Derailing the Orient Express A UK court has overturned a decision that’s been influential in assessing business interruption claims after catastrophes By Wendy Pugh
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ike a best-selling thriller with plenty of twists, a legal dispute invoking the legendary Orient Express train but actually involving a New Orleans hotel has led to a judgment by a court in London that has implications for businesses in Australia. Fifteen years after Hurricane Katrina devastated New Orleans, the UK Supreme Court has ruled a landmark insurance decision that reduced the amount of money that could be paid to a damaged hotel was wrong. The ruling, part of a test case judgment on coverage for losses triggered by the COVID-19 pandemic, overturns a precedent relied upon by insurers to limit business interruption liabilities after catastrophes and disasters. “The reason it is significant is that it has implications beyond the coronavirus issues that are currently before the courts,” Herbert Smith Freehills Partner Mark Darwin says. “The decision will have widespread implications for bushfires, floods and earthquakes.” The original case involved a claim lodged by Orient Express Hotels after a property in the New Orleans French Quarter was damaged by Hurricanes Katrina and Rita in 2005. The hotel was closed during September and October, when the surrounding area
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was also devastated by the hurricanes, and a claim for property and business interruption cover was lodged under a policy governed by English law. Business interruption claims are assessed by looking at previous financial performance, and adjusting for circumstances and trends besides the event triggering the claim, that might have affected trading. A manufacturer that has recently lost its largest client, or a restaurant whose celebrity chef has just quit, would receive payments that take account of those changes, reflecting a scenario where the business had continued trading and the disaster which halted operations, such as a fire, hadn’t happened. In the case of the New Orleans hotel, the business interruption part of the claim was declined on the grounds that even if the property wasn’t damaged by the hurricane, there would have been few visitors because of the destruction in the city. The dispute went to an arbitration tribunal, which found in favour of the insurer, and was appealed in London where the court backed the original determination in Orient Express Hotels Ltd v Assicurazioni Generali SPA [2010] EWHC 1186 (Comm). The COVID-19 test case, launched by the
UK Financial Conduct Authority, brought Orient Express back into the spotlight as insurers looked to the decision to support their arguments, noting the coronavirus outbreak affected the whole country and lockdown rules applied widely. Shops and restaurants hit by the pandemic were like the hotel amid the devastation of New Orleans. The High Court’s Lord Justice Flaux and Mr Justice Butcher were not convinced the COVID-19 circumstances were sufficiently similar to the New Orleans hurricane situation, but said if they had viewed the Orient Express precedent as crucial, they would “have reached the conclusion that it was wrongly decided and declined to follow it”. “In our view, the consequence which flows from the Orient Express decision, that the worse the fortuity which befalls the insured and the vicinity of the insured’s premises, the less the insurance responds, cannot have been intended,” they said. The High Court judgment, which involved decisions on 21 sample wordings from eight insurers, was partly appealed to the Supreme Court, where arguments were considered by five justices and largely decided in favour of policyholders. In an echo from the past, the Supreme
