Despite a Supreme Court judgment in the Financial Conduct Authority's (FCA) business interruption test case being overwhelmingly in support of the policyholders, it seems there is still considerable mileage for disputes over coverage to continue and to eventually reach the courts. The FCA brought the test case to examine the wordings within the policies and to clarify for all concerned whether or not the insurers were liable to pay out on business interruption clauses.

Welcome as the Supreme Court ruling was to businesses there are still some areas that have not been sufficiently clarified, leaving the door open for disputes. It would seem that businesses initial elation at the Supreme Court decision was premature. The question arose almost immediately as to whether the financial help provided by the government should be regarded as part of the business income has come into question. Once the relevant insurers found that they were liable under the business interruption they then were considering such grants, together with the 80% staff salary payments for furloughed employees as part of the income of a business and calculating their losses under business interruption clauses on that basis. The insurers took the view that they were correct in doing so. The Association of British Insurers asserted that businesses would be "double compensated" if the financial support provided by the government was ignored and not included in the calculations as income. 

In an effort to mediate the FCA stepped in a wrote to insurers asking them to stop calculating the financial support schemes as income and reported that 12 insurers have ceased to include such payments as income. There was disappointment expressed in various circles that all insurers did not take the same view. The FCA continued to urge insurers to exclude the payments received through government financial assistance, reiterating that grant payments should not be regarded as income. However, it fell short on clarifying the position on other government assistance such as "eat out to help out". 

Another equally opaque issue is that of whether businesses with multiple branches should be regarded as having suffered one loss or multiple losses. Insurers, as a rule, aggregate multiple claims related to a single insured event. It is immediately obvious that there is a significant financial difference in the level of pay-out for a retail or restaurant chain if an insurer regards the coronavirus pandemic as a single occurrence as opposed to several separate occurrences that have an impact on each premises. This area alone is particularly significant as insurers rely on the ability to aggregate claims in a wide range of claims aside from business interruption clauses. If there a further legal actions in connection with the business interruption claims related to the question of aggregation, a decision supporting multiple claims would have enormous repercussions across the insurance industry.

Vincenzo Senatore, a partner in the London office, commented "one of the most significant impacts of the Supreme Court's ruling was overturning the decision made in 2010 in the Orient-Express Hotels v. Assicurazioni Generali case which has been heavily relied on by the insurance industry in matters relating to disasters, natural or otherwise, that have a wide consequential impact over and above the initial cause." He further said, "the 2010 Orient-Express case was in response to storm damage caused in 2005 by Hurricane Katrina leading to financial losses due to the hotel being closed for two months. It was contended that the losses the hotel suffered would have happened regardless of the storm damage as due to the widespread effect of Hurricane Katrina as the hotel would have had to close in any event whether or not it had been damaged by the storm."

Insurers can no longer suggest that the losses experienced would have happened anyway, as the consequences of the insured peril alone had the effect of creating the losses even if the resulting damage caused by the peril had not happened. For example, severe flooding or an area being razed to the ground would prevent guests from booking a room at a hotel whether or not it was damaged by the insured peril. This will no doubt lead to higher premiums in cases of catastrophic events unless insurance policies can be worded in such a way that allows insurers to limit claims in substantial natural disasters.

There is no doubt that Insurers are facing unprecedented levels of claims against business interruption clauses and are attempting to alleviate the level of claims in any way they can. 

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