Elisabeth Heide, senior associate at Taylor Wessing, provides an overview of what the recent High Court ruling on business interruption insurance claims means for policyholders within hospitality.
Over the summer, the UK’s Financial Conduct Authority brought a test case in the High Court in relation to the operation of business interruption insurances and eight insurers agreed to be defendants in the test case. Thousands of policies were reviewed and to determine areas of uncertainty and key questions, 21 sample policy wordings were brought to court.
The High Court’s decision on the test case has now been published and it brings some clarity to those policyholders seeking to recover business interruption losses suffered as a result of the lockdown and the COVID-19 pandemic.
Taylor Wessing has been acting as adviser to UK hospitality on this topic and has been closely monitoring the test case. Read our Disputes and Investigations team’s full analysis of the High Court’s decision here. A brief summary of the TW analysis is set out below.
The 21 sample policy wordings reviewed by the court fell into three main categories, two of which are set out below:
• Disease wordings – clauses which provide cover for loss caused by any notifiable/human infectious disease within a specified radius of the insured location.
• Prevention of access/Public Authority wordings – these clauses provide cover for loss caused by an inability to use the premises due to restrictions imposed by a public authority.
In respect of the disease cover wording, the court adopted a broad approach. In broad terms, provided there is an outbreak of COVID within the relevant policy area, the insured will not need to prove specific local instances of the disease. In addition, if the insured can establish occurrence of COVID-19 within the 25 mile radius, it should be able to recover losses caused by COVID-19 and the government’s response to it. This will however mean that policies which covers specific localised events may not be covered by this approach.
On the prevention of access/closure by government or local authority clauses, there was a more restrictive approach. For example, it was held that government advice does not prevent access and only mandatory public health regulations has that effect. The court decision also stipulated that certain wordings (“disturbance”, “emergency”, “incident”) were intended to respond to specific and localised events taking place at a particular time and a particular place. Accordingly, a nationwide lockdown would not be covered and the sample wordings would only apply to actions taken by the authority in response to a localised occurrence of COVID-19.
Not all policies will provide sufficient cover as the court emphasised the importance of the precise wording of each policy. Although it is expected that a large number of policyholders will benefit from the court’s decision, it is also worth noting that the judgement does not apply to policyholders whose policy terms are not at all triggered by an event such as COVID-19.
The Taylor Wessing Disputes and Investigation’s team can assist in analysing the terms of the policyholder’s BI policy against the detailed reasoning in the judgeement to determine whether the policyholder’s losses are covered.
