The final hurdle: what does the Supreme Court’s decision on business interruption insurance claims mean for you?

We reported previously on the High Court's judgement delivered in September 2020 which provides the background to this action. The decision resolved a number of the key issues but a number of parties sought to appeal elements of the judgment, with the insurers appealing on all issues that had gone against them. The appeal was sent straight to the Supreme Court, skipping the Court of Appeal, given the urgent need for clarity and importance of the outcome.

The Supreme Court’s decision

The insurers (Arch, Argenta Syndicate Management, Hiscox, MS Amlin, QBE and Royal Sun Alliance (RSA)) appealed the High Court’s conclusions but the Supreme Court has dismissed the appeals unanimously.

Disease clauses

• Disease clauses appeared in policies insured by Argenta, MS Amlin, QBE and RSA. The Supreme Court determined that two additional policy types from QBE provide cover, meaning more policyholders will now have valid claims.
• The Supreme Court found that disease clauses provide cover for business interruption caused by any cases of Covid-19 that occur within a certain distance of the business premises.Cases of Covid-19 occurring outside the specified radius cannot be regarded as part of the insured risk.
• The Supreme Court’s ruling on causation means that it will be enough to show that an individual case had occurred within the necessary radius to establish that Covid-19 was the cause of the business interruption losses even if the interruption was a result of Government action taken in response to Covid-19 generally.
• This was a narrower approach to the High Court, requiring policyholders to prove at least one occurrence of Covid-19 within a specified distance of the business premises.
• The FCA have released draft guidance on proving the presence of Covid-19 which should prove helpful to businesses with disease wording in their policies. Our comments on this can be found here, but a key point is if the insurer has already been provided with proof of occurrence within a certain area then it should not require a policyholder to provide such evidence again.

Prevention of access/hybrid clauses

• The Supreme Court construed the prevention of access and hybrid wordings more widely than the High Court.
• Prevention of access clauses may provide cover for partial closure of premises (as well as full closure), where the inability to use the premises relates to a discrete business activity. For example, a restaurant that stayed open for take-away business may now claim for the loss of in-person business.
• Cover under these clauses will be more readily available because there is no requirement for there to have been a law enacted ordering closure, a public authority instruction or imposition of a restriction may be sufficient.

Summary

The Supreme Court’s judgment will be condensed into a set of binding declarations and these will follow shortly. The practical effect of the decision is that all of the insuring clauses which were in issue on the appeal will provide cover for the business interruption caused by Covid-19.

Under the first instance decision of the High Court, the disease clauses were thought to be easier upon which to establish a successful claim. However, the Supreme Court’s widening of cover under prevention of access and hybrid clauses, but narrower construction of disease clauses, may well change this in practice.

What this means for businesses

The appeal judgment brings good news and a much needed lifeline for businesses in the midst of a third lockdown and provides finality for those party to the appeal and to policies which were the subject of it. It also means that a significant number of similar policies in the wider market are likely to be caught by the decision.

Businesses with prevention of access wording should revisit their policies in light of the judgment to consider whether the Supreme Court’s findings mean that they now have a valid claim.

Again, the Supreme Court’s ruling will not resolve all disputes and does not determine how much is payable under individual policies but provides much of the basis for doing so.

One of the key benefits of this authority is that it has removed the need for policyholders to resolve many key issues individually with their insurers. The Supreme Court’s findings on causation will make it more difficult for insurers to deny cover or limit indemnity.

It remains that whether the principles of the judgment apply will turn closely on the construction of the clauses and the objective intention of the policy.

Policyholders with affected claims should expect to hear from their insurer soon but are encouraged to contact their insurers, brokers or our Dispute Resolution team if they have any questions.

Next steps

Given the further delays to pay-outs and the relevant findings of the High Court being upheld by the Supreme Court, policyholders should be mindful of their right to claim damages for late payment under the Enterprise Act 2016.

It remains that some factual issues will need to be determined on a case by case basis, depending on policy wording.

Other options for those businesses that have limited or no cover are a) to make a complaint to the Financial Ombudsman Service; or b) to explore a claim against a broker or other intermediary in the event that incorrect advice was given regarding their policy. It is imperative that policyholders seek advice on their position where insurers are either rejecting claims or not properly indemnifying their business.

How we can help

In the event that you have made a claim to your insurers and it has been rejected, we can offer a review of your policy wording in light of the Supreme Court decision and explore your options.

Our team can also assist with making complaints to the Financial Ombudsman Service and advise in connection with any professional negligence or mis-selling claims against intermediaries.

• Mei-Ling Huang
• Tom Llewellyn
• Stephen Welfare
• Nicola Radcliffe
• Marianne Johns
• Fran Tremeer