Revisiting business interruption insurance
While the battle rages on for insurance payouts against pandemic losses, Katie Byrne looks at a recent win for Greggs as an example
In January 2022 the Supreme Court's judgment in the Financial Conduct Authority's business interruption test case meant that a number of insurers were held liable to compensate thousands of companies whose businesses were severely hampered by the lockdowns enforced by the Covid-19 pandemic. Although the ruling was initially deemed a success for policyholders, a number of businesses found that the judgment did not cover all the different types of wording within their specific policies and consequently some insurers disputed and often declined coverage. Therefore, businesses found themselves needing to review the specific wording of their business insurance policies and were forced to seek independent legal advice.
Alternatively, while some insurers accepted that the Covid-19 pandemic was covered by the provisions of the insurance policies, they did not accept that businesses would be covered for all losses caused as a result of the Covid-19 lockdown restrictions.
These insurers argued that all losses incurred as a result of the various different Covid-19 restrictions should be aggregated into one ‘loss' and that businesses should only be entitled to one aggregated claim with one indemnity limit under their business interruption policies, despite the losses occurring over different policy periods and arising out of different government regulations.
Many businesses failed to accept this argument put forward by their insurers and took their disputes to the court.
Greggs plc v Zurich Insurance plc
Bakery chain Greggs pursued a legal battle against its insurer Zurich seeking to claim millions of pounds in compensation under its business interruption insurance policies. One clause that was central to this particular dispute was the aggregation clause. This relates to whether the loss referrable to the business interruption could be said to arise from, be attributable to, or to be in connection with a single occurrence, so as to be aggregated as a single business interruption loss (SBIL).
Greggs argued that there were multiple business interruptions following each of the 120 government announcements and regulations which sought to contain the spread of Covid-19 between March 2020 and the end of its insurance period in December 2020. Furthermore, each measure triggered loss in its own right, and the temporally and geographically differentiated profile of the regulations in force was directly responsible for its losses.
Zurich, on the other hand, contended that the government's measures should be grouped as one single occurrence instead, thus allowing Greggs to claim only one aggregated amount of £2.5m for all of its Covid business interruption losses.
What did the courts find?
Zurich's argument was rejected on account of the fact that the courts decided that it was possible to say that each governmental measure had the clear potential for causing the claimant loss in a very direct manner.
Accordingly, Greggs was able to successfully claim a separate limit of up to £2.5m for each occasion the government adopted a major Covid restriction measure that directly affected its business.
It is understood that Greggs has therefore managed to claim over £150m under its business interruption insurance policy with Zurich so far. It is, however, important to note that the judge did rule that insurers would be able to deduct furlough support from any payouts made.
What does this mean for other businesses?
Although this case represents a further win for businesses over insurers in England and Wales, given it means multiple business interruptions might be available for recovery under business interruption insurance policies, the success of this will continue to depend heavily on the exact wording of the policy.
The position remains that businesses will, therefore, need to review the specific wording of their business insurance policies and seek independent legal advice as to its interpretation.
Katie Byrne is a partner and consumer sector expert at Irwin Mitchell www.irwinmitchell.com
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