As has been widely reported in the UK press, the UK Supreme Court on 15th January determined when business interruption insurance claims relating to COVID-19 are payable by insurers. Typical businesses that have this type of cover include restaurants and shops required to close during the lockdowns.
Of course not all insurance policies have the same wording. Nevertheless, in this case the Financial Conduct Authority referred a selection of common policy wordings to the Court, which approached the matters seeking to achieve “the maximum clarity possible for the maximum number of policyholders and their insurers”.
Policies of this type typically require a ‘disease outbreak within a stated radius of the assured’s premises which affects it business’ (within 25 miles in this case). The insurers argued that because the pandemic and its effects applied everywhere in the UK, the assured could not demonstrate under the ‘but for’ test that it was only the outbreak of COVID 19 within 25 miles of its premises that affected its business and that its business would have been affected no matter where it was located in the UK.
The Supreme Court found that the pandemic was one where “a series of events combine to produce a particular result but where none of the individual events was either necessary or sufficient to bring about the result by itself.” Therefore, once the insured proves that there was an occurrence of COVID 19 within the radius specified in the policy the disease clause applied, including to losses caused from national lockdown restrictions and even where those restrictions were not yet formally incorporated into law.
The Supreme Court also assessed the amount to be paid by insurers as being based on what the business earned in ordinary times and not just before a lockdown when, in practice, business had already started to trail off because of the pandemic and voluntary ‘stay at home’ behaviours of customers.
This is, quite obviously, a very important decision for very many UK businesses; it is reported that the Court itself estimated that some 370,000 policyholders would be affected by it but the real figure is probably much higher.
The Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1
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