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Many were forced to close their doors leading them to sustain significant financial losses. Many then sought to recoup their losses by making claims under their Businesses Interruption (BI) insurance policies – only to find that their policies were either inadequate or their claims were rejected. As many as 370,000 policyholders were said to have been affected in September 2020 and there was widespread concern about the lack of positive response from some insurers and the basis on which they were refusing claims. The FCA stepped in and sought to resolve this contractual uncertainty by bringing on behalf of policyholders, a test case against eight insurance companies.
The High Court was asked to consider a representative sample of business interruption policy wordings to assess whether those BI policies covered losses resulting from the pandemic. Judgment was initially handed down in favour of policyholders in September 2020 but the insurers appealed (there was a cross-appeal by the FCA) and the matter was “leapfrogged” to the Supreme Court.
The Supreme Court handed down its judgment in January 2021, finding in favour of policyholders and that the BI policies that were considered did indeed provide cover. While the Supreme Court judgment is legally binding on the eight insurers that agreed to be parties to the test case, it also provides (as well as certain aspects of the High Court judgment) authoritative guidance for the interpretation of similar policy wordings and claims. As such, the hope was that the judgment would provide clarity and would help policyholders and insurers have a clearer view of which BI policies covered COVID-19 business related losses and which policies did not.
It has been just over two years since the Supreme Court judgment. Has there been that desired clarity?
The Supreme Court judgment has certainly led to fewer disputes than there would have otherwise been meaning that many thousands of policyholders who had cover should have had their claims for COVID-19-related BI losses paid. The FCA test has also removed the need for policyholders to resolve many key issues with their insurers. The most recent data published by the FCA in March 2023 shows that 37,978 out of 43,027 policyholders who had claims accepted by their insurer had received at least an interim payment (with an aggregate value of £1.4bn).
However, while the Supreme Court's analysis of common insurance clauses impacted by COVID-19 was extensive, it did not resolve all issues. Each policy has to be considered against the judgments (both the Supreme Court judgment and certain aspects of the High Court judgment) to establish what it has meant for that policy. The judgments also did not determine how much was payable under individual policies albeit that they did provide the basis for doing so. Consequently, there has been continued scope for insurers to refuse cover in some cases – particularly where the policy wording is different to the wording considered in the FCA test case.
We have, for example, seen cases in practice where insurers have refused to provide cover because the policy did not include a denial of access (non-damage) clause or because the relevant policy wording referred to diseases occurring “at the Premises” rather than (for example) “in the vicinity of the Premises”.
Given such issues, we have continued to see interruption claims being issued at the High Court. Judges are still grappling with the nuances of policy wordings. For example, in a subsequent decision of the High Court in Corbin & King Ltd & Ors v AXA Insurance UK Plc (Rev1)  EWHC 409 (Comm), the Court upheld the claims by restaurant operators (including the operators of the Wolseley and Delaunay) against AXA Insurance relating to the interpretation of prevention of access clauses. The court considered the scope of such clauses and found that a denial of access (non-damage) clause in a combined business insurance policy provided cover for BI losses resulting from government regulations responding to the COVID-19 pandemic. This is significant because the High Court in the FCA test case had generally found that Prevention of Access clauses did not provide such cover and the Corbin & King decision relates to parts of the High Court test case judgment that were not appealed to the Supreme Court. There are several claims which are due to go to trial on “at the premises” disease wording.
The Corbin & King decision highlights two key factors. First, business interruption disputes, even after the FCA test case, will still turn on the precise wording of policies and there will be continued litigation. For example, more recently, pub firm Fuller’s has issued a claim against insurance firms Aviva and Liberty Mutual in the Commercial Court for its business interruption losses. Second, there is a now a possibility that policyholders with unresolved potential claims may be able to recoup losses that they thought were not recoverable. This is good news for policyholders. We therefore recommend that if you had to close your business because of the pandemic and if you suffered losses as a result that you revisit your policy wording. We have previously outlined some top tips in our article on “Making a claim for COVID-19 business interruption losses”.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.
12 May 2023