Supreme Court Finds in favour of Covid-19 Business Interruption Policyholders

Today the Supreme Court found substantially in favour of the Financial Conduct Authority ("FCA"), and in turn, policyholders (including tenants and possibly landlords) in the business interruption insurance test case relating to losses suffered due to the pandemic.

This result substantially opens and widens the door for claims by the estimated 370,000 policyholders who have cover against a Notifiable Disease i.e. Covid-19.

It will considerably assist occupiers of premises in the retail, leisure, and hospitality industries who had to close their premises and were unable to rely on any online business instead.

The test case related to just eight insurers and 21 sample policy wordings but it will considerably assist policyholders successfully claim under the 700 other types of business interruption policies issued by some 60 different insurers. It is an extremely bad result for the Insurance Industry.

The relevant issues related to loss where the Policies covered:-

1. Disease within a radius of the premises.
2. Prevention of access by Government or Public Authority action.
3. Both of one and two above.

The Supreme Court also had to cover the effect of Trends Clauses and what was the relevant cause that gave rise to any claim.

The Supreme Court will shortly set out the effect of its Judgment by way of a set of Declarations but the general findings are as follows:-

• There will be cover under Disease clauses provided there was an occurrence of Covid-19 within the relevant geographical radius. It is no defence for insurers to claim it was not this local occurrence but the pandemic across the UK and World that caused the loss.
• The action taken by the Government or Public Authority was sufficient to trigger cover under Prevention of Access policies even though it was not backed by legislation i.e. it was guidance only.
• "Inability to use" premises may still be satisfied where a policyholder is unable to use the premises for a discrete business activity or is unable to use a discrete part of the premises for its business activities.
• In relation to Trends and Pre-Trigger clauses, adjustments to the amount to be paid out to policyholders should only be made to reflect market circumstances affecting the business that are unconnected with the pandemic i.e. would have happened to the particular business regardless.
• The case authority relied on by the Insurers in relation to loss covered by the hurricane in New Orleans, Orient Express Hotels- v- Generali, was wrongly decided and should be overturned as cover is not subject to whether the loss would have been suffered anyway by the overall impact of the event in question.
• There is no right to appeal from The Supreme Court and the question now is as to what further cases will be brought by the FCA, Action Groups, or Policyholders in relation to other types of Policies, such as Building Insurance Policies covering loss of rent where there is a notifiable Disease within a certain radius of the premises.

Andrew Crabbie is Head of Forsters' Commercial Real Estate team. Jonathan Ross is a Partner and Anna Mullins is a Senior Associate in the Property Litigation team