Reinsurers and Primary Carriers Clash in Subrogation Disputes Over Covid‑era Business‑interruption Payouts

Reinsurers and primary carriers clash in subrogation disputes over Covid‑era business‑interruption payouts

Who: Major primary insurers and their reinsurers across Europe and North America. What: Widening legal and arbitration fights over whether reinsurance treaties must indemnify insurers for pandemic-era business‑interruption (BI) settlements — and who bears recovery rights. When: disputes that began after the first wave of Covid‑19 claims in 2020 have intensified through 2023–2025 and remain active as of early 2026. Where: litigation and arbitration hubs in London, the United States and other advanced insurance markets; many disputes turn on London‑market treaty wording and English court jurisprudence. Why: ambiguity in reinsurance treaty construction, differing views on aggregation and causation, and large legacy reserves and recoverables have left reinsurers contesting billions of dollars in ceded BI payouts. (iclr.co.uk)

Summary
Primary insurers that settled or paid business‑interruption claims stemming from Covid‑19 closures have sought indemnity from reinsurers under catastrophe excess‑of‑loss treaties. Reinsurers have countered, arguing treaty wording, aggregation clauses and “hours” limits — and the nature of the pandemic as an aggregating event — mean the treaties do not, or should not, respond. English appellate rulings in 2024 favoring reinsured carriers have sharpened the conflict, prompting reinsurers to pursue appeals, separate arbitrations and aggressive defenses. The fights are now a central feature of the insurance industry’s Covid legacy: they influence reserve releases, retrocession placements and whether primary carriers can fully recover large ceded payouts. (iclr.co.uk)

What is at stake
Insurers and reinsurers disagree over the economics and legal reach of catastrophe reinsurance. Primary carriers argue they paid valid BI claims to policyholders and are entitled to recover under treaty terms that protect “the business specified” during a loss occurrence; reinsurers counter that catastrophe XL or hours clauses, designed for discrete physical events, should not be stretched to cover prolonged, systemic public‑health measures. The financial stakes are material: regulators’ aggregated data show UK BI payouts alone ran into the hundreds of millions and, by some measures, more than a billion pounds when interim and final settlements are combined — while U.S. and other global insurers continue to disclose Covid‑related reserves and reinsurance recoverables in their SEC filings. Insurers’ balance sheets and capital planning depend on the outcome. (fca.org.uk)

How the legal disputes unfolded
The first major legal turning points came on policy coverage for direct insureds (the FCA test case in the U.K. and follow‑on domestic decisions). Those rulings created an opening for cedants (primary insurers) to quantify and pay BI losses — and then seek treaty indemnity from reinsurers. Reinsurers often challenged those recovery efforts through arbitration and section 69 appeals under the Arbitration Act in England, testing whether the pandemic constituted a single “catastrophe” and whether “hours” or aggregation clauses limited indemnity.

On Sept. 30, 2024, the England and Wales Court of Appeal dismissed a reinsurer’s appeal in UnipolSai Assicurazioni SPA v. Covéa Insurance Plc and affirmed that, on the facts before the tribunal, the outbreak of Covid‑19 constituted a “catastrophe” under the treaty and that the hours clause did not defeat Covéa’s entitlement to indemnity. The court adopted a market‑practical approach: an individual BI loss could be treated, for treaty aggregation purposes, as arising when the insured’s business was first interrupted, even though financial loss continued thereafter — a construction that aligned non‑damage BI with market practice for damage BI. “The outbreak of Covid‑19 … was a ‘catastrophe’,” the judgment concluded. (iclr.co.uk)

Reinsurers’ legal and commercial defenses
Reinsurers have advanced several recurrent defenses:

• Treaty construction and intent: reinsurers say catastrophe XL treaties were underwritten to cover sudden, localized events (storms, earthquakes) and should not respond to a diffuse pandemic or to large scale government orders.
• Aggregation and “hours clause” mechanics: reinsurers argue that hours clauses confine aggregation to short time windows (e.g., 72, 120 or 168 hours) tied to physical catastrophes, which would dramatically reduce aggregated ceded losses if applied to day‑by‑day BI accruals.
• Causation and origin: reinsurers assert insurers cannot aggregate diverse closures as a single loss occurrence absent a single, identifiable originating cause or event.
• Allocation and settlements: reinsurers contend cedants have sometimes made settlement choices or accounting allocations that prejudice reinsurers’ rights (including over‑generous interim payments or failure to preserve subrogation/recovery rights).
• Procedural and jurisdictional challenges: reinsurers frequently seek to litigate or arbitrate in preferred venues and to contest tribunal jurisdiction or the propriety of appeals. (iclr.co.uk)

Cedants’ counterarguments
Primary carriers press opposing legal and commercial points:

