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What the latest ruling over business interruption claims means

What the latest ruling over business interruption claims means
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The hospitality sector was one of the most badly affected by the Covid-19 pandemic.

Restrictions on trading have significantly impacted the turnover of businesses as fixed costs and accumulated debt further combined to drive their bottom lines into the red. 

A healthy hospitality sector is vital to the UK economy. Despite some temporary respite from the Eat Out to Help Out scheme in summer 2020, a series of protracted lockdowns and continued restrictions that lasted for almost two years inevitably led to widespread disruption. This resulted in cumulative levels of financial loss that forced some businesses to close for good. 

It is estimated that almost 10,000 licensed premised including pubs, clubs and restaurants, closed permanently in 2020 – a devastating impact on a sector that exists to bring people together.

For many of those that survived, business interruption (BI) insurance was seen as an essential lifeline. But a significant number of hospitality companies that sought to rely on their BI policies in order to recover their losses have instead been faced with fierce resistance from insurers, many of whom have refused to pay out under their policies.

To address this problem, action is being taken in the courts by many of the affected businesses. Most notable among them has been the recent BI claim by Corbin & King, which owns restaurants, cafes and brasseries, including The Delaunay, Bellanger, Colbert, and The Wolseley. 

In the High Court, the restaurateurs won their case last month against the UK arm of French insurer AXA. In delivering her judgment, Mrs Justice Cockerill found that AXA should pay out under a BI policy for losses that Corbin & King had incurred during the pandemic lockdowns of 2020 (March to July and November to December). It is expected that, following a loss adjustment exercise, the decision will eventually cost Axa up to £4.4m. 

The judge noted that the case affected “not just these litigants but a considerable range of other businesses”, adding that “a number of disputes may well be short circuited” by her ruling. 

The ground for bringing this case was initially paved by a Supreme Court judgment in January 2021, which related to a BI test case brought by the Financial Conduct Authority on behalf of several thousand policyholders. In doing so, the FCA recognised that the issues surrounding BI policies are complex and had the potential to create ongoing uncertainty for both policyholders and insurers. Accordingly, they brought a test case against several leading insurance companies. 

In its landmark ruling, the Supreme Court substantially allowed the FCA’s appeal. Although this judgment was good news for most policyholders and insurers, resolving much of the ongoing uncertainty for them, it came with limitations. The test case could not cover every eventuality since it was never intended to resolve all possible disputes or determine the outcome of each potential individual claim.