4 New Square Chambers’ Carola Binney explores the developing use of estoppel in the successful pursuit of claims against insurers.
This note considers George on High & Anor v Alan Boswell Insurance Brokers & Anor  EWHC 1963 (Comm) and World Challenge Expeditions v Zurich Insurance  EWHC 1696 (Comm)
In two judgments published weeks apart in July this year, the High Court held that insurers were estopped from resiling from a common assumption about the scope of the available coverage. In both cases, the common assumption was created by the claims handling history.
George on High had an all 4 New Square Counsel line-up at trial, with the successful claimant represented by Ben Elkington KC, the first defendant by Roger Stewart KC and the second defendant by Neil Hext KC. Jonathan Hough KC and William Harman of 4 New Square acted for the defendant in World Challenge.
George on High & Anor v Alan Boswell Insurance Brokers & Anor  EWHC 1963 (Comm)
This case concerned a 16th century hotel in Rye, Sussex, which was largely destroyed by fire in 2019. The claim was brought by two companies: George on High Ltd (“PropCo”), which was the hotel’s freeholder, and George on Rye Ltd (“OpCo”), which operated the hotel’s business. Both companies were ultimately owned by a Mr and Mrs Clarke.
Following the 2019 fire, a claim was made under a policy arranged by the first defendant (the broker) and underwritten by the second defendant. The underwriter paid out in respect of the property damage element of the claim, but denied cover in respect of business interruption losses, which were prima facie covered by the policy, on the basis that the policy named the insured as “The George on High Ltd t/a The George in Rye”; an entity which did not, in fact, exist, PropCo and OpCo being two different companies. It was common ground that the claimants had sought to arrange cover in respect of both the business and the building of the hotel, and the broker accepted that it was liable to the claimants for the business interruption losses to the extent that they were not insured.
The policy premiums were paid by OpCo and the claims history included claims that clearly related to the business of the hotel: one was made under the employer’s liability section of the policy in relation to an employee of OpCo, and three other claims reviewed by the underwriter’s third party claims handlers expressly referred to OpCo as the policyholder. Some of these historic claims had been paid by the underwriters; in relation to other claims, the claims handlers had denied liability on the underlying merits. In none of the claims had the underwriters or claims handlers purported to deny liability on the basis that OpCo was not covered by the policy.
Simon Tinkler, sitting as a Deputy High Court Judge, began by finding for the claimants on construction grounds. Significantly, he found that the knowledge of the third party claims handlers could be attributed to the underwriters. The Judge considered that it had been made plain to the claims handlers (and therefore to the underwriters) that the business was operated by OpCo prior to the relevant policy renewal. Applying the test in Investors Compensation Scheme v West Bromwich Building Society  1 WLR 896, the Judge found that a reasonable person having all the background knowledge reasonably available to the parties at the time of contracting would have understood “The George on High Ltd t/a The George in Rye” to mean “George on High Limited and the business operated by George on Rye Limited t/a The George in Rye”, as contended by the claimants. It would have made no commercial sense for OpCo to pay the insurance premiums in respect of a policy specifically listing business interruption and employer’s liability as insured risks, if it was in reality only PropCo which was insured.
Having found for the claimants on construction grounds, the Judge’s findings with respect to the alternative estoppel argument were obiter, but important. The Judge held that the claims history estopped the underwriters from denying cover to OpCo under the policy – even if, contrary to his primary finding, OpCo was not insured under the policy.
Applying the test for estoppel by convention in HMRC v Benchdollar  EWHC 1310 (Ch), the Judge found it was clear from the policy wording, which included cover for loss to the business, that the parties had a common intention that OpCo would be insured. When accepting liability for claims relating to staff and customers of the business, the underwriters had, via their claims handlers, conveyed to the claimants that they believed OpCo to be covered by the policy. The claimants had relied on that assumption by paying the policy premiums, the payment of which constituted a benefit to the underwriters and a detriment to OpCo.
In the circumstances, it would have been unconscionable to allow the underwriters to deny OpCo cover in relation to the claims made in respect of the fire, even if those claims were not covered by the policy wording.
The underwriter’s application for permission to appeal was recently refused.
World Challenge Expeditions v Zurich Insurance  EWHC 1696 (Comm)
The facts of World Challenge were more complex, and the outcome both more nuanced and more surprising. The claimant, World Challenge Expeditions, was a travel company running adventure tours for school students. Until March 2016, World Challenge had personal accident and travel insurance provided by Royal & Sun Alliance (RSA). For its April 2016 renewal, World Challenge switched to Zurich, the defendant, having instructed its broker to obtain cover on a like-for-like basis to that provided by RSA.
