CoronavirusFeb 2 2021

What the business interruption case means for clients

  • Describe the consequences of the Supreme Court ruling over business interruption policies last month
  • Explain some of the situations where a client can claim
  • Describe the stance of the Supreme Court
  • Describe the consequences of the Supreme Court ruling over business interruption policies last month
  • Explain some of the situations where a client can claim
  • Describe the stance of the Supreme Court
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What the business interruption case means for clients
AP Photo/Kirsty Wigglesworth
  1. Disease Clauses - The general nature of these clauses is that they provide insurance cover for business interruption loss caused by the occurrence of a notifiable disease at or within a specified distance of the policyholder’s business premises.
  2. Prevention of Access clauses – These cover prevention of access to premises as a result of government or public authority action.
  3. Hybrid Clauses - Both of one and two above.

The Supreme Court also had to consider the effect of "Trends Clauses" (such clauses are part of the machinery used in insurance policies to quantify the policyholder’s financial loss) as well as the decision in Orient-Express Hotels Ltd v Assicurazioni Generali SpA, which concerned a claim for business interruption loss arising from damage to a hotel in central New Orleans from wind and water as a result of Hurricanes Katrina and Rita in the autumn of 2005.

The Decision

The Supreme Court (together with the parties to the case) will shortly set out the effect of its judgment by way of a set of Declarations, and each policy will need to be considered and read on its own wording. However, the Court's general findings were as follows:-

Disease Clauses

  • There will be cover under Disease Clauses provided there was at least one occurrence of COVID-19 within the relevant geographical radius by the date of any government measure. These clauses do not, however, cover interruption caused by cases of illness resulting from Covid-19 that occur outside that area.
  • It is no defence for insurers to claim that it was not this local occurrence but the pandemic across the UK and world that caused the loss.

Prevention of Access and Hybrid Clauses

  • The action taken by the government or public authority was sufficient to trigger cover under Prevention of Access clauses, even though it was not backed by legislation, that is, it was guidance only. 
  • By way of example, when the prime minister (on 20 March 2020) instructed named businesses to close “tonight”, that was a clear, mandatory instruction given on behalf of the UK Government. It was an instruction that both the named businesses and the public would have reasonably understood had to be complied with without inquiring into the legal basis or anticipated legal basis for the instruction. The Supreme Court found that such an instruction is capable of being a “restriction imposed”, regardless of whether it was legally capable of being enforced. The Supreme Court did not, however, rule on whether each of the government announcements and regulations were “restrictions imposed”. It directed that this should be left over for agreement or further argument.
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