What the business interruption case means for clients: Anna Mullins writes for FT Adviser
Property Litigation Senior Associate, Anna Mullins's article entitled ‘What the business interruption case means for clients’ has been published in the FT Adviser.
In her article, Anna describes the consequences of the Supreme Court ruling over business interruption policies, which was handed down last month. Anna also explains some of the situations where a client might be able to claim for losses.
The article was first published on 02 February 2021 by FT Adviser and can be found here.
- There will be cover under Disease Clauses provided there was at least one occurrence of COVID-19 within the relevant geographical radius by the date of any government measure. These clauses do not, however, cover interruption caused by cases of illness resulting from Covid-19 that occur outside that area.
- It is no defence for insurers to claim that it was not this local occurrence but the pandemic across the UK and world that caused the loss.
Prevention of Access and Hybrid Clauses
- The action taken by the government or public authority was sufficient to trigger cover under Prevention of Access clauses, even though it was not backed by legislation, that is, it was guidance only.
- By way of example, when the prime minister (on 20 March 2020) instructed named businesses to close “tonight”, that was a clear, mandatory instruction given on behalf of the UK Government. It was an instruction that both the named businesses and the public would have reasonably understood had to be complied with without inquiring into the legal basis or anticipated legal basis for the instruction. The Supreme Court found that such an instruction is capable of being a “restriction imposed”, regardless of whether it was legally capable of being enforced. The Supreme Court did not, however, rule on whether each of the government announcements and regulations were “restrictions imposed”. It directed that this should be left over for agreement or further argument.
- Altering the decision of the High Court, the Supreme Court also decided that "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. An example was given by way of a department store. If the store had to close all parts of the premises except its pharmacy, this would potentially be a case of inability to use a discrete part of its business premises.
- Similarly, “prevention of access” may include prevention of access to a discrete part of the premises or to the whole or part of the premises for the purpose of carrying on a discrete part of the policyholder’s business activities.
- However, policyholders can only claim for losses relating to that part of the business for which the premises cannot be used/accessed.
Trends clauses and pre-trigger losses
- In relation to Trends Clauses, the Supreme Court reminded parties that such clauses were to be construed consistently with the insuring clauses in the policy and, to do so, they should be construed so as not to take away the cover provided by the insuring clauses; to do so would transform the quantification machinery into a form of exclusion.
- 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, that is, would have happened to the particular business regardless of Covid-19. Any pre-trigger losses caused by the pandemic should not be considered.
Orient-Express Hotels Ltd v Assicurazioni Generali SpA
- The Supreme Court found that this case authority was wrongly decided and should be overturned. Cover under an insurance policy is not subject to whether the loss would have been suffered anyway by the overall impact of the event in question.
This decision is good news for businesses and anyone affected should take a pro-active approach to review their policies and reassess previously rejected claims.
While we understand that the Supreme Court will shortly issue its declarations and the FCA is due to publish a set of questions and answers for policyholders, next steps for businesses include considering:
- If any part of the decision is directly (or indirectly) applicable to your policy wording. We understand that the FCA will soon publish a list of policy types that potentially respond to the pandemic based on data that they are gathering from insurers. Contact your insurance broker as soon as possible and they may be able to give some preliminary advice.
- What additional factual evidence will need to be gathered to establish and prove a valid claim. The FCA has published draft guidance for policyholders on how to prove the presence of coronavirus. The consultation period closed on 22 January and we anticipate finalised guidance coming shortly from the FCA. However, for now, policyholders might want to collate any relevant government guidance that was relied on and start gathering accounting information to demonstrate the losses suffered. Further, to assist in proving that Covid-19 existed within the relevant radius (and at the relevant time), policyholders should consider finding details of reported cases of the virus in and around your area, death statistics published by the NHS or publicly available data published by the Office of National Statistics.
There will still inevitably be disputes even after the Supreme Court has offered such clarity on matters. For example, the trends clauses still have to be applied to take into account unrelated trends and query how government financial assistance is to be taken into consideration when losses are calculated. In that regard, the FCA has produced a "Dear CEO" Letter that calls for insurers to consider the appropriateness of deducting such sums from claims.
Policyholders should also be asking for interim payment on policies where the claim has been accepted but elements of the calculation or agreement on the final settlement remain outstanding. Query whether policyholders can also pursue insurers for potential damages for late payment. Whether such claims will be successful remains to be seen.
In any event, the decision will be welcomed by many policyholders and, as there is no right to appeal from the Supreme Court, the question now is what further cases will be brought by the FCA, action groups, or policyholders in relation to other types of policies, such as wedding insurance or building insurance policies covering loss of rent where there is a Notifiable Disease within a certain radius of the premises. It will also be interesting to see whether any current policy wording gets amended on renewal. Watch this space.
Anna Mullins is a Senior Associate in the Property Litigation team.