Complex casualty: coverage disputes - market insights April 2025

The emerging casualty risk posed by microplastics

Litigation involving microplastics is gaining traction in the US, where several putative class action complaints have been filed against companies for failing to manage the alleged environmental and health impacts of their products. Regulators in the UK and EU are also actively investigating the risks associated with microplastics. These regulatory and litigation developments could expose insurers to claims across casualty lines, particularly across sectors such as food, manufacturing and packaging.

Failure to comply with regulatory requirements could also expose insureds to significant fines and product recalls, giving rise to claims under product recall policies, product liability and environmental policies. There may also be potential exposure under employment liability policies where workers have come into contact with microplastics during the course of their employment.

As microplastics have been added to products for several decades, insurers may need to reassess coverage under historical policies, particularly those providing cover for general liability, product liability and environmental risks, and the extent to which they may respond to potential legacy claims. They may also wish to consider refining policy wordings, including the application of relevant exclusions.

As scientific research continues, insurers should also engage with insureds to ensure they are aware of the potential liability exposures and compliance with relevant regulatory requirements. Insureds should also ensure that products containing intentionally added microplastics are adequately labelled to inform consumers of any potential risks. With greenwashing disputes on the rise, insureds should also ensure they do not overstate or make misleading statements about the biodegradability of their products.

A step closer to UK litigation funding reform?

On 31 October 2024, the Civil Justice Council’s Working Group (Working group) published its highly anticipated interim report on litigation funding. Although the report was comprehensive, it made no recommendations or conclusions. Instead, it discussed the state of play of the litigation funding sector across six key focus areas. This is because the government wishes to undertake a full review of the third-party litigation sector before considering the question of reform, including any future legislative proposals. In light of this, the report was accompanied by a consultation which sought views from stakeholders on the regulation of third-party litigation funding (TPLF), the extent to which funders’ returns on TPLF agreements should be capped and other sources of funding, amongst other things. The consultation closed on 3 March 2025 and we have responded. The policy response is expected at the end of Q2.

The Working group’s full report is expected to be published in summer 2025.  A recent poll commissioned by campaign group, Fair Civil Justice, revealed that the majority of the British public are in favour of stronger regulation around the use of third-party litigation funding in class action lawsuits. It is therefore expected that the Working group’s full report will make recommendations that ultimately uphold the principle of access to justice. However, many stakeholders, particularly businesses operating in the private sector, will expect the report to make recommendations that sufficient safeguards are put in place to promote transparency and accountability within the sector.

A climate change litigation forecast for London Market Casualty Insurers

Aloha Petroleum v National Union Fire Insurance Co. Pittsburgh [07.10.24]

The Hawaii Supreme Court found that a legacy pollution exclusion (i.e. not one specifically aimed at barring claims regarding climate change) within the defendant’s commercial general liability policy applied to preclude coverage for the underlying climate change claims in question because greenhouse gases (GHG) were deemed “pollutants”.

The decision is one of the few of its kind to consider policy coverage in the context of climate litigation since AES v Steadfast [2012] (Supreme Court of Virginia). It may influence other US courts in future disputes regarding the coverage available for potential climate liabilities under general liability and/or product liability policies. Whilst casualty insurers will be rightly concerned with mitigating the risks of climate litigation at future renewals, the decision also indicates that traditional pollution exclusions may continue to shield insurers from climate change claims. In the UK, whilst some insurers have already begun adopting climate exclusion clauses (for climate-related property damage), the majority of the industry are assisting policyholders to mitigate against risk prior to inception.

Case developments

Latest Court of Appeal judgment on insurance cover for COVID-19 business interruption losses considers composite insurance policies and furlough funds.

Bath Racecourse Company Ltd & Ors v (1) Liberty Mutual Insurance Europe SE (2) Allianz Insurance Plc (3) Aviva Insurance Limited [21.02.25]

The Court of Appeal (CA) has handed down its latest judgment concerning business interruption (BI) insurance losses arising out of the COVID-19 pandemic. The judgment focuses on two key issues:

• Whether under a composite policy the limits of indemnity for the respective were shared aggregate limits applicable to all claims by the insureds as a whole or individual limits for each insured
• Whether insurers are entitled to deduct furlough payments under the UK Government’s Coronavirus Job Retention Scheme from the indemnity calculation.

With regard to the first issue, the CA held that, unless the policy contains wording to the contrary, the default position is that limits are available separately to each insured business and that the nature of a composite policy is as a series of contracts insuring each policyholder separately. The CA relied on principles established in common law that the ‘expectation’ in a composite policy is that it provides multiple limits. The policyholders had distinct premises, and the danger insured would be distinct for each. The limits were therefore intended to be applicable to each insured separately, and the reasonable policyholder would not expect its limit to be eroded by someone else’s claim, absent express wording to the contrary.

With regard to the second issue, the CA found that furlough payments should be deducted from the indemnity payable under BI policies, finding for insurers on all counts. The CA found that these payments effectively reduced wage costs for businesses, engaging the savings clause which meant they were to be treated as a saving to deduct from the indemnity. Allowing the insureds to retain both the full indemnity and furlough payments would result in over indemnification. Further, the pandemic and government restrictions were a sufficient, effective cause of the furlough scheme, therefore the payments were ‘in consequence of’ the insured peril within the wording of the savings clause.

The outcome in this case is not unexpected, and it is unknown at this stage whether either side will be appealing the decision further. The judgment provides insurers with a greater degree of certainty in respect of their exposure to COVID BI claims where the policyholder is insured under a composite policy and has received furlough payments from the Government.