Business Interruption Insurance Cover
The Supreme Court of the United Kingdom (“Supreme Court”) is currently hearing an interesting appeal case concerning the construction of certain provisions in insurance policies which purport to provide coverage in the event of business interruption during the coronavirus (COVID-19) crisis. The Financial Conduct Authority (“FCA”), the financial regulatory body in the United Kingdom, estimated that, in addition to the 21 ‘lead’ policies submitted by the insurers in the case, around 700 types of policies across over 60 different insurers and 370,000 policyholders could potentially be affected by the case.
This is a ‘leapfrog’ appeal brought by the FCA, the insurers and an intervener against the orders of the Divisional Court, which heard the case in July 2020 and gave its judgment on 15 September 2020 Financial Conduct Authority v Arch Insurance (UK) Ltd  EWHC 2448 (Comm)). In general, the Supreme Court was asked to determine certain matters of construction in relation to the following three categories of policy provisions:-
Clauses triggered by the occurrence of COVID-19, typically within a specified distance of the premises
Prevention of Access Clauses
Clauses triggered by public authority intervention preventing access to, or use of, premises as a result of COVID-19
Clauses which contain wording from both Disease and Prevention of Access Clauses
Pending the determination of the Supreme Court, it is useful to briefly recap the conclusions made by the Divisional Court on the issues:-
For the common form of wordings which provides cover for interruption following occurrence of a notifiable disease within a specified radius:-
- The causal relation would be satisfied by the occurrence of a case COVID-19 within the specified radius that formed an indivisible part of the wider outbreak which dictated the response of the authorities which led to the business interruption. Alternatively but less satisfactorily, each of the individual occurrences was a separate but effective cause of the national actions.
However, for certain form of wordings which provides cover for interruption in consequence of any of the specified events:-
- The identification of an ‘event’ indicates that cover was limited to matters occurring at a particular time, in a particular place and in a particular way. The insureds would only be able to recover if they could show that the case(s) within the specified radius, as opposed to any elsewhere, were the cause of the business interruption.
For policies that insure against prevention of use of the premises, the word ‘prevention’ is to be contrasted with and is not synonymous with ‘hindrance’:-
- Impossibility is the touchstone of ‘prevention’, as opposed to something being rendered more difficult, which is what ‘hindrance’ connotes. While physical prevention is not required, the premises must be closed for the purposes of carrying on business.
- For instance, if a restaurant already had a takeaway service prior to the government actions which required the restaurant to close so far as consumption of food on the premises is concerned, there is no prevention of access, as the restaurant owner and employees are not ‘prevented’ from accessing the premises for the purposes of carrying on that part of the existing business which involves providing the takeaway services. However, they may be ‘hindered’ in their use of premises because they cannot operate the restaurant for in-house dining.
- Similar approach was taken in relation to the ‘Disease’ part of the clause as set out above.
- For the ‘Prevention of Access’ part, the interpretation of certain wordings such as ‘restrictions imposed’ (i.e. something mandatory and have the force of law) and ‘inability to use’ (i.e. more than just impairment of normal use) were explored.
It should be noted the above bulletin does not purport to cover all issues explored by the Court. The Court’s judgment is specific to wordings and merit careful analysis.
Apart from the FCA case, there is another recent judgment concerning business interruption insurance claims arising from COVID-19 (TKC London Ltd v Allianz Insurance Plc  EWHC 2710 (Comm)) which concerns more specific facts.
In TKC London, a café restaurant was forced to close during the COVID-19 pandemic and it sought to claim for its losses resulting from the business interruption caused by closure of its business premises and/or loss or destruction of its stock under its business interruption insurance policy. The Court ruled that the café restaurant has no valid claims under the insurance policy as the deterioration of stock during the period of closure was a consequence of the business interruption rather its cause. Also, what occurred to the stock was not ‘accidental loss’ as defined under the policy as the term was not apt to include the natural process of decay or deterioration of unsold stock.
Robertsons is closely following the development and ruling of the FCA case in the Supreme Court. We are looking forward to advising our clients on its impact on business interruption insurance in the context of the COVID-19 pandemic once the case is finally determined.
For any enquiries related to this article, please contact Mr.Michael Lintern-Smith of our firm.
Written by Michael Lintern-Smith & trainee solicitor Charlie Wu