In an exclusive Q&A session with Legalwise Seminars, Brad Cuff, Barrister at Capital Chambers, shares some insights into the impact of COVID-19 on insurance law. He will delve further into this topic at the Insurance Law Roundup webinar on Tuesday 2 March 2021.
Are there any recent decisions or changes that have affected insurance law?
Despite lockdowns and issues with the access to Court’s there were a number of important insurance related cases in 2020. The main ones involved – of course – COVID-19 and whether loss suffered as a result of the pandemic triggered the BI cover available in property insurance policies. The two main cases on this were in Australia and the UK.
At home the case of Sleight v IAG held IAG as the Sleight’s home and contents insurer responsible for the costs of rectifying the defective work undertaken by builders engaged by the homeowner to repair earthquake damage to the home during the CES. This case is subject to an Appeal. This case has major implications for who will bear the cost of rectifying the defective repairs undertaken to earthquake damaged homes in Christchurch.
The COVID-19 pandemic and coverage under insurance policies was a huge issue for the insurance industry worldwide. The major area of contention was in respect of business interruption policies. On 18 November 2020 a five Judge Bench of the New South Wales Court of Appeal found against insurers in HDI Global Specialty v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 (Wonkana), a business interruption insurance test case dealing with ‘Quarantine Act Exclusions’ with respect to the Covid-19 outbreak. The Court unanimously found that a Quarantine Act exclusion did not capture a ‘listed human disease’ under the Biosecurity Act – which COVID-19 was. As a result cover for business interruption as a result of the pandemic was covered.
Wonkana is currently subject to an application for special leave to appeal to the High Court of Australia. Given the widespread impact of the decision on insurers and insured alike, special leave is likely to be granted.
A second ‘test case’ is to be filed by the Insurance Council of Australia and its members to test the application of further issues of pandemic coverage in business interruption policies.
It is proposed that the second test case will determine the meaning of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate.
The industry will meet the costs of policyholders in the proposed second test case, as it did in the first test case and will for any appeal.
A similar test case was run in the UK in The Financial Market Authority v Arch Insurance (UK) Ltd & ors . In this case the Court held that disease extensions provide cover for COVID-19 re;ated business interruption as do some Government authority extensions, but most importantly it says that the case of Orient-Express Hotels Limited relied on by Insurers to limit business interruption claims is wrong. The FCA is the regulator of insurers in the UK. It brought the test case on various specimen wordings by underwriters of business interruption insurance arising in the context of the COVID-19 pandemic. The trial took place over Skype in front of a 2 Judge divisional court. It considered 21 lead policies underwritten by 8 insurers. 700 types of policies by 60 insurers are affected by the test case. The test case was a policy interpretation exercise. It considered the application of policy clauses about indemnity for disease, government authority, trends clauses and causation.
On 15th October 2020, the English High Court entered summary judgment in a case brought by a London café, the Kensington Crêperie, against Allianz for losses incurred from a nationwide lockdown due to the COVID-19 pandemic, which forced the business to temporarily close. The café had argued that its all-risk policy insured it against “Business Interruption by any Event.” “Event” was defined in the policy as “accidental loss … of … property used by the Insured at the Premises for the purposes of the Business”, which the café argued included the temporary closure due to COVID-19. The Court disagreed and entered judgment for Allianz.
While the judge agreed that what occurred was “Business Interruption” as defined in the policy, the enforced closure could not be said to fit the definition of “Event”, as the café had not suffered a “loss of property”, which would necessitate a physical loss. Instead, the claimant had only suffered a temporary loss of use of the property. In reaching this conclusion, the judge was influenced by the fact that the word “loss” was followed by “or destruction of or damage to”, which strongly suggested that “loss” was intended to have a physical aspect.
The decision did not consider any disease clauses or denial of access extensions as examined in the recent FCA test case. However, it is the first UK case to be dismissed due to lack of evidence of “physical loss” to property – a requirement which has already caused several judges to grant motions to dismiss in the US.
New obligations on Trustees came into effect in New Zealand on 1 January 2021. The Trusts Act puts into law the duties of trustees and requires much greater transparency around trust activity. As a result Trustees face increased compliance requirements. Beneficiaries now need to be told that they are a beneficiary of a trust and regularly provided with information about the trust without them needing to request it. Information can only be withheld in exceptional circumstances.
The age of majority for when a beneficiary will be entitled to the balance of their trust will change from 20 years to 18 years of age
On 1 December 2020, the Privacy Act 2020 (new Act) came into force. The aim of the amendments is said to be to update the framework so it’s more suited to the digital landscape in which we operate in New Zealand, including information shared on platforms such as social media and cloud based services.
Changes to the Residential Tenancies Act for landlords came into effect in February 2021. AS a result being a landlord became a far more unattractive prospect.
In March 2021 the laws changing the rules for how financial advice is provided to retail clients. From March all advisers will need to meet the same standards and if a financial adviser plans to provide financial advice to retail clients on their own behalf they will need a financial advice provider’s licence.
