A recent High Court case could pave the way for thousands of insurance claims by small to medium sized businesses in the UK. The fallout of the Covid-19 pandemic continues to have an impact on businesses, with the latest high-profile case involving the ExCel conference centre in London and their insurers, Royal & Sun Alliance.
The High Court test case relates to insurance policyholders which had to close their sites due to cases of Covid-19 “at the premises”. This follows a Supreme Court test case from 2021 which found that policyholders could claim if there had been a case of Covid-19 in the “vicinity” of their premises.
Keep reading to learn more about this particular case and whether it could impact your business.
Background
The precursor to this ruling was a test case brought in a £16m claim by the FCA (Financial Conduct Authority) on behalf of roughly 370,000 companies across the country. The case was brought on behalf of these companies after they alleged that they had been denied cover under their business interruption policies following the UK government’s Covid-19 lockdowns in 2020.
While the coronavirus pandemic forced many businesses to temporarily close their doors, many insurers refused to pay out on claims after the first lockdown in March 2020. Their reasoning for this was that they argued the policies were not intended to cover global pandemics.
This test case concluded in January 2021 and saw the Supreme Court rule in favour of policyholders. They found that policies related to non-damage business interruption policies did in fact offer cover. This remained the case even if only a single case of coronavirus occurred within the insured vicinity.
What are the implications of the latest test case?
Fast-forward to 2023, and the High Court has ruled in favour of a range of business including the London ExCel venue and Pizza Express. While the previous Supreme Court ruling found that businesses with relevant policies could claim if there had been a Covid case within the “vicinity of their premises”, the recent judgement extended this wording to a closure of their sites due to the occurrence of Covid “at the premises”.
Insurers had sought to argue that the Supreme Court’s test case ruling did not apply to insurance policies with “at the premises” wording.
According to the Judge, without this ruling by the High Court, the wide variety of policies across businesses could facilitate a scenario where a restaurant owner who caught Covid may not be able to claim due to his “at the premises” policy. On the other hand, a neighbour could simply use that case of Covid to claim based on an infection in the “vicinity”, as ruled in the 2021 Supreme Court test case. The Judge opined that the anomalies which would arise without this ruling would be hard to rationalise for a small or medium sized business.
Following the Supreme Court test case, a total of at least £1.7bn has been paid out to businesses in the UK, either in the form of partial or final settlements. How much will be paid out in claims following this High Court case remains to be seen. However, the law firm who acted on behalf of London ExCel stated their belief that there are at least as many policies with “at the premises” wording as there are with vicinity/radius clauses.
The insurers have not yet confirmed whether they wish to appeal the ruling.
Our thoughts
It seems very likely that this test case in favour of policyholders will open the door to hundreds of thousands of Covid business interruption claims. Small and medium sized businesses in particular suffered during the pandemic as they were often less able to adapt to the new working environment induced by enforced lockdowns, especially in retail and hospitality. The energy crisis has further harmed many of those same businesses.
As a result, it seems highly likely that these businesses will seek indemnity for lost earnings following this ruling.
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