UK High Court says business interruption coverage applies to COVID-19

Thousands of British insurance policyholders in the United Kingdom will have their claims for coronavirus-related business interruption losses paid after the Supreme Court of the United Kingdom ruled in their favor Friday in the first test case of its kind. The order was designed to make a general ruling over the widespread legal battle arising after insured businesses were forced by governments to shut down amid the COVID-19 pandemic.

Meanwhile, U.S. policyholders continue individually fighting their insurers in state and federal court, with only one case in New Orleans having reached the trial stage.

Sheldon Mills, executive director of consumers and competition at Britain’s Financial Conduct Authority, said the agency is working to ensure policyholders’ claims are paid quickly.

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat,” Mills said in a statement Friday. “This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.”

In an attempt to offer guidance to hundreds of thousands of policyholders seeking business interruption coverage in the U.K. amid the pandemic, the test case brought by the Financial Conduct Authority — a nongovernmental financial regulatory agency — considered 21 representative sample policies from eight major insurance carriers, including some who do business in the United States.

Some U.S. policyholders who have already closed their businesses for good or who face the increased prospect of bankruptcy also tried to expedite litigation in the U.S. by proposing all federal cases be consolidated into one big multidistrict litigation. However, finding policy languages too varied and that consolidation would not be time efficient, the Judicial Panel on Multidistrict Litigation in Washington D.C. ruled against it.

“These actions present common legal and factual questions that could, in other circumstances, support centralization,” the seven-judge panel wrote in its October ruling. “Common factual questions, however, are not the sole prerequisite for centralization.

The British financial regulatory agency argued on the policyholders’ behalf that certain “disease” and “prevention of access” clauses in the 21 policy types chosen for the test case provided coverage in the circumstances of the coronavirus pandemic.

Agreeing with the agency in September, the U.K.’s High Court said most disease clauses and certain prevention of access clauses, embedded in 12 of the 21 policies, provided coverage. Perhaps most importantly, unlike some judges in the U.S., the U.K’s High Court ruled that the pandemic and subsequent government and public responses caused the business interruption losses.

Six of the eight insurers, who were allowed to leapfrog the appellate court on an expedited briefing schedule, appealed these rulings directly to the U.K. supreme court. However apparent in Friday’s ruling, those appeals were denied.

The supreme court’s judgment will now be distilled into a set of declarations, according to the financial conduct agency’s statement Friday.

While the majority of judges in the U.S. have ruled in favor of insurers in motions for summary judgment, a growing number of policyholders have survived the summary judgment phase and a small number have won.

Insurers argue losses due to the pandemic do not constitute “direct physical loss or damage” because the virus does not, like a fire or flood, physically alter or tangibly destroy the property

Plaintiffs’ arguments have differed in some key places usually based on whether the policy at issue includes a virus exclusion.

However some plaintiffs’ attorneys argue exclusions are irrelevant. As long as plaintiffs can prove a policyholder would reasonably believe their business interruption policies covered a state-ordered closure due to a pandemic, judges should rule in their favor, they say.