The COVID-19 pandemic caused the temporary closure of thousands of businesses - with the hospitality sector hit particularly hard. Many such businesses held business interruption insurance policies they had envisaged would provide them with coverage. In 2020, the FCA recognised that a huge number of insurance claims would be made and brought a test case aimed at clarifying a number of key issues surrounding which policies would and would not cover COVID-19 related claims (the Test Case).
The Supreme Court handed down its decision in the Test Case in January 2021. The FCA has since reported that approximately 120,000 business interruption claims have been accepted by insurers in line with the Supreme Court's findings.
However, the Supreme Court decision only considered the wording set out in certain standard policies issued by a handful of insurers leaving many policyholders with uncertainty as to whether their claims would and should be covered. A series of High Court decisions this year have helped to answer some of those queries - and we explore below a number of decisions which have largely been favourable to policyholders.
Corbin & King
In February 2022, restaurant group Corbin & King took their challenge to the High Court and struck a blow for policyholders. In that case, the High Court considered how the Denial of Access (Non-Damage) (NDDA) clause in the policy should be interpreted.
The NDDA clause provided as follows:
“We will cover you for any loss insured by this section resulting from interruption or interference with the business where access to your business is restricted or hindered for more than [2 hours] ... arising directly from ... the actions taken by the police or any other statutory body in response to a danger or disturbance at your premises or within a 1 mile radius of your premises.”
Corbin & King’s insurers had refused coverage arguing that the NDDA clause only provided a ‘narrow and localised’ form of cover, relying on the approach taken by the Divisional Court in the Test Case.
Finding in favour of policyholders, the High Court determined that the Supreme Court’s approach to causation should be adopted and that COVID-19 is capable of being a danger within one mile of the insured premises which, coupled with other uninsured but not excluded dangers outside, led to the regulations which caused the closure of the businesses and caused the business interruption loss.
The judge further held that the NDDA cover provided a separate limit of £250,000 for each individual premises in respect of each claim (rather than a single limit of £250,000 in relation to all of the premises for any one claim). This meant that Corbin & King could collectively recover up to £2,750,000 under the policy as opposed to just one payment of £250,000.
Stonegate & Ors
In the cases of Stonegate Pub Company Ltd, The Various Eateries Trading Limited, and Greggs Plc, handed down on 17 October 2022, the High Court made key decisions on the aggregation of losses.
A central issue to all three claims was whether the claimed COVID-19 business interruption losses “arise from, are attributable to or are in connection with a single occurrence”. Insurers sought to argue that all of the policyholder’s losses throughout the COVID-19 pandemic period were attributable to a “single occurrence” rooted in the origins of the pandemic (such as the coming into existence of the virus, or the initial outbreak of COVID-19 in humans), thereby limiting the policy holder to the “Limit of Liability” of £2.5m (the sum of which had already been paid).
However, rejecting the primary argument advanced by the insurers, Mr Justice Butcher determined that the proper assessment of ‘occurrences’ fell to be determined by reference to the Government’s actions/interventions at different stages throughout the pandemic. The effect of this analysis was that policy limit applied per “occurrence”. The policyholders could, therefore, recover the maximum policy limit of £2.5m for each identified “occurrence”
Further, Mr Justice Butcher widened the discussion on what may constitute a business interruption loss “in connection with a single occurrence”. Mr Justice Butcher highlighted the broad nature of the term “in connection with” and noted that this could be multiple covered events, at multiple locations either driven by individual occurrences of COVID-19 within the vicinity, or the enforced closure of policyholder’s premises.
The decision in Stonegate also considered the extent to which insurers were entitled to take account of the benefit of government intervention through furlough payments and business rates relief. Insurers sought to contend that, either as a matter of the policy wording, or as a matter of the application of the legal principles of subrogation, the insurers were entitled to receive such the benefit during the policy period.
In a finding that went against the interests and arguments of the policyholders (and indeed against guidance given by the Association of British Insurers), Mr Justice Butcher determined that furlough payments and business rates relief ought to be brought into account on a proper construction of the “savings clause”. Mr Justice Butcher highlighted the applicability of the principles of the doctrine of subrogation in contracts of insurance noting that “the [furlough] payments were ones which, prima facie, did diminish the insured loss. They were payments made in respect of employment costs which Stonegate would otherwise have borne itself, either as wages, if staff were kept on the payroll, or by way of redundancy payments, if staff had been let go. In either case, they would have contributed to the financial loss arising from the interruption or interference to Stonegate’s business.”
This ruling confirms that even if the particular policy mechanisms did not permit the insurers to take the benefit of the payments, the legal doctrine of subrogation would step in and the furlough payments and/or any business rate reductions would be held to the insurer’s benefit.
Takeaway?
These cases demonstrate that the FCA Test Case was far from the final word on business interruption claims - and that policyholders who have had claims denied due to coverage issues should test those decisions where their policy does not fit squarely within the bounds of what was decided in the FCA Test Case. We expect the Courts to see further business interruption claims in 2023 as these decisions may well embolden policyholders to dispute insurers’ decisions to refuse coverage. Policyholders (and indeed Insolvency Practitioners appointed over policyholders) should revisit their insurance policies and speak to experts as to whether there might be a chance of challenging any refusal of coverage.
This article was first published in TL4 FIRE Magazine Issue 11 dated 2 December 2022.
