Business interruption insurance claims, where are we now and where are we going to?

We first started talking about business interruption insurance in the summer of 2020 when numerous businesses sought to claim from their insurers for losses they sustained during the government enforced lockdowns which came into effect during the height of the COVID pandemic.

In this article Garon Anthony, a partner in our Commercial Dispute Resolution team looks at the current state of play in the evolving business interruption (“BI”) insurance court cases following the COVID related claims by policyholders and has some important news for businesses whose claims may have previously been knocked back by insurers, either in whole or in part. 

Since the Supreme Court’s decision in the FCA’s COVID BI insurance test case (“the Test Case”) in January 2021, which we discussed in this article, there has been continued litigation in the High Court, and complaints before the Financial Ombudsman Service, between insureds and insurers. The litigation concerns a number of key policy coverage issues that were left undecided by the Supreme Court in the Test Case. In addition, what the Supreme Court did ultimately decide has been subject to radically different interpretations by insured and insurers. Indeed, the latest High Court decisions were handed down only a few days ago. 

The common factor however is that these BI insurance cases are potentially of financial significance for insureds and insurers alike. 

Court proceedings have since been brought by policyholders against insurers who had sought to deny BI insurance policy coverage altogether or who have looked to cut down on the insured’s financial recovery under the BI insurance policies in question. 

The FCA estimated back in 2020 that around 370,000 business had the type of BI policies that were the subject of the test case, but latest figures suggest that only 43,000 claims have been paid out by insures. 

It is clear that many BI insurance policy issues remain unresolved in the intervening 3 years since the FCA test case. Partly this may be due to insurers looking to challenge aspects of the Supreme Court Test Case decision to reduce the amounts they might have to pay out in an increasingly hard insurance market. And partly this may be because the Supreme Court Test Case could not look at every policy issue for every BI insurance policy that may have been subject to a COVID related claim by an insured and instead they had to look at a number of representative samples to provide some broad coverage guidance for the market.

How have the Court decisions since the Test Case in 2021 clarified, or broadened, the extent of insurance coverage for BI losses? Should policyholders look again at where they have got to with their COVID related claims?

• A number of Court cases have now clarified that those policyholders with BI insurance policies that contain Non-Damage Denial of Access (“NDDA”) wording (that respond to for example prevention of access to, or use of insured premises following action taken by a public authority as a result of COVD at, or in the vicinity of those, premises) are now entitled to insurance cover. This was initially in doubt as the Supreme Court did not focus on this type of policy cover when it was looking at issues of the cause of insured losses and some BI insurers seized upon that lacuna to deny cover to insureds with NDDA policies. So those insureds who have policies with NDDA wordings and may have had their claims rejected will wish to revisit their policies in the light of these recent Court decisions.
• Separate limits of indemnity (“LOI”), i.e. the amount of cover which is provided under a BI insurance policy, will generally not apply to each of an insured’s premises affected by COVID and Lockdowns where owned or operated by a single insured under the policy in question. But an LOI may apply separately to multiple insureds under a composite BI policy. Such a policy may entitle an insured to a number of separate insurance pay outs in respect of each of the premises closed or adversely affected as a result of COVID. This of course may be financially significant for insureds with such policies who are part of a wider corporate group. 
• Separate LOIs may be available to insureds in respect of each separate Government action that forced a partial or total Lockdown that was imposed on a national or a regional basis in 2020 and 2021. For example, it is now arguable that the first closure was caused by an insured occurrence of COVID in the relevant area in March 2020 whereas a subsequent closure, say in July 2020, was caused by a separate insured occurrence of COVID. This may mean that the BI losses suffered by a business in March 2020 and in July 2020 do not aggregate and are separate and distinct claims. If such arguments do succeed, some policyholders may be able to recover substantially more under their policies than if only one policy limit applied to all Government imposed restrictions in 2020, 2021 and 2022 on a national or a regional basis.
• Furlough payments (and potentially other Government COVID related financial support) received by policyholders can be taken into account by insurers when calculating payments under BI insurance policies. The Court has said that this is because furlough reduced the costs to the business in question and were measures introduced by Government to mitigate the impact of the Lockdowns on businesses across the UK. This remains a highly controversial issue and the relevant Court decisions are contrary to the Government view which is that any funds intended to support business at a time of national crisis should not be deducted from BI insurance clams and should not be treated as a “windfall” for insurers. It is likely that the issue will continue to be appealed to the Court of Appeal, and possibly further, later this year. 

In summary, it is clear that this is still a lot to play for in the COVID related BI insurance space. Those businesses whose claims were previously rejected by insurers, or those businesses who simply did not know they may have an insurance claim worth pursuing, should revisit their BI insurance policies and take advice where appropriate. Potentially there are very significant amounts of money remain at stake here.