Reinsurance uncertainty as UK Covid BI disputes continue: BCLP’s Sacher

Bryan Cave Leighton Paisner (BCLP)’s Jonathan Sacher says reinsurers continue to face uncertainty over their ultimate exposure to Covid-19-related business interruption (BI) losses, adding that the sector’s preference for arbitration has prevented important legal precedent from being passed down to the market.

Speaking at The Insurer’s Pre-Monte Carlo Forum this morning, Sacher, a partner and co-head of the insurance practice at BCLP, noted that a steady stream of pandemic BI claims continues to enter the UK courts almost three years after the Supreme Court handed down its largely policyholder-friendly judgment in the Financial Conduct Authority test case.

Using data from Solomonic, Sacher noted that more than 20 fresh claims – mainly from UK SME hospitality businesses – have been filed in the year to date, which he said served to highlight the “significant uncertainty” that remains over the market’s exposure to BI losses.

“The outcome of those cases continue to track into the reinsurance world,” he said. “And while there is growing clarity on the primary side, there is considerable uncertainty in the interpretation of wordings on the reinsurance side and a lack of precedent is compounding this.”

Sacher noted that in a reinsurance claims context, most disputes are resolved by arbitration or commercial settlements and as a result there is “very little” precedent to determine outcomes and guide disputes.

“That’s either because there is a lack of disputes or a preference for arbitration,” he said. “It’s a combination of both but I’d say predominantly the latter.

“Covid-19 gave us a good insight as to why the courts remain a good place to settle disputes. While these have been dominated on the primary side, these cases track to the reinsurance market,” Sacher said, adding: “Uncertainty will prevail and what this means for reinsurers is further uncertainty.”

The growing number of (re)insurance disputes emanating from Russia’s invasion of Ukraine is also driving uncertainty for reinsurers, Sacher said, pointing to the claims lodged by aviation lessors against insurers over trapped assets.

The Insurer has tracked 80 disputes filed in London’s High Court with a collective value of $8.12bn against more than 30 separate insurers, reinsurers and MGAs as of 5 September. This is up from the 55 disputes with a collective value of $7.7bn documented in a previous analysis by this publication carried out in July.

Using data from Solomonic, Sacher confirmed this publication’s analysis, adding that a further eight claims have been filed in the US courts and six in Ireland.

Sacher noted that the cases filed by aviation lessors in London all similarly argue that aircraft leased into Russia are covered by policies against war or theft, but insurers point out the planes are undamaged and might yet be returned.

He noted that the claims are “complex” but suggested that it is “unlikely” that many will reach the courts.

“I personally believe that a settlement between lessors and (re)insurers will be likely in many cases. This would be a preferable outcome for many reasons,” he said, adding that the situation is not an “either/or” with settlements made possible by court rulings in a number of the most high-profile cases.

Sacher was speaking at this year’s Pre-Monte Carlo Forum alongside Howden Tiger’s Elliot Richardson, Leadenhall Capital Partners’ Luca Albertini, MS Reinsurance chief underwriting officer Charles Goldie and Insurance Advisory Partners’ Tony Ursano.

Look out for further coverage and analysis from today’s event later today and in The Insurer’s Monte Carlo event coverage next week…