Yesterday the High Court ruled that some insurers should have paid out for losses caused by lockdown, giving a lifeline to many hospitality businesses hit hard by the pandemic.
Judges ruled that the disease causes in some business interruption policies should have meant they were covered.
The court determined the outbreak of Covid-19 was the “occurrence” of a notifiable disease for the purposes of that cover where there were diagnosable cases in the relevant geographical area under the policy.
Further, cover was not limited to outbreaks within the geographical radius.
The court, however, took a more conservative view on the prevention of access/competent authority cover, which is commonly taken out by hospitality businesses. The court found cover in some wordings but, in general, losses claimed under this clause will require a detailed review of the policy wording against the judicial guidance to establish precisely where cover applies.
The test case that concluded yesterday was brought by the Financial Conduct Authority and had the potential to impact 370,000 businesses.
Since lockdown, a hospitality-specific crowdfund campaign was launched to challenge insurers over the non-payment of business interruption policies and gained substantial support from the industry.
When restaurants, pubs and hotels were forced to close in March, many had looked to insurers to cover losses. However many disputed the claims, arguing policies were not designed to cover such circumstances.
Insurers can however appeal against the decision and policyholders will hear from their insurer within seven days.
Commenting on the decision, Rob Atkinson, in-house lawyer with Black and White Hospitality which operates the Marco Pierre White group of franchised restaurants, and spearheaded the Crowdfund campaign, said: “Early impressions are that this is a really strong judgment for the hospitality sector. When we started our crowdfund campaign, it was about the hospitality industry coming together in a show of strength and refusing to accept the unacceptable.
“It’s just a shame it took group action, an FCA intervention and a test case to get to this point. Let’s hope insurers now do the honourable thing and pay out to businesses that desperately need their support.”
Jane Longhurst, chief executive of the Meetings Industry Association added: “We know from our recent industry survey that 92% of respondents stated that their financial losses to date have not been covered by their insurance policy, so this test case is promising news for the many who have suffered immeasurable losses due to the ramifications of the pandemic.
“In light of today’s landmark ruling that examined 21 policy wordings used by 16 insurers, we are advising the sector to revisit their existing, as well as any previously outstanding policies, where the policyholder may deem themselves eligible to make a claim under pandemic or notifiable disease clauses.
“As highlighted by Christopher Woolard, interim chief executive of the Financial Conduct Authority (FCA), insurers must now reflect on previous clarity provided irrespective of any possible appeals, while also communicating the next steps on how they can progress claims.
“While the FCA is expecting this activity to be conducted in a rapid manner, we are advising the sector to directly contact their insurer as soon as possible to seek further explanation and investigation into any potential claims.”