Business Interruption Insurance - Here We Go Again...
We have commented regularly on the business interruption insurance (“BII”) cases following the Covid-19 pandemic as they have made their way through the courts.
In the latest case, t Court of Appeal has just handed down its judgment in Bath Racecourse Company Ltd & Ors v Liberty Mutual Insurance Europe SE, Allianz Insurance Plc, and Aviva Insurance Limited [2024] EWHC 124 (Comm) which considered a complex element of insurance policies in relation to the BII claims arising from the Covid-19 pandemic.
In line with the other previously decided claims surrounding BII which were made as a result of the lockdown periods during the pandemic, the claimants sought to recover from their insurers some of the losses they incurred due to their business being unable to operate, or closed, (“interrupted”) in accordance with the government lockdown related requirements in 2020 and 2021.
In this latest of the BII claims, the primary issue to be decided was whether the composite policies of insurance entitled each insured entity to its own separate limits of indemnity or whether the limits were shared in the aggregate.
The Claimants argued that a separate limit of indemnity applied to each individual entity insured under the policy. Insurers argued that the limits were to apply on an aggregated basis and were therefore shared across all insured entities under the BI policy in question.
At the first instance, Mr Justice Jacobs agreed with the claimants on this point. This was upheld by the Court of Appeal earlier this month, who confirmed that each individual entity was indeed entitled to its own separate limit of indemnity as composite policies are made up of a series of contracts insuring each policyholder separately. Depending on individual BII policy wordings, this may mean that multiple limits of indemnity may be available to individual subsidiaries in a corporate group in respect of BI insurance claims (and not just COVID related claims).
Not only could this be financially very significant, but also is the correct outcome as COVID related BI losses could have been suffered at different premises and by different businesses in a group. And that must have been what insured would have presumed was the position when they purchased the policy in questions, not that losses would be reduced and restricted in the way contended for by insurers.
The second issue in question before the Court of Appeal related to furlough payments and whether the insurers were entitled to deduct from the insurance payouts to the insured entities any furlough payments that they had received from the government during the pandemic.
The insurers argued any furlough payments should be deducted from the indemnity payments because the costs of wages either ceased or reduced as a result of the furlough scheme, meaning that the insured do not suffer an insured loss in such regards.
At the first instance, Mr. Justice Jacobs ruled in agreement with the insurers on this point, and this too was upheld by the Court of Appeal. We wait see whether further appeals are made to the Supreme Court.
Comment
Garon Anthony, Insurance Disputes Partner, comments:
“As matters stand, this judgment is welcomed for the clarity that it provides regarding the application of indemnity aggregation where across multiple entities are covered by different policies and this may be financially highly significant for many insureds who have seen their BII entitlements challenged, or reduced by insurers for reasons of aggregation
“The determination of the correct application of the government support payments and how they interplay with the recovery of losses under insurance policies is clear. However, it is controversial as the Government surely did not intend commercial insurers to financially benefit from the furlough scheme, enacted at time of national emergency, which was ultimately funded by taxpayers.
“Moreover, it is also important to note that we are approaching the 5th anniversary of the start of the Covid-19 Pandemic and the subsequent lockdowns which led to the flurry of BII claims. Insureds with dormant or unresolved BII claims against insurers should have a mind to limitation which in many cases will start to expire in March 2026 so any potential claims against insurers (on the basis of this aggregation issue or for other reasons) should be considered swiftly and advice sought in short order.”
For any queries in relation to claims against insurers, or other Financial Services Disputes, please contact our team.
