Insurance Litigation 2021

Global Overview – Insurance Litigation 2021

For the first edition of this Chambers guide, we define insurance litigation to include disputes to which (re)insurers are directly party, such as where questions of policy coverage are contested. We also include disputes to which (re)insurers are not named or joined but in which they have a financial interest by virtue of their status as indemnifiers of one or more of the parties. The implications for (re)insurers of how a jurisdiction’s laws and courts operate, therefore, go beyond questions of which statutes or codes make provision for insurance contracts and extend to how litigation impacting different lines of business is funded, how streamlined the dispute resolution process is, whether costs are recoverable and so on.

We do not limit insurance litigation to legal action in the courts. Arbitration clauses are common to many insurance contracts, particularly for risks written on an international basis. The prevalence of arbitration, being a private process, limits the ability to observe trends in insurance dispute outcomes. More widely, however, there is a range of tribunals beyond courts and arbitral panels that can consider policy coverage issues and that (re)insurers need to be aware of when carrying out insurance business (for example, the United Kingdom’s Financial Ombudsman Service).

Uncertainty Remains Concerning the Impact of the COVID-19 Pandemic

Writing at the end of 2021, it is still difficult to assess the full impact that the COVID-19 pandemic will have on the risk and litigation landscapes. From the first quarter of 2020, the pandemic swiftly resulted in high-profile litigation concerning the scope, extent and application of business interruption coverages, as insureds sought to mitigate their losses associated with pandemic-related restrictions and disruption. The way that comparable coverage questions were resolved has varied strikingly across jurisdictions.

Taking the English-speaking world by way of example, the United Kingdom had seen relatively widespread use of property wordings with limited non-damage business interruption cover. Such wordings were intended by insurers to cover loss resulting from the occurrence of a notifiable disease, often at or within a specified distance of the insured premises, and/or resulting from public authority intervention. The underwriting assumption was that it would be local outbreaks or measures that would give rise to claims. With several hundred thousand policyholders potentially affected by whether claims following national lockdowns would be covered, the UK’s financial regulator, the Financial Conduct Authority (FCA), brought test case declaratory proceedings that went to the Supreme Court, with the FCA arguing on behalf of policyholders that those losses said to have been caused by the pandemic should be covered by the contracts of insurance. The resulting approach to policy coverage across a range of sample wordings was overwhelmingly in favour of policyholders, although the Supreme Court decision did not resolve related aggregation issues or quantum disputes, which continue. Conversely, brokers have seen a rise in claims by those policyholders who found themselves without cover for their pandemic losses.

By contrast, similar coverage issues played out differently in the US, where regulation is at the state level and insurance disputes are generally matters for state courts and state laws. Throughout 2020, insurers were widely successful in resisting class certifications and attempts to consolidate cases before federal multi-district panels. The result was large numbers of litigated cases at state and federal court level, with hundreds of appeals ongoing and considerable uncertainty as to how much more is in the pipeline.

As the ramifications of the business interruption coverage litigation rumble on, attention will inevitably turn increasingly to coverage for other pandemic-related claims. Across much of the world, there are few areas of life that have not been significantly impacted by COVID-19 during the past two years and the range of claims that the disruption has given rise to, or will give rise to, is impossible to predict, particularly under liability covers. Wordings have, however, been revised extensively and tightened across a full range of wordings in an attempt to limit or exclude pandemic claims and losses going forward, the hope being that future years of account will be less exposed.

Beyond the headline news of major coverage determinations, wider litigation implications of the pandemic for (re)insurers are not yet clear. The disruption has increased court backlogs. It remains to be seen whether it will accelerate the adoption of new technologies that will, in time, reduce the duration and cost of legal proceedings.

Brexit and Eastern Centres of Dispute Resolution Challenge London's Status

Meanwhile, a range of trends and issues that pre-dated the pandemic have continued and remain live. The implications of Brexit for London’s place as a centre of excellence for dispute resolution (including insurance litigation) continue to unfold. The UK acceded to the Hague Convention as a party independent of the EU with effect from 1 January 2021 and the Hague Convention is, therefore, in force between the UK and the EU member states. But the European Commission recommended in July 2021 that the EU member states deny the UK’s application to accede to the Lugano Convention. With the Brussels Regime transition period expired, whether London can continue, as it once did, to function as a litigation hub for disputes involving parties domiciled in other EU states is unclear. 

The UK is certainly not indifferent to the challenges to London’s status as a centre of excellence for dispute resolution. It has made reforms in recent years to costs management and discovery rules in order to control litigation costs. The UK has also seen significant growth in the availability of third-party funding to make it easier to bring claims. The UK courts have set up the financial list, a specialist cross-jurisdictional list focused on the litigation of financial matters and housed in the modern Rolls Building. Also, the International Arbitration Centre opened recently, improving the facilities on offer in London for arbitrations. The big long-term picture remains, however, one of the rise of Eastern centres in parallel with the continuing ascent of Asian economies within the global system.

Risk Management Adapts to Cyber Threats and Climate Governance

Cyber threats continue to proliferate with constantly evolving vulnerabilities to malicious actors, along with the liability exposures inherent in processing the data of persons with actionable data rights, most notably in the EU. With them grows the range of insurance products aimed at managing the risks and a continual focus on where non-affirmative cover might be provided.  Here the discussion of trends in coverage outcomes is particularly difficult because of the prevalence of arbitration clauses. The growth of environmental and climate litigation is also set to continue, with climate governance and risk management rising urgently in the consciousness of the insurance industry.

Conclusion – Global Issues Addressed by Regional Rules and Forums

So, as has long been the case, the insurance industry remains interested in many disputes arising out of big global issues in an increasingly globalised world. Nevertheless, most disputes are local and the rules and forums in which most disputes will be resolved are varied and different from one another. It is in that context that a guide such as this will hopefully be useful to those interested in insurance and the disputes in which it becomes implicated.