Supreme Court rules in favour of BI insurance payouts for the Hospitality Industry

Taylor Wessing and UKHospitality welcome the Supreme Court's final ruling today on the appeals in the FCA's business interruption insurance test case

In a judgment handed down today, the Supreme Court broadly allowed the FCA's appeal on behalf of policy holders and dismissed Insurers' appeals.

The Supreme Court has clarified the key legal principles which apply to BI insurance claims. While policyholders still need to assess how close their wordings are and if their policy is directly affected, the vast majority of policies tested by the courts should respond to losses suffered as a result of COVID-19. The Supreme Court made clear, for example, that where disease clauses covered business interruption losses resulting from any occurrence of a notifiable disease (being COVID-19) within a specified geographical area (such as 25 miles) of the insured premises, there will be cover provided there had been an least one case of the disease within that radius. Importantly, the Supreme Court also confirmed that the relevant prevention of access clauses should provide cover for partial as well as full closure of business premises.

Policyholders still need to closely examine their wordings and assess questions as to precisely what losses can be claimed, but the Supreme Court has expressed a hope that valid claims can now be settled promptly following this final clarity on policy wordings.

In June last year, Taylor Wessing and UKHospitality joined forces to support businesses in the hospitality industry with the review of their insurance policies, in relation to the FCA test case filed in the High Court to seek clarification on the interpretation of a selection of business interruption policy wordings. A sample of policy wordings were initially examined in the test case and the High Court ruled on these clarifications broadly in favour of policyholders in September 2020 (with a small number of policy wordings held not to provide cover for pandemic losses).

While the High Court reached nuanced conclusions, specific to each representative sample policy wording within the scope of the test case, and agreed with the FCA on the majority of the key issues, 6 of the 8 insurers appealed.

Judges have dismissed the insurance industry's arguments over the disputed business interruption claims, key clarifications and questions of causation have now been ruled on and insurers are being urged to payout on valid claims directly without delay.

Partner Katie Chandler explains: "It's great that the highest court in England and Wales has moved quickly to give final clarity and certainty on the scope of business interruption insurance claims. This has been an extremely important debate where businesses lives depended on a positive outcome.

"Insurers need to apply the legal principles when assessing claims and while any business interruption policy still involves nuanced questions, particularly around precisely what losses can be claimed, the Supreme Court has expressed a hope that claims can be settled promptly. We expect that claims will be accelerated as a result with interim payments being made. Businesses have already waited far too long for much needed pay-outs."

"This is good news for those policyholders whose wording is captured by the FCA test case. Not all business interruption insurance policies fell within the scope of the FCA's test case and so not everyone will benefit. But for those that have the same or similar wording in the FCA's 21 representative sample, there is now clarity on the interpretation of "disease clauses", "prevention of access" clauses and "hybrid clauses" and scope of cover so that insurers can move quickly in settling claims. Our work with UKHospitality in making submissions to the FCA was pivotal in ensuring that commonly worded business interruption insurance policies held by some hospitality businesses were included. The Supreme Court today upheld important findings by the High Court on the interpretation of wordings put forward by our team".

Commenting on today’s ruling, UKHospitality Chief Executive Kate Nicholls said: “Obviously, we still need to pore over the details, but, at first glance, this looks like very positive news. Businesses took out policies in good faith and it is right that insurers stick to these agreements and honour claims. Should this result in pay-outs to policy holders – a point which is still not clear at present - this could provide an additional lifeline that many businesses desperately need. It could be the difference between keeping staff members on or being forced to let them go; it could mean the survival of a business that was previously staring collapse in the face".

“I would like to thank Taylor Wessing for all their hard work. We have been pushing hard for a positive resolution, and the legal insight that Taylor Wessing has provided to hospitality operators has been immense.' Nicholls concluded, 'Hopefully, this outcome will give many small businesses in the hospitality sector peace of mind and possibly some financial support they need to begin rebuilding.”

The Taylor Wessing team working with UKHospitality is led by partners Katie Chandler, Julian Randall and Richard Bursby. UKHospitality members can access further support from Taylor Wessing and the team who are hosting a webinar to provide expert legal insights into the impact of the Supreme Court's decision and next steps for relevant policyholders in reaching settlement of their claims with insurers.

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Notes to editors

Further details and commentary on the BI insurance case can be accessed via the FCA and on our website.

About Taylor Wessing

Taylor Wessing is a global law firm that serves the world’s most innovative people and businesses. Deeply embedded within our sectors, we work closely together with our clients to crack complex problems, enabling ideas and aspirations to thrive. Creative thinking is at the heart of our culture and we see art as an important instrument of change. Together with our people and community partners, we seek to challenge expectation and create extraordinary results.

About UKHospitality

UKHospitality is the trade body representing the UK’s hospitality sector, established following a merger approved in February 2018 between the Association of Licensed Multiple Retailers (ALMR) and the British Hospitality Association (BHA).

UKHospitality is the authoritative voice for over 700 companies, operating around 65,000 venues in a sector that employs 3.2 million people.

The body speaks on behalf of a wide range of leisure and ‘out-of-home’ businesses, from FTSE 100 enterprises to niche groups and independent single-site operators. For the first time, the sector has a single voice bringing together businesses from all aspects of hospitality; coffee shops, hotels, serviced apartments, pubs, restaurants, leisure parks, nightclubs, contract caterers, entertainment, stadia and visitor attractions.

Engaging with government, regulators and governing bodies, the media and the public, UKHospitality works to develop a robust case on how to unlock the industry’s full potential as the biggest engine for growth in the economy and ensure that the industry’s needs are effectively represented.