Law firm Herbert Smith Freehills has pulled together the main learnings from last year’s most significant cases and market developments – a must-read for insureds, brokers and claims advisers.

Discussing a range of issues from covid test cases, which it believes will “inevitably” end in the High Court, to the general trend of “lawyering up” for major claims, its Policyholder Insurance Highlights is now in its seventh edition.

Here are three key trends from the document.

Covid and the BI test cases

The covid pandemic means insurance has been front page news and “top of mind for corporate Australia”, Herbert Smith Freehills says.

And the headlines haven’t made great reading for the industry.

“Interruption to Australian (and global) businesses as a result of Covid-19 has been widespread,” the report says.

“Because Covid-19 is not a typical 'physical damage' trigger for business interruption policies, there has been a significant focus on the response of various 'non-damage' extensions for disease, prevention of access and actions by authorities as policyholders search for insurance to cover the financial impact of the pandemic.”

This resulted in a series of test cases around the world. The law firm says in the UK the prevalence of the pandemic led to decisions favourable to policyholders.

But in Australia there have been “mixed outcomes”, with the second test case currently decided mostly against Australian policyholders.

This was due to Federal Court findings that losses were not due to any response to the disease or risk at the policyholders' premises, “but rather were caused by the desire to prevent the pandemic spreading generally”.

As insuranceNEWS.com.au has reported, an appeal has been heard but the decision is yet to be announced.

“[It] will inevitably be appealed again to the High Court, so policyholders should not expect quick resolutions – disputes will continue through 2022 as appeal rights are exhausted,” Herbert Smith Freehills says.

“The cases have demonstrated that a complex range of considerations apply to claims of this kind.”

Policyholders should be seeking advice as to whether their policies potentially provide coverage; whether existing cases on foot will resolve issues relevant to their coverage; and what steps they should be taking now to preserve or enforce their rights.

Continuing pressure on the Directors & Officers (D&O) insurance market

Policyholders have continued to experience a hardening of the D&O insurance market, Herbert Smith Freehills says.

This has primarily been driven by historical and ongoing class action and regulator activity, as well as the “inadequacy” of past premiums to meet liabilities.

“The hardening is reflected in increased pricing and reduced availability of cover – for example, the pricing of 'Side C' securities cover has resulted in many policyholders reducing their limits, voluntarily increasing deductibles and in some cases, not purchasing the cover at all,” the law firm says.

But there are positive signs.

“The potential silver lining in these increases is that the higher premiums which can now be charged for D&O cover, combined with some recent legislative changes to relax liability for breach of continuous disclosure laws and proposed changes to class action funding, means that new insurer capacity is prepared to re-join the D&O market, which increases available capacity, leading to options and competition which should at least stabilise premiums.”

Delays and disputes continue to affect major insurance claims

Pressure from Covid-19 and catastrophe losses and lower investment returns have put insurers' profit margins under increased pressure.

“Consistent with the trends we have observed in recent years, coverage disputes for major claims are on the rise,” Herbert Smith Freehills says.

Insurers are “lawyering up” for any claim above $10 million, it says.

“Our view remains that policyholders who do not do likewise are at a disadvantage,” the report says.

“Policyholders should engage specialist advisers at an early stage to assist with claims notifications, preserve legal privilege, engage experts and advocate claims coverage issues so as to maximise entitlements under their insurance assets.

“This is even more important given the hardening market reduces policyholders' ability to push for (or even preserve) broader coverage at renewals.”

Click here to read the full report.