The outbreak of the Covid pandemic forced World Challenge to cancel nearly all its booked expeditions for 2020 and refund customers for any deposits or advance payments made in respect of a cancelled trip. The dispute centred on whether World Challenge was insured under the Zurich policy in respect of all refunds paid to customers, even if they did not amount to a “loss” to World Challenge (as World Challenge contended) or whether the policy only indemnified World Challenge for the portion of any customer refund comprised of irrecoverable costs World Challenge had already paid out to third party suppliers in respect of, for example, airfares (as Zurich argued). World Challenge sought an indemnity of over £10 million; on Zurich’s construction, the amount payable was less than £150,000.
The relevant policy wording provided (underlining added):
“If during the operative time or between the confirmed booking of the journey and the operative time any part of the pre-booked travel arrangements for a journey are cancelled, curtailed or rearranged as a direct result of any cause outside the control of you or the insured person we will pay you or the insured person up to the sum insured in the schedule and subject to the cancellation or curtailment limit for:
- a) deposits, advance payments and other charges which have not been and will not be used but which become forfeit or payable under contract or cannot be recovered elsewhere; and
- b) reasonable additional travel and accommodation expenses necessarily incurred.”
The previous Zurich policies contained the same wording. The pre-2016 RSA wording was, however, different, and provided cover in respect of “deposits and advance payments (on a proportionate basis in respect of Curtailment)”.
Cancellation claims were subject to a £200,000 deducible. While a number of cancellation claims had been made by World Challenge under the Zurich (and RSA) policies, the total value of these claims had never exceeded the aggregate deductible in any given policy year, so the customer refunds had in fact always been paid by World Challenge. The agreed practice had been that World Challenge would submit cancellation claims to Zurich’s claims handlers, who would validate each claim under the policy before authorising World Challenge to make payment to the customer and tracking the deducible.
The claims handlers’ approach to validating these historic claims had been to review the claim for compliance with World Challenge’s own cancellation T&Cs, and to approve World Challenge to make payment provided the customer had complied with those T&Cs. World Challenge had never expressly clarified (and Zurich had never asked) what portion of the sum sought related to irrecoverable costs paid to third parties: World Challenge was under the impression that the RSA policy had covered all customer refunds and that Zurich was providing cover on the same basis, and, as Mrs Justice Dias found, “it was perfectly obvious for anyone with eyes to see that its cancellation claims were for the amount of its customer refunds”.
Unlike in George on High, the claimants lost on construction. The Judge held that the natural and ordinary meaning of the policy wording was that Zurich was obliged to indemnify World Challenge in respect of customer refunds only insofar as those refunds were comprised of irrecoverable third party costs. The Judge further found that Zurich’s employees had at all times understood the policy wording to have that meaning. Notwithstanding that understanding, the claims handlers’ approach to the cancellation claims process had historically been to simply check for compliance with World Challenge’s T&Cs and ask no further questions. This was because (at 196(j)]): “neither the claims handlers nor the underwriters particularly cared what the refunds represented, since the amounts involved were all comparatively low and fell within the deductible so that it made no practical difference to Zurich”.
Having found for Zurich on construction, the Judge turned to World Challenge’s alternative estoppel argument. This was advanced on a number of different bases, most importantly (a) estoppel by convention in respect of the claims handling history and (b) promissory estoppel arising from representations said to have been made by Zurich on two particular occasions in early 2020.
As to estoppel by convention, the Judge found it was sufficient for World Challenge to prove a common assumption that the amount of the refunds would be covered by Zurich irrespective of the reasons for that refund – it was not necessary for World Challenge to establish a common assumption that Zurich would cover customer refunds even to the extent they exceed irrecoverable outlays, as Zurich contended. This aspect of the test in Benchdollar was therefore satisfied on the basis of the practical treatment of the historic cancellation claims by the claims handlers, notwithstanding the Judge’s findings as to Zurich’s understanding of the policy wording throughout the relevant period.
Mrs Justice Dias then considered reliance. She found that World Challenge had not relied on the common assumption by entering the policy and paying the premiums, having accepted the underwriter’s evidence that the premium for the various renewals was set without reference to the cancellation claims (which had never before exceeded the deductible). Neither had World Challenge relied by failing to make alternative arrangements: there was insufficient evidence that, by 2019, World Challenge would have been able to obtain the cover it wanted elsewhere on the market.
