Two recent contrasting decisions on jurisdiction demonstrate the emerging reputation of the English courts as the policyholder’s choice of forum for determining Covid-19 business interruption (BI) coverage disputes. The two cases produced different results for very different reasons, but curiously both turned in part on the meaning of the word “otherwise”.
Aaron Le Marquer reviews the two cases and considers lessons for policyholders and practitioners.
Al Mana v Fidelity
Al Mana is a Middle Eastern food, beverage and retail group that did not carry on business in the UK. It sought an indemnity for its Covid-19 business interruption losses from three insurers in the UAE, Qatar and Kuwait under local policies governed by local law. As such, the English courts may not seem an obvious choice of venue for the policyholder to have its business interruption claim heard, and certainly the three insurers objected on that basis. Nonetheless, Al Mana relied on the following jurisdiction clause in arguing that the English courts had non-exclusive jurisdiction over the dispute:
“APPLICABLE LAW AND JURISDICTION
“In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued. Otherwise England and Wales UK Jurisdiction shall be applied,
“Under liability jurisdiction will be extended to worldwide excluding USA and Canada.”
It was common ground that the clause was poorly drafted. However, the parties differed on its intended meaning, with particular focus on the word “otherwise” as a qualifier for the jurisdiction of the English courts. For its part, the policyholder argued that “otherwise” simply meant “or” or “if not”, with the effect that the policyholder was entitled to elect where to bring its claim: in the local jurisdiction or England and Wales.
The insurers unsurprisingly argued that the word “otherwise” rendered the England and Wales jurisdiction option a fallback. It would only apply if the local court did not have or would not accept jurisdiction. It was not disputed that the local courts would accept jurisdiction over the claims, and the policyholder was not therefore entitled to elect to bring its claim in England and Wales instead.
At first instance, Mrs Justice Cockerill agreed with Al Mana for three reasons. First, she considered the word “otherwise” as used in the clause was most naturally equivalent to “or”, granting the policyholder a choice. Second, the difficulty with the insurers’ fallback argument was that the clause did not identify the circumstances in which the fallback was to apply. And thirdly, the policyholder’s interpretation made more commercial or practical sense. Al Mana was therefore entitled to pursue its claim in the English courts.
The insurers appealed successfully. In the Court of Appeal, two of the judges were persuaded that the mandatory choice of local law supported the insurers’ ‘fallback’ interpretation. The primary intention of the clause was for the local courts to have jurisdiction over the dispute, with the English court’s jurisdiction only coming into play where that was not possible. Mrs Justice Cockerill was therefore wrong to find that it was open to the policyholder to elect to bring proceedings in the English court when the local courts would accept jurisdiction.
Lady Justice Andres, dissenting, agreed with Mrs Justice Cockerill’s conclusions. She found that from the perspective of the reasonable policyholder, the word “otherwise” did indeed confer on the policyholder a choice as to jurisdiction and that such an interpretation was consistent with business common sense. The fact that the local courts would accept jurisdiction should also not oust the parties’ contractual bargain to allow a choice. She would therefore have allowed the action to proceed. Nonetheless, the majority decision of the Court of Appeal was that the English court had no jurisdiction to try the claimant’s claims and that Service of the Claim Form should therefore be set aside.
DC Bars v QIC Europe
Unlike Al Mana, this decision concerned a UK-domiciled policyholder’s claim under an English-law governed policy issued by a UK-authorised insurer. Rather than considering the potential jurisdiction of a foreign court, it turned on the construction of an arbitration clause in a form commonly found in insurance policies:
“If any difference shall arise as to the amounts to be paid under this Policy (liability being otherwise admitted) such difference shall be referred to an arbitrator who will be jointly appointed in accordance with statutory provisions.”
The claim was brought under a 25-mile radius disease clause, and primary liability was not disputed, the insurer having already paid £2,168,870 in respect of losses suffered by the policyholder during the three months following the first occurrence of disease within the specified radius.
What was disputed was the insurer’s liability for further losses caused by further occurrences of disease within the radius during the policy period but after the expiry of the three-month maximum indemnity period. The policyholder argued that it was entitled to recover losses in relation to three subsequent three-month indemnity periods, while the insurer maintained that its total liability was limited to the losses suffered during a single three-month indemnity period.
This was, therefore, a dispute over limits, which the insurer sought to cast as a matter of quantum, ie it was a question of “the amounts to be paid under this Policy (liability being otherwise admitted)”. In reliance on the arbitration clause, the insurer therefore sought a stay of the proceedings commenced by DC Bars.
DC Bars, on the other hand, argued that the dispute was not only as to quantum. It was also about liability in relation to the second to fourth indemnity periods, for which the insurer denied it was liable to make any payment at all. The insurer’s case was that the quantum of the further claims pursued under the policy was zero. Therefore, the arbitration clause did not bite, and the policyholder was entitled to have its claim determined in the English courts.
The judge agreed with the policyholder, citing Mr Justice Potter’s 1990 finding in New Hampshire v Strabag Bau, in relation to a similar clause:
“It seems to me the word ‘otherwise’ is apt to emphasise the fact that it is ‘mere’ disputes as to quantum which are to be arbitrated, thus excluding disputes as to amount which, despite prima facie acceptance of liability, depend upon the application of particular provisions or exemptions in the policy which place limitations on categories of loss, or otherwise apply to limit the amount recoverable. Such cases would raise a question of liability in the sense and to the extent that they involve a point of law or construction rather than a mere dispute on quantum.”
Noting that the insurer claimed not to be liable for the subsequent three indemnity periods because “there was one three- month maximum indemnity period which has already been exhausted”, the judge concluded that it could not be said that there was a difference “as to the amounts to be paid under this Policy (liability being otherwise admitted)”. The parties were not therefore obliged by contract to refer to arbitration the differences between them, and the insurer’s application for a stay of the proceedings was dismissed.
While emphasising the need to construe policy wordings in their full context, both decisions are interesting as evidence of the eagerness of policyholders and the reluctance of insurers to have further Covid-19 BI issues determined in the English courts, and support a common perception that the English courts have adopted a policyholder-friendly stance in these matters (at least in contrast to courts in other jurisdictions).
The Al Mana case is perhaps confined to the peculiarities of the drafting of the jurisdiction clause in question, and given that the dispute would still have had to have been determined by the English courts in accordance with local law, it is not clear exactly what advantage the policyholder perceived in seeking the jurisdiction of the English courts.
DC Bars v QIC, on the other hand, is a useful confirmation to insurance practitioners that the common arbitration clause considered in the case is limited in its application to disputes of ‘pure’ quantum (ie those that are most likely to come down to forensic evidence and a ‘battle of the experts’), rather than the determination of issues of principle and policy construction that are issues of law. That interpretation makes practical and commercial sense, and the decision will help guide policyholders and insurers towards agreeing the appropriate framework for resolving future disputes in all lines of business.