotely to the computer systems. The court also traversed the contra proferentem rule. Interestingly, the court held that the contra proferentem rule does not require that all exclusion clauses in an insurance policy be interpreted narrowly. That requirement is confined to exclusion clauses in contracts that limit or exclude liability in negligence or contract. The court approved of the following extract from the judgment of the English High Court in Crowden v QBE Insurance (Europe) Limited [2017] EWHC 2597: 65. In my judgment, applying this approach, the court must adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract. The court should not adopt principles of construction which are appropriate to exemption clauses - i.e. provisions which are designed to relieve a party otherwise liable for breach of contract or in tort of that liability - to the interpretation of FCA insurance exclusions, because insurance exclusions are designed to define the scope of cover which the insurance