The Judge found, however, that reliance was made out in respect of trips cancelled on 20 April 2020. While World Challenge would have cancelled some trips regardless of anything said by Zurich – and could not prove reliance in respect of those aspects of its claim – World Challenge had relied on the common assumption in deciding in mid-March not to cancel all trips departing up to the end of August 2020, as it had wanted to do. Instead, World Challenge waited for Zurich to resolve two outstanding issues regarding which policy responded and how far in advance a customer could validly cancel – questions that would have been “meaningless” had refunds not been covered at all. The Judge found that World Challenge would have had more options at its disposal had it sought to cancel in mid-March and could likely have arranged for at least some trips to be deferred. The delay had also caused World Challenge to suffer a loss of customer goodwill.
World Challenge was found to have come away from a particularly significant call with Zurich’s loss adjuster in April 2020 with the “clear impression” that Zurich accepted that customer refunds were covered subject only to giving credit for recoveries. The loss adjuster had given such a clear impression, the Judge found, because he still erroneously believed that the refunds represented costs to World Challenge, notwithstanding the clear evidence he had already seen to the contrary – it was not until later in April that the penny dropped and Zurich sought to deny cover.
The Judge was satisfied that it would be unjust to allow Zurich to resile from the common assumption in respect of the trips cancelled on 20 April 2020. An estoppel by convention therefore operated, such that the claim succeeded in the sum of the customer refunds less any third party recoveries.
The Judge made clear that she would not, however, have allowed the alternative promissory estoppel claim to succeed, on the basis that World Challenge could not have understood Zurich to be giving up any right to rely on the true construction of the policy in circumstances in which World Challenge was entirely unaware, until mid-April 2020, what that construction was.
Coming after (and buttressing) the Judge’s construction analysis, the estoppel findings in George on High feel far less novel than those in World Challenge, in which the operation of an estoppel resulted in Zurich being required to indemnify a loss it never contracted to cover.
In both cases, however, the estoppel analysis is hard to square with the traditional understanding of estoppel as a “shield not a sword”: an estoppel cannot be used to create a contract or a cause of action where none previously existed. This issue was not addressed in World Challenge. In George on High, the Judge relied on remarks made by Lord Burrows in Tinkler v HMRC  UKSC 39 to find (at ):
“…in this case the estoppel is not acting as a sword. The Broker and Claimants are not seeking to create a contract where none existed; they are seeking to prevent [the underwriters] from resiling from a previous interpretation of the Contract on which they have relied.”
Tinkler was, however, concerned with dealings between HMRC and a taxpayer. As Lord Burrows explained, at :
“The underlying duty to pay tax is imposed by statute and the estoppel relates merely to the dealings between HMRC and the taxpayer in connection with the procedure by which HMRC determine the correct amount of tax to be paid under the statute.”
In World Challenge and George on High, in contrast, the estoppels appear at the very least to have had the effect of extending an existing cause of action, created by the contract of insurance: the result of the judgment in World Challenge, in particular, is that the claimant insured was found entitled to sue for an indemnity that the underwriter would not, but for the estoppel, have been obliged to provide.
Further, while the “common assumption” analysis in George on High was relatively conventional, Mrs Justice Dias’ willingness to find that the assumption was “common” in World Challenge is surprising in circumstances in which the Judge also found that Zurich never in fact understood the policy schedule to provide the cover alleged by World Challenge. The assumption was in a sense entirely World Challenge’s, albeit it was encouraged by the failure of Zurich’s employees (and third party agents) to apply their minds to the makeup of the sums presented to them.
On a more practical note, both cases should alert insurers to the importance of taking a thoughtful and considered approach to claims handling, even in respect of very low value claims, and of ensuring proper oversight of third party claims handlers. Faced with the temptation to cut corners in respect of claims which may be so insignificant as to regularly fall within a policy deductible, insurers should remain mindful of the dangers of setting a precedent inconsistent with their understanding of the policy wording. As Mrs Justice Dias remarked in World Challenge (at [288(c)]):
“The overriding impression is that Zurich’s employees operated in compartmentalised silos. None of them apparently regarded it as any part of his or her function to look outside their own little box and there was seemingly no-one in overall control to provide any joined-up thinking.”
Insurers need to appreciate that the conduct of their (third party) claims handlers may have an impact on the scope of the cover they are providing, even if no payments are made in respect of the claims being handled. That is likely to come as a real surprise to many underwriters.
©Carola Binney of 4 New Square Chambers, September 2023
This article is not intended as a substitute for legal advice. Advice about a given set of facts should always be taken.