UK court hands down ruling in three landmark COVID-related BI cases

Pub group said ruling is "out of step"with high court's approach to FCA test

UK court hands down ruling in three landmark COVID-related BI cases

Insurance News


Earlier today, the High Court handed down rulings on three crucial COVID-related business interruption lawsuits - Stonegate Pub Company Ltd vs MS Amlin, Liberty Mutual Insurance Europe and Zurich, Various Eateries vs. Allianz Insurance Plc and Greggs Plc vs Zurich Insurance.

The lawsuit by Stonegate is one of the highest profile cases in a string of ongoing legal battles between the UK’s hospitality and insurance industries which saw Britain’s largest pub group sue a trio of insurers for £845 million in compensation for business interruption losses during the pandemic. Stonegate alleged that government-ordered closures and restrictions during the height of COVID-19 triggered business interruption cover multiple times. It also claimed that such business interruptions would persist until April 2023.

According to court documents seen by Insurance Business, Stonegate’s insurers don’t dispute that the policies should have paid out, but contend their liability is limited to £17.5 million. The insurers had already paid out £14.5 million of this total, including £12 million for additional increased costs of working. The court began hearing arguments on the case in June this year.

Commenting on today’s outcome which saw insurers win the battle to deduct COVID furlough support from payouts, MS Amlin said the judgement saw the court ‘fundamentally’ support insurers’ positions. The insurer noted that the case considered, among other things, the extent to which losses were caused by cases of COVID-19 and government action within the policy period as well as whether insurers were entitled to credit for furlough payments received by Stonegate.

MS Amlin stated that: “On all of these issues, the court has found almost entirely in favour of insurers.”

Johan Slabbert, chief executive officer, MS Amlin Underwriting Limited said the ruling “brings some genuine clarity to a very complex business interruption case.” He hailed the “positive outcome” for the insurance industry, noting that the ruling will have an enormous financial impact on insurers throughout the UK.

“As an insurer upon whom thousands of businesses rely for support, we have always taken our responsibilities extremely seriously,” Slabbert said in a statement. “COVID-19 created unprecedented challenges for businesses across the country, and our commitment to helping our policyholders remains as strong as ever.”

However, a spokesperson from the Stonegate Group said the outcome of the case was “far from conclusive” and that it intends to appeal the court’s decision, saying the commercial court’s interpretation on several key issues is “out of step” with the approach taken by the Supreme Court in a Financial Conduct Authority-brought test case.

A landmark ruling by the high court in January found that many business-interruption policies should have provided cover against the financial losses from the pandemic. The FCA brought the test case on behalf of 370,000 affected policyholders.

Stonegate operates some 760 pubs, bars, and restaurants across the UK, including popular chains such as Slug and Lettuce and Yates’s.

“While our recovery from the pandemic has been strong, we cannot ignore the significant disruption caused during the last two years. Along with most businesses in the UK, we are now grappling with inflationary challenges and a cost-of-living crisis for the UK consumer. In the circumstances, we, and other businesses, are entitled to look to our insurers to provide the cover promised under our policy,” the Stonegate spokesperson told Insurance Business.

Greggs vs Zurich Insurance

Meanwhile, a spokesperson for Charles Russell Speechlys which acted for Greggs in the landmark BI trial said “today’s judgment substantially accepts Greggs’ primary case for payment of business interruption and related losses caused by Covid-19 and its consequences.”

Insurers’ initial argument that there was only one limit available for COVID BI losses, entitling Greggs to only one limit of £2.5 million for all of its COVID BI losses has been “firmly rejected”, the firm said.

For its part, Greggs argued that it was entitled to access a separate limit of £2.5 million each time the Westminster and devolved governments in the UK adopted a major COVID restriction measure affecting its business, meaning that there were multiple such restrictions and corresponding £2.5 million limits.

Charles Russell Speechlys said the judge accepted the “main thrust” of Greggs’ primary case and ruled that there was a single occurrence at the outset (from March 2020 until May 2020) followed by separate occurrences in each jurisdiction within the UK as the level of major restrictions in place was adjusted from time to time over the course of 2020 and also separate occurrences within each jurisdiction where there were local lockdowns or other restrictions.

The judge also held that those regulations which merely continued existing restrictions or made trivial changes did not provide additional £2.5 million limits.

Charles Russell Speechlys Partner, Manoj Vaghela, commented: “This outcome vindicates Greggs commencing proceedings and has wider implications for all businesses that purchased the Resilience Insurance policies. Insurers’ argument that there was only one limit available for COVID business interruption losses has been firmly rejected. “

Subject to appeal, Charles Russell Speechlys said that the case of ‘Greggs plc v Zurich Insurance plc’ (Case No: CL-2021-000622) will now proceed to phase two, in which insurers and Greggs will calculate the value of the business interruption loss recoverable under the insurance policy.

Various Eateries Trading Ltd vs. Allianz Insurance Plc

For its part, Various Eateries (VE) argued for a ‘per premise’ case in its £16 million claim against Allianz.

In his ruling, the Honourable Mr Justice Butcher laid out the boundaries of the claim with VE claiming that its loss was caused by numerous ‘Covered Events’ which fall to be indemnified under one or all of what were called the ‘Disease Clause’. VE claimed that all its pandemic-related loss is recoverable until the end of the 12- or 24-month Maximum Indemnity Period (‘MIP’), as applicable.

Meanwhile, Allianz’s case was that VE’s business interruption loss (‘BIL’), additional increased costs of working (or ‘AICW’) and claims preparation costs which it is entitled to recover under the policy, were limited to £2.5 million, £400,000 and £175,000 respectively. Allianz said it had paid the £2.5 million and would make payments in respect of AICW and Claims Preparation Costs subject to proof, but had not yet done so in full.

Allianz’s primary case was not one which had a counterpart in Stonegate v MS Amlin, or in Greggs v Zurich. It was based on the proposition that the Divisional Court in the FCA Test Case, in relation to ‘RSA 4’ which was a policy on the Marsh Resilience Form, had rejected a submission that the Disease Clause provided cover only for ‘events’, and extended to providing cover for ‘states of affairs’. Butcher rejected Allianz’s primary case on this issue.

He added that: “Allianz also adopted the case made by Zurich in the Greggs v Zurich action that the policy was only ‘triggered’ by a covered event when there had been interruption or interference with VE’s business as a whole and therefore that there was only one ‘trigger’ of the Disease Clause by reason of the spread of the pandemic.”

He noted that he had given his reasons for rejecting that argument in paragraphs [33-40] of his judgement in Greggs vs Zurich. Meanwhile, he noted that in relation to the Enforced Closure Clause, he considers that the reasoning in his judgement in Stonegate vs MS Amlin [paragraphs 67-69] is applicable.

Summing up the rulings in a LinkedIn message, the law firm 2 Temple Gardens stated:

“The Commercial Court has today handed down judgement in three cases based on the popular Marsh Resilience wording: Various Eateries v Allianz, Stonegate v Amlin and Greggs v Zurich. Butcher J held that the BI losses aggregate around major government action. The judge also adopted a narrower approach to causation of losses than advocated for by policyholders, and further concluded that credit needed to be given by policyholders for furlough payments.”

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