• Market practice and policy wording: many cedants say reinsurance was priced and sold on the basis that property departments included non‑damage BI risks; treaty language referencing the “Class of business” or the insured’s own classification — together with premium calculations tied to departmental gross premium — should be construed to include BI paid on normal policy cover. English courts in several decisions have accepted that market practice and treaty context matter. (iclr.co.uk)
• Practicality and commercial sense: cedants argue that a day‑by‑day apportionment would be commercially absurd — it would break the link between the indemnity provided by the primary policy and the protection reinsurers agreed to provide for a single loss occurrence.
• Regulatory and fiduciary pressures: regulators such as the FCA pressed insurers to identify, process and pay valid BI claims after test decisions; cedants that delayed or withheld payments exposed themselves to regulatory pressure and reputational risk. Those pressures are part of why cedants prioritized paying policyholders and then seeking reinsurance recovery. (fca.org.uk)

Selected cases and disputes shaping the landscape

• UnipolSai v. Covéa (Court of Appeal, Sept. 30, 2024): as described above, the court dismissed a reinsurer’s challenge to arbitration awards in favor of the reinsured and addressed both the “catastrophe” question and the operation of an hours clause. The decision has been cited repeatedly in later disputes. (iclr.co.uk)
• Related Markel and Gen Re arbitrations: companion cases raised similar issues about aggregation and hours clauses; some were settled before appeal hearings, others were litigated with divergent findings that require further appellate clarification. (iclr.co.uk)
• WR Berkley / Reinsurers (U.S. and London‑market disputes): courts and broker‑market reporting show reinsurers contesting indemnity rights for claimed ceded losses in cases quantified at tens of millions of dollars. Industry reporting has tracked multiple reinsurers denying indemnity where they argue there was no single aggregating event. (insuranceinsider.com)

Financial magnitude and reserve dynamics
The fiscal legacy of Covid‑era BI remains visible in insurers’ and reinsurers’ regulatory filings. The UK’s Financial Conduct Authority aggregated data showed billions of pounds in interim and final payments to direct policyholders in the test‑case cohorts; the FCA’s consolidated submissions reported, for instance, aggregate final settlements and interim payments in the hundreds of millions to low‑single‑digit billions range for firms that submitted data. Simultaneously, reinsurers and global specialty groups continue to disclose Covid‑related reserve adjustments and reinsurance recoverables in U.S. SEC filings — RenaissanceRe and others reported adverse development driven in part by Covid‑19, and various insurers list “reinsurance disputes” or the risk of reinsurers withholding recoveries among their risk factors. Those disclosures underline that the pandemic remains a quantifiable legacy item on many firms’ balance sheets. (fca.org.uk)

Industry views and market response
Brokers, reinsurers and insurers have adjusted underwriting, attachment points and collateral requirements since 2020. Executives have emphasized the longer‑term market implications: AIG Chief Executive Peter Zaffino said in late‑2024 that the reinsurance market reset had raised attachment points and curtailed coverage breadth, changing how primary carriers manage catastrophe programs and legacy exposures. “The significant reset in the property cat reinsurance market … means that reinsurers generally have higher attachment points,” Zaffino told analysts, a shift that affects how future BI‑style systemic risks would be treated and priced. Brokers and law firms caution that unresolved treaty wording and inconsistent arbitration outcomes will continue to generate legacy litigation and allocation disputes for years. (reinsurancene.ws)

Subrogation and recovery flashpoints
The headline‑level tension often described as “subrogation disputes” includes multiple legal vectors:

• Reinsurance subrogation and recovery rights between reinsurer and ceding insurer: reinsurers sometimes argue that cedants’ settlements or reallocations undermine reinsurers’ ability to assert subrogation against third parties, or that cedants failed to preserve recoveries they could have pursued on behalf of reinsurers.
• Deductible and collateral disputes: reinsurers have disputed whether cedants’ use of interim payments, allocation between policy types, or adjustment of claims affected treaty attachment points and reinsurer exposure.
• Third‑party and government recovery rights: although rare, the possibility of subrogation against suppliers, landlords or public actors has been raised conceptually; the practical and political barriers to subrogation against government public‑health responses make those suits uncommon and legally complex. Scholarly proposals for pandemic backstops and public‑private partnerships reflect market recognition that pure private reinsurance is ill‑suited to systemic pandemic risk. (practiceguides.chambers.com)

Practical consequences for cedants and reinsurers

• Capital and solvency: unresolved reinsurance recoverables prolong uncertainty in solvency calculations and may depress capital available for new underwriting. Insurers have disclosed material reinsurance recoverables and have warned investors that disputes could be time‑consuming and costly. (fintel.io)
• Retrocession and collateral: reinsurers and retrocessionaires are recalibrating collateral requirements, with more frequent use of letters of credit, trust accounts or fully collateralized structures for systemic risks and for treaty counterparties with lower credit grades. Fraud in collateral arrangements has also emerged as a contagion risk that compounds recovery disputes. (content.edgar-online.com)
• Pricing and wordings: primary insurers are revising policy wordings, excluding pandemic coverage, or adding specific pandemic language and limitations; reinsurers insist on narrower treaty wording or higher attachment points for pandemic‑exposed business. The market’s “reset” since 2023 has made reinsurance costlier and narrower for perils that can aggregate across entire portfolios. (reinsurancene.ws)

