In an article first published on Lexis+® UK on 21 July 2023, Head of Policyholder Disputes Aaron Le Marquer reviews a decision relating to the recovery of Covid-19 losses under a travel policy that is of interest primarily for its consideration of the doctrine of estoppel and its application in the context of insurance claims.
The case of World Challenge Expeditions v Zurich Insurance Company Ltd [2023] EWHC 1696 (Comm) concerned a claim brought by a travel company against its insurer for refunds paid to its customers as a result of trips cancelled because of the Covid-19 pandemic.
Although the insurer was successful in establishing that the policy did not provide coverage for the refunds sought by the travel company, the insurer was estopped from denying liability for the claim as a result of its course of conduct going back some four years, in which it had led the policyholder to believe such claims would be covered.
The decision shines a spotlight on insurers’ conduct and serves as a reminder that liability for claims may not always be governed solely by the terms of the policy.
What was the background?
World Challenge Expeditions (WCE) was a specialist travel company providing adventurous expeditions worldwide for school students. It was insured under a personal accident and travel insurance policy, including cancellation cover, issued by Zurich.
As a result of the emergence of the Covid-19 pandemic in late 2019/early 2020, WCE was obliged to cancel nearly all its booked expeditions for 2020.
WCE sought recovery of refunds paid to its customers as a result of the cancellations, with a total claim value in excess of £10m. In response, Zurich denied that the policy provided coverage for refunds. It argued that its liability under the policy was limited to irrecoverable costs paid out by WCE to third-party suppliers, for example, in respect of flights, accommodation and other trip costs. On that basis, WCE’s claim was limited to less than £150,000. Zurich also argued that in any case, its liability was subject to a limit of £100,000, which was stated to apply any one event”.
WCE disputed Zurich’s construction of the policy wording. It also argued that Zurich was estopped from denying coverage as a result of its previous conduct in accepting similar claims notified under previous policy periods. In relation to aggregation, WCE denied that its losses arose from a single “event”, which was defined in the policy as a “sudden, unforeseen and identifiable occurrence”.
The issues before the court were (1) the correct construction of the policy; (2) whether Zurich was precluded by estoppel or collateral contract from denying that the policy provided the coverage WCE thought it had; and (3) aggregation.
What did the court decide?
On the matter of construction, the court agreed with Zurich that the natural and ordinary meaning of the words in the relevant clause was that cover was only provided for irrecoverable costs and not for refunds paid to customers. That meaning was not displaced by contextual considerations, including the nature of the insured business, the calculation of premium or previous claims handling either by Zurich or the predecessor insurer RSA.
However, Zurich’s handling of previous claims was relevant to the consideration of WCE’s case on estoppel, upon which it succeeded in establishing that notwithstanding the coverage position, Zurich was bound by its previous conduct to pay the larger claim for refunds.
Following consideration of extensive disclosure and witness evidence from both sides, it was established that Zurich had accepted claims for refunds under earlier policies issued in equivalent terms. No amounts had actually been paid by Zurich to WCE in respect of the earlier claims because the policy deductible was never reached. Nonetheless, the court found that from 20 May 2020 onwards, WCE had relied to its detriment on the common assumption that claims for refunds were covered and the elements of estoppel by convention were made out. Zurich was therefore bound to indemnify WCE for trips cancelled after that date.
In relation to aggregation, the court relied in part on the analysis of Mr Justice Butcher in Stonegate v MS Amlin, which also examined aggregation by “occurrence”, but distinguished WCE’s claim from Stonegate’s on the basis of the “event” definition in the Zurich policy. There was no relevant aggregating occurrence that was sufficiently sudden or unforeseen to meet the definition, and the aggregation provision did not operate in this case to reduce the claim.
What are the practical implications of this case?
The practical implications of the case are somewhat limited from a coverage perspective. The insurer was found to be correct in claiming that the travel policy was not intended to and did not cover the tour operator’s loss of profit. In any case, there are unlikely to be a large number of policyholders pursuing similar claims arising out of Covid-19 cancellations. To some extent, the decision may be regarded as confined to its facts as far as policy construction goes.
The more relevant implications of the decision arise from the court’s consideration of estoppel, which may have general application far beyond the Covid-19 context. Most importantly, insurers should note that the decisions, actions and communications of their claims handlers may have an impact that extends beyond the immediate claim(s) under consideration; they may affect the contractual relationship between the insurer and policyholder that is otherwise governed by the terms of the policy.
In summary, the key takeaways of the case are:
- The court will start with the ordinary and plain meaning of the words when construing policy wordings;
- The admissible factual matrix that is relevant to the construction issue is limited;
- Insurers may be bound to follow their previous course of conduct in relation to claims even if this conflicts with the true coverage position.
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