The United Kingdom High Court’s ruling on business-interruption insurance concerning COVID-19 stands to have a positive impact on 370,000 businesses, including in the hotel and hospitality sector.
LONDON—Tens of thousands of hotels and hospitality businesses in the United Kingdom might be saved from closure and distressed sales due to a High Court ruling concerning business-interruption insurance clauses, according to sources.
The 15 September decision in a case brought by the Financial Conduct Authority and interveners—a legal term for third parties allowed to enter ongoing litigation—Hospitality Insurance Group Action and Hiscox Action Group ruled wording in policies of 16 insurance companies was not sufficient to avoid paying out business-interruption payments.
The FCA in its submission to the court asked for eight insurance firms to participate in the hearing.
- The details can be found in the High Court of Justice Business and Property Courts’ document on the case and summary of the action and decision by Herbert Smith Freehills, the legal firm appointed by the FCA.
Those involved in the dispute say the decision could affect approximately 370,000 businesses, including many hotels.
The High Court’s decision referred to 21 clauses in policies on whether payouts would be triggered by: a virus or disease such as COVID-19, the existence of a pandemic within a 25-mile radius, and/or government decrees such as lockdowns and enforced closure.
UKHospitality summarized the High Court’s decision as such:
- 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.
- A more conservative view was taken 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.
- On the key question of causation, the court determined that the pandemic and government’s response to it were a single cause of the covered loss for the purposes of establishing the quantum of claims.
Sources added small- and medium-sized business are the most likely to have suffered financial hardship due to reduced cash flow and the extra burden of securing alternative coverage.
HIGA was founded this year in response to the issue, which spanned the period between 20 March, when the government imposed a lockdown, and 4 July, when it allowed hospitality businesses to reopen.
Sonia Campbell, partner, dispute resolution at legal firm Mishcon de Reya, which represented the Hiscox Action Group, said she was pleased with the ruling. As insurance companies likely consider appealing the ruling, Campbell urged hoteliers to join the group, or a similar body.
“The decision does not just affect SMEs, and despite the ruling we are seeing no insurance firms paying out,” she said. “What we are seeing is holding, to see if there are appeals.”
It’s possible the case could progress further through the court system, she said.
“This might go to the (U.K.) Supreme Court, which would give finality,” Campbell said.
She added when the action was taken, insurance companies saw stock values drop, only for them to go back up when they claimed the issue brought with it little in the way of exposure.
“If that is the case, then why not pay out what is covered?” she said.
Campbell, whose firm took its action specifically against two insurance firms, Hiscox and QBE (U.K.) Limited, added the ruling was on specific policy wording so it is not a one-size-fits-all decision. These two firms were two of the eight requested to participate by the FCA.
Rob Atkinson, legal director at Bristol-based Black & White Hospitality Management, said the early impressions are the court’s ruling is a really strong judgment for the hospitality sector. Black & White Hospitality Management operates the Marco Pierre White group of franchised restaurants and eight chain and independent hotels, including Hotel Indigo Birmingham and DoubleTree by Hilton Snow Hill Birmingham.
Atkinson formed a crowdfunding platform to help those that requested but were refused business-interruption payments.
“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,” Atkinson said. “With support from UKHospitality and the Night Time Industries Association, we have clearly shown the insurance sector that we will not accept their lame excuses.
“Our members paid for cover if their business was interrupted, and there is little doubt it has been interrupted. Thankfully, the court has now provided clarity in the fog, which the insurance industry created to avoid paying legitimate claims. It’s just a shame it took group action, an FCA intervention and a test case to get to this point.”
Kate Nicholls, CEO at UKHospitality, said in a news release that “this ruling, generally speaking, finds in favor of businesses who had taken out policies in good faith and may now have cover following the court’s guidance.”
Atkinson said he hopes the matter is resolved.
“Let’s hope insurers now do the honorable thing and pay out to businesses that desperately need their support,” Atkinson said.
QBE said the court had ruled in its favor “with respect to two out of three of QBE’s notifiable disease policy wordings examined and in favor of insurers generally with respect to denial of access policy wordings.”
QBE acknowledged the court had ruled against it in one instance and added that “based on the notified claims affected by the FCA test case and having regard to individual policy sub-limits, QBE’s estimate of its U.K. business-interruption claims exposure is around $170 million before allowing for recoveries under the group’s catastrophe reinsurance protections.”
Aviva—one of the 16 insurance firms listed in the action but not one of the eight the FCA had specifically asked to help it and participate in the High Court case—said in a statement to HNN that it was “carefully considering the judgment, but as (it is) not a defendant in this case, it is not appropriate for (it) to comment.”
*Editor’s note: The New Road Hotel is not necessarily one of the properties that have financial repercussions relevant to the court’s decision.