Voices from the field
Legal and market commentary is pointed. In its summary of the Court of Appeal decision, a leading commercial law report noted the judgment’s reliance on market practice and the practical operation of an hours clause in reinsurance. “The judge noted… it was common ground… that the entire loss which the hotel owner recovers under the direct insurance is treated… as having occurred on the day of the property damage,” the report observed, applying that analogy to non‑damage BI. Legal practitioners say the Court’s pragmatic approach will reduce room for reinsurers to use purely doctrinal defenses that sever direct insurance outcomes from treaty indemnity. (iclr.co.uk)

Industry executives’ comments have been more guarded. AIG CEO Peter Zaffino summarized the market shift succinctly: “The significant reset in the property cat reinsurance market … means that reinsurers generally have higher attachment points.” Industry trade reporting quoted reinsurers who prefer arbitration where market practice can be examined and who remain wary of precedent that extends catastrophe cover to systemic public‑health events. (reinsurancene.ws)

Regulatory and public policy angles
Regulators in jurisdictions with large numbers of BI claims — notably the U.K.’s Financial Conduct Authority — have actively monitored insurers’ claims handling since the test case; the FCA published consolidated industry data and pressed firms to settle promptly and fairly. The public‑policy debate has shifted toward whether pandemics should be insured privately at all: academic and policy papers advocate public‑private pandemic backstops or explicit government reinsurance layers to make coverage affordable and to avoid post‑event disputes over scope and recoverability. A 2023 academic review argued that pandemic BI losses are “generally considered ‘uninsurable’” absent public support and suggested a structured PPP to augment reinsurance capacity. The policy implication is clear: without a state‑supported backstop, private markets are likely to limit or exclude pandemic systemic coverage — and disputes about legacy 2020–21 payouts will be judged case‑by‑case for years to come. (fca.org.uk)

What to expect next

• Continued litigation and arbitration. The UnipolSai v. Covéa decision resolves aspects of the law on one set of treaty wordings and facts, but significant differences in treaty language, placement intent and factual matrices mean multiple appeals and arbitrations will proceed into 2026 and beyond. Parties with large exposures are likely to litigate allocation, aggregation and the proper construction of hours clauses. (iclr.co.uk)
• Greater contract specificity. Insurers and reinsurers will continue to refine wordings, exclude pandemic perils, or demand higher attachments and collateral — a dynamic that has already altered treaty economics. (reinsurancene.ws)
• Public‑private solutions debated. Policymakers and academics will press for pandemic backstops to avoid repeat market failures and the attendant litigation costs that have taxed both carriers and reinsurers. (pmc.ncbi.nlm.nih.gov)

Conclusion
The Covid‑era business‑interruption disputes have evolved from front‑line coverage fights between policyholders and their insurers into a complex, transnational set of battles over reinsurance treaty construction and recovery rights. The core tension pits reinsurance market architecture — designed for sudden, aggregable physical perils — against the reality of a diffuse, government‑driven economic interruption. Court rulings that favor cedants on treaty construction have not ended the debate; they have simply transferred it into an intense reinsurance litigation landscape where doctrine, market practice and huge financial reserves intersect. For the global insurance industry, resolving those legacy disputes will be decisive for capital planning, pricing and the future availability of pandemic‑linked business interruption protection. (iclr.co.uk)

Sources and further reporting (selection)

• England & Wales Court of Appeal, Unipolsai Assicurazioni Spa v. Covéa Insurance Plc, [2024] EWCA Civ 1110. (iclr.co.uk)
• Financial Conduct Authority, Business interruption insurance test case — insurer claims data (consolidated FCA submissions). (fca.org.uk)
• RenaissanceRe Holdings Ltd., 2024 Form 10‑K / annual report (COVID‑19 adverse development disclosure). (investor.renre.com)
• Peter Zaffino, AIG CEO, public comments on reinsurance market reset and attachment points (AIG Q3/Q4 2024 commentary summarized in industry reporting). (reinsurancene.ws)
• Scholarly review: Eggleton & Gürses, “Reinsuring pandemics: the role of government and public–private partnerships,” Geneve Pap Risk Insur Issues Pract, 2023. (pmc.ncbi.nlm.nih.gov)

(Reporting for this article included court judgments, regulator data and company SEC filings. Where direct quotations from judgments or filings are used, they are attributed to the named sources above.)