A landmark British court ruling against insurers over business interruption coverage could be good news for restaurants or retailers who had to severely limit their operations during the COVID-19 pandemic.
The Supreme Court of the United Kingdom ruled largely in favour of Britain’s Financial Conduct Authority in its 114-page ruling released Jan. 15.
Although it’s sure to be cited before Canadian courts in BI coverage disputes arising from COVID, the policies at issue in the FCA’s test case did not require damage to a client’s property in order to trigger BI coverage.
“The decision would provide ample guidance to a Canadian court, in a coverage dispute involving BI during the COVID pandemic, for policies covering BI from a disease within a certain distance from the premises or for policies covering BI arising from action by civil or government authorities,” said insurance lawyer Eric Charleston, a partner with Miller Thomson LLP, in an interview.
“If a Canadian commercial claimant, whose business was interrupted because of COVID, wants to argue to a court that they should be covered, based on the FCA test case decision, it helps if their wording is identical to those in the FCA test case.”
In essence, the FCA was advocating for small and mid-sized businesses with specific policy wordings that eight insurers said would not cover the COVID-related business losses. FCA took those eight commercial insurers to court in the summer of 2020 over more than 21 specific policy wordings. The idea is to settle claims in Britain more quickly than if every client took every individual insurer to court in separate lawsuits.
After hearings were held this past July, the High Court of England and Wales released a ruling on Sept. 15. Both sides appealed, resulting in four days of hearings in November before the U.K. Supreme Court.
One interesting development in the appeal was how the U.K. Supreme Court interpreted prevention-of-access wordings, said Charleston. He was referring to policies that cover BI if people are prevented from accessing a business location as a result of actions or advice of a government authority. There were several different policy wordings of this nature that insurers said would not cover BI from the COVID restrictions imposed in Britain while FCA argued they should.
In its September decision, the High Court of England and Wales ruled that the prevention-of-access clauses are not triggered unless the client is prevented from using its premises for the business that was insured.
One of the insurer defendants had argued there is one simple question: Can the client use their property for their business or not? The question is not to what extent the client can use its property for its business. Instead, insurers argued, either the client can use their premises or they cannot.
But the U.K. Supreme Court ruled that the denial-of-access clauses provide coverage if the client can no longer use a specific part of a premises — such as the dining area of a restaurant — or to the entire premises for a specific part of the business activity.
To illustrate how this could work in practice, Charleston cited an example of a golf club which is allowed to keep the golf course open during COVID but must close its clubhouse. According to the Supreme Court’s reasoning, the golf club could have coverage for BI for its clubhouse because there is business interruption resulting from the closure of the clubhouse, which is a discrete component of the golf club’s business, said Charleston.
“The Supreme Court ruling opens the door for all of these restaurants that could no longer serve customers in the dining room and could only sell prepared food for takeout.”
Initially, the High Court had ruled that coverage depends on the specific facts of the cases.
For example, if a book shop did not previously do business online, then prohibiting customers from coming into the store might trigger business interruption coverage. On the other hand, the lower court had found that if a book shop had both an online and a brick-and-mortar business before the pandemic, then the shop would not have BI coverage during COVID even if its revenues plummeted because customers could no longer shop in person.
The Jan. 15 ruling does not mean every book shop or restaurant in Britain with BI coverage suddenly has coverage for COVID. It also does not mean any Canadian client with any BI policy wording could cite the UK Supreme Court decision. For each client, it depends on the fine print.
“The majority of Canadian commercial policyholders, with business interruption coverage, probably do have property damage type wordings,” said Charleston.