The long-awaited Business Interruption Insurance test case judgment (which was an appeal of the first instance decision in the High Court) - which potentially impacts hundreds of thousands of policyholders - has now been handed down by the Supreme Court and the news is good for qualifying policyholders, many of whom have struggled with significantly reduced revenue as a result of the Covid-19 pandemic.
Whilst guidance from insurers has not yet been released, it is anticipated that many businesses will benefit from a payout from their insurer as a result of the Covid-19 pandemic. The findings are complex, and will depend on the wording of the subject policy, but overall, it will be more difficult for insurers to deny cover.
The Supreme Court's ruling was divided into the following aspects:
Causation - a policyholder needs to show that the event actually caused the loss they suffered. Adopting a broad approach, the Court held that causation could be found if the event (together with other related/linked events) caused one inevitable result. This means that both local outbreaks as well as the global pandemic and the Government's response (and the public's reaction to all of these) can be taken together as one 'cause' that has the effect of interrupting the policyholder's business.
Denial/prevention of Access clauses - again, following the Supreme Court's broad interpretation of causation, the Court held that these policy clauses will be triggered if the interruption to the particular business resulted from restrictions placed on the property as a result of cases of Covid-19 - even if it was as a result of one only case within a specified radius. These clauses will then cover losses caused as a result of the Government's Covid-19 response in the vicinity of the property (as set out in the policy) regardless of whether that loss was caused by other effects of Covid-19 as well. Therefore, losses as a result of the overall (i.e. nationwide) actions taken by Government will be covered. Importantly, this is not just limited to legal restrictions (which distinguishes it from the earlier High Court decision), making it easier for policyholders to claim.
The Supreme Court also went further than the High Court with regards to what 'prevention' actually means. It found that businesses could be covered if the property could not be used for part of its business, or if part of the property could not be used. An example here could be where a restaurant was restricted to takeaways only. What this means for office tenants for example, will become clearer in the coming weeks. Many offices have remained 'open' throughout the pandemic, but occupiers have only operated a skeleton staff of security, print and post room staff and where employees were unable to work from home.
Disease clauses - as mentioned above, local and nationwide cases can be treated as one cause, meaning that, so long as there has been one (or more) local cases, cover should be available.
Hybrid clauses - broadly, these cover loss flowing from denial of access resulting from Governmental advice, actions or restrictions issued in response to infectious diseases being present in the vicinity of the insured property. As with the prevention of access clauses, the Court found that buildings did not necessarily need to be totally shut for cover to be available and did not need the advice/action/restriction to be legally binding (i.e. 'guidance' may be sufficient).
Trends clauses - these are intended to put the policyholder back to the position it would have been in had the insured event not occurred and the Court held that an insurer should only be adjusting the pay out to the insured where there are circumstances which do not relate to that insured event (i.e. a circumstance that is not related to Covid-19).
Pre-trigger losses - these should take into account losses that occurred prior to the actual 'trigger' event happening (e.g. in February and early March 2020, pubs and restaurants were likely to see a drop in revenue as customers decided to stay away). This contrasts with the High Court's decision, which held that an insurer could take these drop offs into account when assessing losses so that pay outs would be lower. The Supreme Court has sided with businesses again and the 'assumption' should instead be that there was no pandemic at all.
Policyholders should now be reassessing their policies in light of this judgment. A close review of the policy's wording should be undertaken, ideally with the benefit of independent legal advice, as it may well be that policyholders who had been turned down before now have an avenue to recover that could just make the difference between the business surviving or folding.
The Supreme Court has substantially allowed the FCA’s appeal on behalf of policyholders. This completes the legal process for impacted policies and means that many thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid.