Was the Supreme Court’s decision in the Business Interruption Insurance test case a silver bullet for business?

Morton Fraser_Nicola Ross
Nicola Ross
24 September 2021
Scottish Business Insider

At the start of the year, the Supreme Court decision that ruled in favour of businesses being able to rely on Business Interruption Insurance for Covid-related claims seemed like a promising moment for many businesses with this sort of insurance in place. But months on, what impact is the Supreme Court’s decision having?

For a number of business, it seems to be having a positive impact: the Financial Conduct Authority has recently confirmed that £1bn in payouts have been made by insurers to small businesses.

For example, 72 night-time leisure businesses which were part of the Financial Conduct Authority test case against Hiscox, received the news, in July of this year, that they were to receive an initial pay-out of £5.2m, with potentially more to follow. On the one hand this was great news: in terms of a financial recovery, it was a clear win for those businesses. However, the delay in securing the payments – some six months after the test case was decided, and sixteen months after their businesses were closed – will likely have exacerbated the difficulties that these businesses faced, even as their case was fast-tracked.

The Supreme Court case covered 21 samples of policy wording across eight different insurance companies, and so is binding on those eight insurers. This means that for those 72 businesses in the Hiscox example, the requirement to pay out will have been relatively straightforward.

However, as expected, insurers who are not bound by the Supreme Court decision are digging their heels in. Indeed, we are now seeing several examples of businesses continuing to battle with insurers over their claims.

One such example, which has been making headlines over the past few weeks, has been the UK’s largest pub group, Stonegate. It is now suing three insurers – MS Amlin, Liberty Mutual Insurance Europe and Zurich - for failure to properly honour the business interruption policies they have. Stonegate’s claim tallies £845m and whilst the insurers accept liability, they are limiting the claim to £17.5m, of which £14.5m has been paid out. This marks an eye watering difference of £827.5m to a hospitality group which will have been severely impacted throughout the past year and a half.

Other restaurant groups, including The Wolseley in London and the Marco Pierre White Group, are also bringing multi-million-pound claims against their insurers. The insurers are arguing that the specifics of the Supreme Court decision do not apply to these particular policies.

Insurers are trying to minimise their exposure and, with the sums up for grabs, it’s easy to see why.

But it isn’t just large businesses with multi-million-pound claims that are having difficulty recovering losses. Another high-profile case involved pay-outs to physiotherapists who had insurance with Aviva.

Physiotherapists were unable to perform face-to-face consultations due to the pandemic, resulting in significant losses to practitioners. It has only been after pressure from industry body Physio First and the Financial Ombudsman Service that Aviva has agreed to cover claims for losses sustained where the guidance was to not carry out these consultations.

Many of the arguments surrounding these Business Interruption Insurance claims boil down to contractual interpretation, which could require court involvement to resolve. This not only has the potential to be very costly, but it is also likely to slow down the claims process, which can have a debilitating impact on many businesses.

For larger corporations, or industries where a wider industry body may be able to fund or spearhead litigation, this may be less of an issue. But for smaller businesses whose case is less clear cut, they will be questioning whether they can afford the expense of litigation. Thankfully litigation funding is becoming more commonplace, and the introduction of Success Fee Arrangements in Scotland is another avenue for businesses to explore to reduce the up-front financial investment. Nonetheless, there is no silver bullet for many businesses seeking to recover losses.

The Supreme Court’s decision in the Business Interruption Insurance test case was a welcome development for businesses, and it remains a crucial turning point for those who sought to rely on that cover during the pandemic. But the extent to which insurers will cover claims, and how long or costly the process may be for them, is an issue that is likely to run on for some time yet.

Nicola Ross is a partner in the commercial litigation team at independent Scottish law firm, Morton Fraser

First published in Scottish Business Insider  


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