Five years on, the COVID-19 pandemic may seem like a distant memory to some. However, many business owners continue to suffer the adverse effects of months of lost income. Unfortunately, for some businesses the impact of the pandemic coupled with other economic upheavals resulted in insolvency. Policyholders and office holders may still be able to bring an insurance claim for some of those losses but, as we enter 2025, the deadline for bringing proceedings is fast approaching. In this article, we look at what the English courts have decided so far in relation to claims for COVID-19 losses under business interruption insurance policies, and what policyholders should now do if they think they may have a claim.
Business interruption insurance
Business interruption insurance provides cover for loss of income if business activities are interrupted as a result of an insured event. Generally speaking, business interruption insurance is included as part of another policy, such as a property policy, rather than being a standalone insurance product. It is therefore vital to check all existing policies to see if there is cover. So far, many of the claims heard by the English courts have been brought by hospitality businesses such as restaurants, hotels and bars, but claims have also been made by retailers, theatres, sports clubs and beauticians.
Non-damage business interruption insurance
Typically, cover under business interruption insurance is dependent on physical damage to insured property. Any such policy would not normally respond to business interruption resulting from a pandemic.
However, some policies extend cover to loss suffered in the absence of physical damage. In the landmark FCA Test Case [2021] UKSC 1, brought on behalf of policyholders in the midst of the pandemic, the Supreme Court considered three such clauses, concluding that cover was, in principle, available for COVID-19 related business interruption losses under:
- Disease clauses covering business interruption loss resulting from the occurrence of disease in the vicinity of the insured premises;
- Prevention of access clauses, which cover business interruption loss where the Government or local authority has taken action to prevent or hinder access to the insured premises; and
- Hybrid clauses, which cover business interruption loss resulting from an inability to use the premises due to restrictions imposed following an outbreak of disease.
The Supreme Court's decision was welcome news for policyholders and led to the resolution of many claims. However, some insurers continued to deny cover, not least where the wording of the applicable policy differed from the clauses considered by the Supreme Court.
Construction issues
"Notifiable diseases"
For example, the disease clauses considered in the FCA Test Case included cover for loss resulting from various specified diseases, from cholera to rabies, as well as any "notifiable disease", a reference to a statutory list of diseases which must be reported by medical professionals and public authorities. By early March 2020, that list had been amended to include COVID-19.
However, not all business interruption policies provide dynamic cover - some policies only refer to a fixed and closed list of diseases. As demonstrated by the decision in Rockliffe Hall Ltd v Travelers [2021] EWHC 412 (Comm), in such cases, it is unlikely that COVID-19 losses will be covered.
It is also important to bear in mind that many insurers acted quickly to exclude COVID-19 from new policies incepted after March 2020, with the result that losses arising out of the second and third lockdowns may not be covered. Policyholders should check the terms of the following year policies to see whether that is the case.
"Government restrictions"
A common issue in relation to prevention of access clauses concerned the description of the relevant body preventing access to the insured premises and the nature of the restrictions imposed. In the FCA Test Case, the Supreme Court considered that a restriction imposed by a public authority did not have to have the force of law to fall within that wording, and so could include the Prime Minister's instruction for businesses to close on 20 March 2020, as well as the Regulations issued on 21 and 26 March 2020.
Meanwhile, although the courts have rejected arguments that the Secretary of State or any other embodiment of central Government constitutes a policing authority1, in London International Exhibition Centre PLC v Allianz Insurance PLC & Ors [2024] EWCA Civ 1026, the Court of Appeal has accepted that references to the Medical Officer of Health for the Public Authority, a post which no longer exists, may be fulfilled by the Chief Medical Officer, Deputy Chief Medical Officer, and any other medical officers advising Government in England and Wales.
Causation
In order to bring a successful insurance claim, it is necessary to show that the loss suffered was caused by the insured peril. This can be a complex question, but, helpfully for policyholders, in the FCA Test Case, the Supreme Court concluded that, because each individual case of COVID-19 which had occurred by the date of Government action was a separate and equally effective cause of that action, that was sufficient to prove that business interruption was a result of such action. Accordingly, the policyholder just had to prove an individual sustained COVID-19 in the relevant vicinity of the insured premises.
More recently, in London International, the Court of Appeal confirmed that the same approach to causation should be taken to clauses which only provide cover where the disease occurred "on the premises". Although insurers sought permission to appeal that decision to the Supreme Court, their application was refused shortly before Christmas 2024.
Quantum
The multiple lockdowns that characterised the COVID-19 pandemic have also led to issues as to the effect of aggregation wording in policies which limit insurers' liability by reference to "occurrences". Was each lockdown a separate occurrence (to which a separate limit applies), or was the pandemic as a whole a single occurrence?
In Stonegate v MS Amlin [2022] EWHC 2548 the High Court rejected the suggestion that there was a single Government response covering everything done in relation to COVID-19, instead concluding that the decisions to instruct people to avoid social venues, such as pubs and bars, on 16 March 2020, instructions to close restaurants on 20 March 2020, the implementation of early closing and other restrictions from 24 September 2020, the bringing into force of the tier system on 14 October 2020 and the imposition of the second lockdown from 5 November 2020, were all capable of being relevant occurrences. However, the renewal, relaxation or changing of Government measures did not amount to separate occurrences.
Meanwhile, where businesses operate a number of different premises, it is important to check whether the applicable policy is composite (whereby each location essentially has its own insurance, subject to a separate limit) or joint. The courts have generally taken the view that limits are more likely to apply on a per premises basis where the policy is composite (see Corbin & King v Axa [2022] EWHC 409 (Comm)). That is a question of construction of the relevant policy terms and it can have a very significant impact on the quantum recoverable from insurers.
In a separate issue on quantum, in Stonegate the court concluded that the benefit of Government support payments, such as furlough payments, should be taken into account when assessing the sums that the policyholder could recover. The ruling meant that insurers could deduct furlough payments as savings from sums paid to policyholders by insurers. The effect being that insurers received the benefit of a reduced payment to policyholders as a result of the publicly funded furlough scheme. That contentious issue is due to be considered by the Court of Appeal at the start of this year2, and is hotly anticipated. Should the Court of Appeal overturn the decision, thousands of businesses may be entitled to further payments from their insurers.
Conclusion
The deadline for bringing a claim for business interruption losses will expire in early 2026. For policyholders who have not yet commenced proceedings, the clock is ticking. Given the developments since the FCA Test Case, all policyholders should revisit their policies to see whether previously rejected claims may now respond.
The specialist insurance disputes team at Mishcon de Reya intervened in the FCA Test Case on behalf of over 400 policyholders insured with Hiscox (the Hiscox Action Group) and a smaller group of SMEs in the hospitality sector, and ran a parallel arbitration for the Hiscox Action Group which led to positive settlement of all claims. We also represented Various Eateries at first instance and the Court of Appeal in Various Eateries v Allianz; are acting for various restaurants, rugby clubs and hotels in Burger and Lobster Restaurant Group Limited & Ors v Allianz, and have advised numerous other businesses across all sectors on claims arising out of COVID-19.
Contact us now if you:
- Had a non-damage clause of the type set out above;
- Without a closed list of diseases;
- In a policy in place in March 2020; and
- Did not pursue insurers after your initial claim notification was rejected.
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