‘Landmark’ business interruption insurance ruling welcomed by hospitality sector

A member survey by the BBPA in May 2020 found more than half (56%) of sector firms had business interruption cover applications turned down, while separate research from the British Institute of Innkeepers (BII) found that fewer than one-in-20 (3%) of pubs had been successful in making a claim.

However, as reported by The Morning Advertiser (MA)​, on 15 January the Supreme Court ruled that a large number of business interruption insurance policyholders will now be entitled to cover for losses incurred due to national Covid-19 measures.

The court said it “substantially allows” the appeal by the Financial Conduct Authority (FCA) and campaign groups Hiscox Action Group and Hospitality Insurance Group Action which came after leading insurers contested insurance claims made by businesses faced with enforced closure or significant losses due to March’s lockdown.  

The decision could impact 700 types of policies, 60 insurers and 370,000 small businesses and policyholders, according to the Supreme Court – including thousands of hospitality businesses that were forced to close.

As such, the BBPA welcomed the Supreme Court’s judgement on behalf of the pub sector. 

“This landmark ruling is great news for pubs and brewers who hadn’t received pay outs on business interruption insurance thus far,” BBPA chief executive Emma McClarkin said. “It is a glimmer of hope in what is an incredibly tough time for our sector.

“The lack of payouts over insurance claims has added to the terrible woes and uncertainty our sector has faced over the last 10 months. It is why the BBPA backed the FCA in its campaign to resolve the issue.

“While our sector is far from out the woods yet, this announcement helps resolve some of the uncertainty it has faced on insurance cover and is warmly welcome.”

• Read more here​ - Supreme Court backs policyholders in ‘massive boost’ to lockdown-hit businesses​​

‘The devil is in the detail’

What’s more, UKH chief executive Kate Nicholls stated while hospitality businesses still needed to analyse the decision in full, it was “very positive news” upon first glance. 

“Businesses took out policies in good faith and it is right that insurers stick to these agreements and honour claims,” she said. 

“Should this result in pay-outs to policy holders – a point still not clear at present - this could provide an additional lifeline that many businesses desperately need. It could be the difference between keeping staff members on or being forced to let them go; it could mean the survival of a business that was previously staring collapse in the face. 

“Hopefully, this outcome will give many small businesses in the hospitality sector peace of mind and possibly some financial support they need to begin rebuilding.” 

A joint statement from the NTIA and NDML echoed Nicholls’ comments that while initial signs were positive pouring over the finer details was now paramount. 

“We are pleased the Supreme Court has provided a positive assessment of a number of insurance policies that will affect our clients,” it said. 

“However, we also know that the devil is in the detail and therefore we are currently engaged in a meticulous reading of this judgement in order to ensure that we provide as many clients as possible with the maximum available coverage in light of the Supreme Court’s directions.  

“Each of our clients will receive further information specific to their claim as soon as we have been able to digest the findings of today’s decision.”

What next? 

According to Steven Skiba, legal director and commercial disputes specialist at law firm Shakespeare Martineau, companies looking to make a business interruption claim must consider whether the disease clause in their individual policy wording provides cover as per the Supreme Court’s decision.

“If so, they should secure expert support in gathering together the right evidence for aspects such as lost revenues, forecasted revenues and any expenses incurred,” he explained. 

“Closely reviewing information for the claims process provided by individual insurers is also vital to ensure the correct formatting and timings are followed, and to boost chances of making a successful claim. 

“The Supreme Court also determined the High Court was correct to apply certain counterfactual scenarios. A victory for business, this means that insurers cannot use components of the insured peril itself i.e. the local occurrence of the disease to adjust and reduce the value of any insurance cover.” 

Skiba described the issue of whether business interruption policies cover Covid-19 related losses as “one of the most controversial and complex legal issues of the pandemic”.  

“This judgement now sets out how business interruption insurance wordings should work,” he continued. “While the construction and interpretation of the clauses has been made easier by this decision, there will still be a number of grey areas, for example around challenges to trends clauses and how to interpret policy wording (even using the Supreme Court’s decision) where there will be further arguments with insurers that may end up before the courts.  

“Ultimately though this decision is binding and provides persuasive guidance for the interpretation of policy wordings.”