What the latest Business Interruption Insurance ruling will mean for hospitality businesses

By Jade Brooks, an associate in the Dispute Resolution team at Blaser Mills Law.

As the majority of the UK falls under the two toughest levels of coronavirus measures, many hospitality businesses are continuing to suffer losses due to forced closures and trading restrictions.

At the beginning of the pandemic, business owners across the country were confused about where they stood in regard to claiming Business Interruption Insurance [BII] to recover lost revenue. Policy wording was open to interpretation, and some did not specifically state whether businesses were covered for events such as pandemics.

Many insurers refused to pay out on BII policies, despite policyholders believing they should have been triggered when businesses were first forced to close, and this further intensified arguments over businesses’ rights to settlements.

The recent BII test case

In May 2020, the FCA announced in a statement its intention to bring a test case in the High Court of England and Wales to seek legal clarity about the meaning and effect of selected BI insurance policy wordings in the context of COVID-19 claims.

The court action sought to ensure policyholders are treated fairly by insurers and insurance intermediaries. It saw the FCA select a representative sample of policy wordings issued by eight insurers, and 370,000 policyholders were identified as holding policies that may be affected by the outcome of the test case.

To establish liability under the representative sample of policy wordings, the FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the sample wordings provide cover in the circumstances of COVID-19, and that the trigger for cover caused policyholders’ losses.

The Court’s ruling favoured the FCA and decided that most, but not all, of the disease clauses [including hybrid clauses] in the sample provide cover.

However, the Court took a more conservative view on the prevention of access/competent authority cover, which is commonly taken out by hospitality businesses. Whilst it found cover in some wordings, the general outcome was that losses claimed under this clause will require a detailed review of the policy wording against the judicial guidance to establish precisely where cover applies.

What the ruling means for hospitality

The ruling has offered a lifeline to many hospitality businesses and provided some much needed clarity and, based on the Court’s decision, thousands of businesses in the sector affected by the initial Government-enforced closures between 20^th March and 4^th July should now be able to receive a pay-out from their BII policies.

However, not all policyholders will benefit, as it is all dependent on the detailed reasoning applied to each policy wording, which fell within the scope of the FCA’s test case. Each policy and case will still need to be considered on its own facts and merits.

Thanks to the ruling, many businesses will now also be able to claim BII for the second national lockdown. However, this will likely result in disputes, especially as the government has stated businesses can remain open to offer takeaway services. Furthermore, any profits made from a takeaway services would likely reduce the sum that could be claimed and, if businesses are seen to be making up for their losses, it could have an adverse impact on a claim, depending on their policy.

However, the High Court decision is currently being appealed and has been escalated to the Supreme Court. Many hospitality businesses are awaiting the judgement, which is set to be released very soon, before putting in a claim.

Seeking legal advice

It is important for hospitality business owners to seek legal advice to make sense of their individual policies and determine whether they are covered under the new ruling.

A reputable dispute resolution lawyer can help them decipher their policy wording and the consequences of the latest test case ruling, as well as enable them to understand how to claim or challenge an insurer’s decision.

They can also look at a business’ policy in relation to the second lockdown and assess whether it is covered for further losses because of additional restrictions on trading.

If your initial BII claim was previously denied, or you thought you were unable to claim, it is vital that you check your policy in light of the ruling from The High Court, as many hospitality businesses have not received the payments they are entitled to.