Whilst the FCA Test Case is now complete, it is unlikely that judgement will be available until the middle of next month. That said, not all insurers were directly engaged with the test case and the outcome of the case might only have a limited effect on those insurers not named.
One of the major issues that seems not to have been considered by the courts is that of aggregation.
Aggregation is the principle that might apply when two or more separate, losses are treated as a single loss because of a connecting or unifying factor.
Those of our clients who have businesses operating from two or more locations will be aware that loss adjusters (on behalf of insurers) requested that claims should be submitted on a ‘per location’ basis. This suggests to us that Insurers originally considered that there was no argument for aggregation. They now seem to have changed their minds.
Because of the sub-limits relevant to the Business Interruption policy extensions the ‘aggregation argument’ becomes highly significant.
It is, unfortunately, inevitable that insurers will use every argument available to them to interpret the policy wording to their advantage. This is a simple business decision. However, any ambiguity in the policy wording will often (usually) fall to the benefit of the insured – rather than the insurer.
It is now apparent that Axis has chosen to aggregate the losses for all policyholders. However, there must be a proper legal and policy basis for doing so and this, so far, has not been explained to us.
Our friends at Fenchurch Law write –
As a starting point, there are numerous BI policies that do not have any aggregation wording present at all. In those cases, policyholders can take some comfort depending on how the applicable limits and sub-limits are expressed.
There are others that may face arguments from insurers that suggest that throwaway comments such as “any one loss” amount to an intention to aggregate losses, even where the wording does not purport to be an aggregation clause. Such assertions are capable of being firmly rebutted.
On one view, it might be that aggregating wording is not triggered in any event. If the wording responds in cases where there has been ‘Damage’ i.e. property damage, one might question the relevance of that wording to the non-damage linked extensions with which COVID-19 BI claims are principally concerned. If the definition of ‘Damage’ is not extended to include non-damage perils, then it may be arguable that any aggregating wording is limited to apply only to those damage-based claims.
Even if it is conceded that there is a hypothetical basis for aggregation wording applying to a BI policy, policyholders may wish to look for the commercial realities of the effect of aggregation.
Taking the example of multiple premises being insured under one policy, where the sub-limits of the non-damage BI extensions are often a lot lower than the sum insured, policyholders may reasonably arrive at the conclusion that the aggregation of its losses would result in a commercial absurdity. Policyholders might be left with entirely inadequate cover, which cannot have been what was intended by policyholders or their brokers when obtaining cover.
Policy construction and factual issues
Notwithstanding the primary arguments above, policyholders can take some comfort that there are likely to be good policy construction arguments available, which may well be supported by a proper application of the facts.
Each policy and claim will of course have to be assessed on its own merits and facts. That notwithstanding, we would encourage insureds and their brokers to very carefully consider: (a) the construction of the wording that the insurer wishes to rely on (where relevant); and (b) how the insured’s losses have actually arisen.