Business interruption …and The Orient-Express

31 Barristers, including 13 Silks, recently appeared before the UK Supreme Court in a COVID-19 pandemic test case on the interpretation of business interruption (BI) insurance clauses. 

Business Interruption (BI) insurance

Businesses have suffered significant losses throughout the COVID-19 pandemic. Many have sought to recoup under BI insurance. This case selected 21 policy wordings for the court to interpret including Disease clauses, Prevention of Access clause, as well as Hybrid clauses combining the two.

Disease clauses

These clauses are intended to provide a policyholder with cover where the BI flows from a notifiable disease occurring in proximity to their premises.  

The Divisional Court took the view that held that an insured should be covered for: 

…any business interruption which an insured can show resulted from COVID-19, including by reason of the actions, measures and advice of the government, and the reaction of the public in response to the disease, from the date when the disease occurred in the relevant 25 mile radius.

That said, the period of indemnity would only start to run from the first occurrence of a Notifiable Disease within that 25-mile radius. Accordingly, mere COVID-related interference before then would not be covered. 

The Supreme Court considered a sample clause, with the majority interpreting it to cover BI losses resulting from COVID-19 (which was made a notifiable disease on 5 March 2020) provided there had been at least once case within the geographical radius. 

Prevention of Access and Hybrid clauses

Some of the policies contained additional, or alternative, clauses for cases where there was a prevention or restriction of access to business premises. 

The Divisional Court took the view that only restrictions imposed or placed by law would be covered. Guidance was not sufficient. Further, an “inability to use” premises would not cover an inability to use merely a portion. An example of this might be a restaurant offering an alternative takeaway service.  

A broader view was taken by the Supreme Court who found that an instruction by a public authority could amount to a “restriction imposed” in certain circumstances. Although an “inability to use” or “prevention of access” to premises must be more than a hindrance, it may be satisfied where a policyholder is unable to use a discrete part of their premises.

Causation

The insurers contended that, even if the relevant clauses triggered cover, they should not be liable on the basis the “relevant trends” clauses allowed for-profit figures to be revised to take the pandemic into account – citing The Orient Express case which related to a claim for business interruption arising out of hurricane damage to a hotel in New Orleans. In that case, it was held that cover did not extend to losses which would have been sustained anyway because of damage to the City where the hotel itself had not been damaged. 

The UKSC essentially upheld the approach of the Divisional Court and concluded that the Orient-Express was wrongly decided and should be overruled. 

Comment 

This decision has been hailed as a victory in some quarters. Insurers will doubtless seek to recover their position and an increase in premiums across the board would seem likely. 

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