When Covid struck, the resultant lockdowns had a huge effect on businesses large and small.
But those firms with the foresight to have purchased business interruption (BI) insurance covering disruption related to ‘infectious diseases’ should have been able to breathe a sigh of relief, knowing that their losses were insured.
In practice, however, many such policyholders have faced ongoing battles with insurers over whether the various terms of these BI insurance policies actually obliged insurers to compensate them for Covid-related losses.
The Financial Conduct Authority (FCA) launched a test case on this issue in 2020, in which the Supreme Court ruled in favour of policyholders.
The FCA test case related to what are called ‘radius’ disease clauses – whereby the insurer agrees to pay out if the disease occurs within a specified radius of the business premises; for example, within 21 miles. The Supreme Court held that individual Covid cases within the relevant radius of the insured premises amounted to ‘concurrent causes’ of the closures and restrictions and the resulting business interruption losses – along with all other cases of Covid-19 elsewhere in the UK. This was central to the causation basis on which coverage for Covid BI losses was found to be included by the radius clauses.
But as well as radius cover, there is another very common type of policy, ‘at the Premises’ (ATP) disease cover, which applies to the situation where there is an outbreak of the disease at the place of business itself. Should the Supreme Court’s ‘concurrent causes’ logic apply to ATP clauses as well?
This question was dealt with in a High Court ruling handed down last week, At the Premises Test Case [2023] EWHC 1481 (Comm), which involved six expediated cases brought by businesses including lead claimant the ExCeL centre, as well as Pizza Express and others. In the High Court, Mr Justice Jacobs found resoundingly in favour of the claimants, concluding that ATP clauses should be treated in the same way as radius clauses.
He disagreed with the insurers’ assertion that radius and ATP clauses were ‘chalk and cheese’. Rather, the claimant friendly logic on ‘concurrent causes’ adapted by the Supreme Court in the FCA test case should also apply to ‘at the premises’ disease cover.
The ruling was a victory for BI policyholders. According to law firm Stewarts, which successfully acted for the ExCeL centre, this latest judgment could now affect hundreds of thousands of policyholders, based on previous FCA estimates as to the extent to which ATP cover was purchased.
For the many organisations that had bought BI insurance – many of which are small businesses – this is clearly welcome news. It also feels like the right result. Standing back from the nuanced detail of the causation and other legal arguments put forward on both sides of the claim, on a very basic level, these firms had bought insurance to protect themselves from interruption caused to their business by an outbreak of infectious disease. If it were really the case that pandemic-related losses should somehow be excluded, that would hardly seem fair – and would no doubt leave firms wondering whether business interruption insurance was ever worth spending their money on.
June 26, 2023
Insights
