In a recent opinion, the UK Supreme Court has found coverage for business interruption as a result of business closures incident to the Covid-19 pandemic. While some may see that decision as support for coverage suits in the United States, the decision is a reminder why policy language is so important.
The UK Financial Conduct Authority (“FCA”) was established on April 1, 2013 and is the conduct regulator for nearly 60,000 financial services firms and financial markets in the UK. The FCA brought a test case suing eight insurers with 21 policy wordings to reach an “authoritative declaratory judgment” concerning coverage for coronavirus-related business interruption losses. The test case addressed coverage under the so-called non-damage extensions to business interruption insurance.
In the UK, many insurance policies are sold with add-ons, which provide cover if a business is forced to close because of the outbreak of an infectious disease within a specified radius of a company’s premises, typically up to 25 miles. In reaching their coverage decisions, the carriers relied on the opinion in Orient-Express Hotels Ltd. v. Assicurazioni Generali SpA which held that a company’s claim for business interruption coverage can be limited if its turnover would have suffered regardless of the immediate event that forced it to close because of wider circumstances beyond the scope of the policy. Citing to Orient Express, the carriers asserted such policies were not intended to cover global pandemics and found no coverage after the country was first locked down in March 2020 and the coronavirus outbreak took hold.
The High Court found in favor of the insureds, ruling that such policies would pay out if it could be proven that there was a single case of COVID-19 within that radius. The subsequent review and ruling by the UK Supreme Court’s was more nuanced, holding that that insurers should pay out if the “occurrence” of COVID-19 within the vicinity was a cause of business interruption losses. In reaching its decision in favor of the insureds, the UK Supreme Court concluded that the Orient Express case was wrongly decided and should be overruled.
As noted by the UK Supreme Court, it is not sufficient to simply establish that the outbreak is present within that area described in the policy. Instead, coverage will ultimately turn on the question of causation. The cover afforded requires a causal connection between the insured risk identified, (the outbreak of the disease within a specified radius) and the forced closures by government officials and/or the actual loss sustained.
The decision of the UK Supreme Court reminds us that it is the specific policy language governing the loss that dictates coverage. Business interruption provisions common to policies issued in the United States typically provide coverage only if a company is forced to suspend their operations as a result of physical damage to insured property. Thus, while the decision is interesting, absent a non-damage business interruption BI extension for infectious diseases, the decision is not persuasive for U.S. courts considering coverage for the loss of business income as a result of Covid-19 related closures.