Business has been interrupted by the lockdown and the pandemic, with some businesses being forced to close for many months. This has thrown a spotlight on the insurance industry and in particular business interruption cover. On 15 January 2021, the Supreme Court gave its judgment in the test-case brought by the FCA to clarify if and how COVID -19 and the suppression measures triggered these policies.
The scope of this judgment is huge: directly it affects around 370,000 policyholders but the interpretation will be applied to approximately 700 types of policy from 60 different insurers. It will be very welcome news to many businesses that the Supreme Court sided with the policyholders on almost all points.
A claim following an ‘event’ in English law is generally made up of three elements: the right to claim (here the insurance policy covering the event), causation (here that the event caused the business loss) and loss. It was the first two, and a consideration of exactly what the ‘event’ was, that shaped the court’s thinking.
The clauses in the insurance policies are split into two broad categories: disease clauses and prevention of access clauses. Disease clauses cover losses caused by an outbreak of disease in or around the business and prevention of access clauses cover losses where the business is prevented from using its premises by an order from a public health authority.
Looking at the right to claim, an issue for businesses wishing to make claims is that the policies do not deal directly and specifically with the government ordering the country to lock-down. The clauses point to more localised issues, such a breakout of a notifiable disease in the business premises or so close to it that the business falls within the containment area (usually expressed as a number of miles).
Many tasked with responding to the pandemic on behalf of a business will also recall the general uncertainty about what a business could do, should do and must do. This could change from person to person, some were told to shield, some lived with people told to shield and anyone with a cough or temperature had to isolate. One piece of certainty, COVID-19 was made a notifiable disease on 5 March 2020.
For disease clauses, only occurrences of COVID-19 in the area specified in the policy were to be counted as ‘insured peril’ which triggered the cover and each of them is a separate occurrence. This is a narrower view than that taken by the High Court and means that the mere fact that a very fast spreading disease is elsewhere in the county is not sufficient.
For prevention of access clauses (or hybrid clauses, which include elements of both) it was held that the restriction did not have to have legal effect, but just to be expressed as a mandatory instruction. This is important because the status of announcements can be unclear, for example the Prime Minister ordered businesses to close on 20 March 2020 but at that point it was not capable of being enforced legally.
Businesses then have to show that they were prevented from using the premises, not just that they were hindered in their use. The good news here, for businesses which continued to operate take-away or distance-selling parts of the business, is that the Supreme Court held that the business premises could be divided. A restaurant that had to close to diners but operated as a take-away is ‘prevented from accessing’ the discrete dining room area.
There is a significant widening of the scope of these policies in the causation section of the judgment. The question the court needed to answer was: is the loss caused by the insured event? The insurers argued that the losses would have happened even if there were no COVID-19 cases near that particular business, or if that particular business was not shut down (insured events), because every business would have lost money anyway because of all the un-insured events (businesses in North Yorkshire affected by the high rate in London, for example). This was rejected by the Supreme Court, which held that each case of COVID-19 had the same effect as every other case. Practically, this means that every case caused the loss to every business and nicely by-passes the issue of causation for many (for anyone interested, this has overturned the Orient-Express Hotels decision).
Where does this leave businesses? Most claims will now need to be settled by insurers, which is excellent news. Issues may still arise where insurance policies do not follow the sample wording considered by the Supreme Court, so a careful review of the policy will still be required. We do not yet know the approach insurers will take to claims at the margins and what evidence will be required, so some work is still to do.
David Artley, Solicitor, Corporate and Commercial
