Undeterred hospitality businesses launch another bid to claim business interruption insurance losses
It is without question that the last 14 months has been a rough ride for the hospitality sector with hotels and restaurants being particularly hard hit by the swathe of government restrictions and regulations imposed since March 2020.
Owners and operators have been required to navigate a plethora of changing COVID-19 rules and regulations mandating when and where businesses can open, how services are to be provided and what measures are required to be put in place to protect the safety and wellbeing of staff and customers, whilst also seeking to remain financially viable.
As a result of this tumultuous period, many businesses have been forced to close their doors for good and countless more have only just managed to stay afloat. The importance of business interruption insurance (BI) has really come to the fore, and it is unsurprising that a number of hospitality businesses continue to press their insurers for payouts, even where, upon first reading, the outcome of the FCA Test Case on BI does not appear to indicate there is cover.
The FCA Test Case was intended to provide answers, en masse, to coverage questions affecting thousands of SMEs (with a consequential impact on larger businesses with similar policy wordings). Whilst the judgments went a long way in resolving the coverage debates, particularly with regard to “Disease” clauses (which provide cover for BI by reference to the presence of a “[notifiable ]disease” in the relevant radius), spats with insurers continue to rumble on in relation to areas not directly covered by the Test Case, or where the outcome has left uncertainties. Notably, Corbin & King, the owner of a number of upscale London restaurants including The Wolseley and the Delauney, has recently issued High Court proceedings against Axa for a declaratory judgment that cover is available in respect of each of its 18 premises up to the £250,000 limit of indemnity (a total value of £4.5m). Inception Group, which owns restaurants and clubs in central London including Bunga Bunga, Mr Fogg’s and Cahoots, is also reported to be bringing a £3.25m claim against Axa, and Black & White Hospitality, which operate the Marco Pierre White group of franchised restaurants, is reported to be bringing a £1m group claim against Tokio Marine, along with 17 other policyholders.
The main issue in both Inception Group’s and Corbin & King’s claim relates to the Supreme Court’s treatment of causation issues and the potential impact on Non-Damage Denial of Access (NDDA) / Act of Competent Authority (AOCA) clauses (which provide cover for BI losses resulting from public authority intervention preventing access to, or use of, the insured premises). The High Court originally determined that government action in imposing the various regulations in response to the national pandemic could not be said to have arisen following a “danger in the vicinity”, which connoted narrow localised cover. This aspect of the judgment was not appealed and many viewed their claims as hopeless.
Analysis of the Supreme Court’s reasoning on causation, however, i.e. that interruption was a result of Government action taken in response to cases of disease which included at least one case of COVID -19 within the relevant radius and that each individual case was a separate and equally effective cause of that action, has provided a platform to argue this can be applied equally to NDDA/AOCA clauses. The argument in such cases (as in Corbin & King) is that the relevant government action was caused by a “danger” to life, which was created by each case of COVID-19 within the relevant radius (as well as elsewhere in the UK) and each case was a separate and equally effective cause of that action. Whilst some might argue that such construction is a step too far for NDDA/AOCA clauses, this would seem to be a credible argument which, at the very least, requires clarification by the court. The potential impact of the Supreme Court judgment on unappealed aspects of the High Court judgment is now even recognised by the FCA: rather than concluding that no cover is available for NDDA/AOCA clauses, the FCA’s summary table of outcomes acknowledges the effect of the High Court judgment on certain aspects of coverage but notes that “parts of the Supreme Court judgment may be relevant”.
Whether any of the current proceedings reach a conclusive court decision remains to be seen, as insurers are likely to want to avoid a determination which could potentially open up the floodgates to claims requiring indemnity under NDDA/AOCA clauses, in addition to the payouts that are already required under Disease clauses. Policyholders who have NDDA/AOCA wordings who have been previously been told by their insurers that there is no cover should be aware, therefore, that the doors to claiming BI losses are not yet firmly shut.
Fladgate LLP’s Insurance Policyholder Team specialise in representing policyholders to help recover payments from insurers under their insurance policies. If you need assistance with your insurance claim, get in touch with Garbhan Shanks, Head of Insurance.