How has COVID-19 impacted the insurance sector and what are the implications going forward?
This coming year will, in many ways, see a continuation of challenges that arose in 2020, namely due to the ongoing spread of the coronavirus in many parts of the world. However, the insurance industry outlook for 2021 also has a few notable emerging issues that will be sure to colour headlines for the coming 12 months and beyond.
Vaccines for COVID-19 have started to be distributed in many countries around the world by now. Already, insurers have been dragged into the vaccine-related spotlight, with a US health insurer recently being criticised for prioritising the vaccination of its own employees over its clients. Insurance marketplace Lloyd’s of London has also been heavily involved with the vaccine, offering cover for the delivery of any future vaccine to enable its safe transportation to low-income countries, and launching risk mitigation services designed to support the global distribution of the vaccines and critical health commodities. Additionally, Aviva Singapore has announced that its health insurance products will automatically cover side effects arising from the COVID-19 vaccination at no additional premium.
The various Court decisions on the application of business interruption polices to the pandemic will have significant effects on how property insurance cover is underwritten, its availability and its cost.
For those trying to hold events (such as concerts and festivals) they do so at their own risk as far as cancellations s a result of a COVID outbreak is concerned. Similarly, travel insurance will continue to exclude COVID-19 related claims.
For professionals of all types(accountants, solicitors, auditors, engineers) they will likely face a greater exposure through the effects of COVID-19. The enforced swift transition to remote working for may small businesses will mean greater risk of claims from disgruntled clients who have received poor service. Working from home and its associated distractions, a lack of supervision, and a lack of systems can mean incorrect work products, and deadlines being missed – including the age old limitation periods!
Business affected by COVID-19 related business downturns will be looking to their insurance brokers for answers if they do not have any – or the right – cover in place. This will be particularly so in light of the UK and Australian Court decisions.
Employers generally have had to face enforced closures, staff working remotely, new remote workplaces and a resistance to return to the office, “wellness” and diversity issues and the majority have accessed government support schemes. Employers who try to use COVID as a reason for termination will face scrutiny as will those who attempt to gain advantages from support schemes that they are not entitled to. Employers who cannot (or will not) accommodate the changing way employees want to work will face a growing number of complaints and grievances. Insurance responses to these issues will be varied.
The increase in remote working both forced during lockdowns and with the changing expectations of their workforces will increase the risk of Cyber Security breaches. Cyber attacks and ransomware demands will only increase. Ironically, payments of ransomware will start to receive greater scrutiny from regulators over the coming year particularly in light of the AML legislation.
Who will be most affected by insurance law issues in the coming year?
In short – everyone. The insurance market will harden and the cost of cover will increase. Apartment owners in Wellington (and home owners generally) will continue to struggle to find adequate insurance cover particularly in respect of earthquake risk. Concurrently the move to rectify earthquake prone buildings and the failure to identify accurately NBS ratings will have liability issues for valuers and engineers.
Insurance capacity for commercial property in Wellington will remain tight.
The building cladding cover issues under property insurance policies that arose as a result of the Greenfell Tower tragedy (amongst others) will continue.
The spike in property prices as a result of COVID-19 and the demand for property through low interest rates, low LVR and returning ex pats will stop. Any crash will see banks again looking to valuers if they are not able to recoup their loans through the same of properties.Event Organisers will not be able to insure against their events being cancelled due to COVID-19 concerns.
Financial Advisers – who already face difficulties finding cover will become an even greater risk with their changing regime.
Cyber attacks will increase and the mandatory privacy breach reporting will catch out many.
Residential Landlords who have property damaged by unruly tenants they cannot get rid off will have difficulties at claim time. Their obligations in relation to heat sources and insulation will also catch out many.
What do people need to watch out for in 2021 in terms of new insurance law, potential issues or changes to the insurance landscape?
Cyber risk and claims will continue into 2021 both globally and in NZ. Businesses are already starting to suffer from supply chain losses and these will continue. Medical and health insurance for COVID-19 related issues will be very difficult to find.
Privacy issues and the mandatory notification of breaches will create headaches for organisations holding large amounts of personal information. Insurance responses to these new requirements will be a moving feast for insurers and their advisers. Finally, how business fair with another year of closed borders will be of keen interest. There is a direct correlation between business failures and insurance claims including, fires, negligence claims against advisers and fraudulent claims.
Brad Cuff is a civil litigator and insurance law specialist. Brad’s practice covers a wide range of insurance matters including fire and general, life and disability, product liability, public liability, management liability, statutory liability and professional indemnity claims. He has over 15 years’ experience acting and advising on insurance claims and non-claims issues across all lines in both Australia and New Zealand. Brad has extensive experience in professional indemnity litigation for doctors, architects and engineers, valuers, financial advisers, solicitors, accountants and insurance brokers, responding to Worksafe NZ and Commerce Commission inquiries and in acting and advising insurers on property loss issues including litigation and coverage issues arising out of the Canterbury and Kaikoura earthquakes. Connect with Brad via email or LinkedIn 
