COVID-19 Business Interruption Insurance – Can I make several claims?

Supreme Court decision and beyond

Many thought it was game over when the Supreme Court handed down its eagerly-awaited decision in the FCA test case on COVID-19 business interruption insurance claims in January which resulted in a resounding victory for policyholders.¹ In particular, those policyholders who had patiently waited for their claims to be paid (and in many cases who were on the brink of financial ruin) could be forgiven for thinking that fair payments would follow swiftly to compensate them for the losses that they had sustained as a consequence of the pandemic.

However, sadly many policyholders have had to think again. Not only are a number of policyholders disappointed because insurers are raising a plethora of inventive arguments seeking to exploit any potential leeway in the judgment (such as early trigger dates meaning lower losses, fanciful arguments as to what may constitute mandatory closure where applicable and questionable treatment of furlough payments, to name but a few) but they are also, by and large, facing a point-blank refusal by insurers to entertain any more than one claim per policy.

Aggregation

The latter point involves the complex legal arena of ‘aggregation’ which was not dealt with in the test case. Because of this, aggregation has provided a fertile territory for what is becoming the next battleground.

Policyholders are increasingly asking for advice regarding how many claims they can make under their policy, as many policyholders have sustained losses well in excess of the limit of indemnity in their disease or non-damage denial of access/hybrid extensions. They ask what the legal position is. Can they, for example, make separate claims for losses sustained at different business premises that they own? Can they claim for losses sustained as a consequence of different lockdowns? Or for adjustments that they had to make to their business due to the many changing government regulations?

There are no hard and fast rules because aggregation is multi-factorial and will vary according to the particular policy wording, the position of the individual policyholder, its business set-up and the specific losses incurred by that business, so it is therefore to a very large degree fact-specific. This is always the case in the complex aggregation arena and judgments vary enormously according to the factual situation involved in a given case. As if that were not complex enough, when you throw yet another layer of novelty and complexity into the mix, in the shape of an unprecedented worldwide pandemic, we are into yet further unchartered territory. Anticipating which way the courts might go in interpreting aggregation arguments made in the COVID-19 business interruption claims arena is even more challenging than it normally would be.

However, the nature of COVID-19 and the diverse nature of losses sustained during the COVID-19 pandemic have certainly made it possible to argue in many instances for more than one limit/claim per policy.

So, what is ‘aggregation’?

Simply put, aggregation is a mechanism under which two or more separate losses under a policy are treated as a single loss when they are linked by a unifying or connecting factor of some kind.

What occupies most of the court’s time in assessing whether or not there has been aggregation is determining the nature of the unifying factor in each case. The unifying wording in each policy is critical and various terms are used but an accepted principle which underpins the law on aggregation is that an occurrence/event is something which happens ‘at a particular time, at a particular place, in a particular way’ .²

Although the Supreme Court did not make any findings on aggregation, it did provide a very useful guidance as to what an occurrence might look like in the context of COVID-19 business interruption claims, when it dealt with the word in the context of determining the liability issues before it. In its judgment, the Supreme Court helpfully re-stated the accepted Axa v Field definition of ‘occurrence’³ referred to above and went on to make it clear that COVID-19 of itself would not constitute an occurrence, when it said:

‘disease that spreads is not something that occurs at a particular time and place and in a particular way: it occurs at a multiplicity of different times and places and may occur in different ways involving differing symptoms of greater or less severity. Nor for that matter could an “outbreak” of disease be regarded as one occurrence, unless the individual cases of disease described as an “outbreak” have a sufficient degree of unity in relation to time, locality and cause.’ ⁴

It is not surprising that insurers are arguing that all losses incurred by their policyholders can be aggregated and there is therefore the ability to make only one claim per policy for losses cause by the pandemic. However, this is likely to be a relatively difficult argument to run, given the nature of COVID-19 and how losses sustained as a consequence of it are multi-factorial, often multi-locational and have occurred over a long period of time.

Possible occurrences?

This begs the question as to what could constitute separate occurrences or events for the purpose of claiming under a business interruption policy? In other words, what losses might be construed by the court to have occurred “at a particular time, at a particular place, in a particular way” for a particular policyholder? Possible candidates are those losses sustained as a consequence of:

• The Prime Minister’s statement on 16 March 2020 requesting the public to work from home where possible, limit social contact and keep a safe distance from others.
• The instruction to certain businesses to close, given by the Prime Minister on 20 March 2020.
• The first national lockdown announcement on 23 March 2020.
• The introduction of the regulations on 26 March 2020.
• The changing guidelines both upon the various easing and tightening of the rules from May through to October 2020, such as facilitating the so-called ‘rule of six’; the imposition of wearing face masks and the ‘substantial meal’ and 10pm curfew requirements in the hospitality sector.
• The local Leicester lockdown announced on 29 June 2020.
• The tiered system in place from 12 October 2020.
• The second national lockdown announcement on 31 October 2020.
• End of lockdown replaced with strengthened three-tier system implemented on 2 December 2020.
• ‘Christmas Bubbles’ changing advice in December 2020.
• Third national lockdown announcement on 4 January 2021.
• Cancellation of individual contracts on a case-by-case basis.
• The imposition of industry-specific guidelines, such as the Site Operating Procedures of the Construction Leadership Council.
• Where businesses operate close to the borders with the devolved nations and/or in different parts of the UK, the various impositions of differing regulations in the devolved nations.

The above examples are only potential options and are highly fact-dependant. Another critical factor in determining the number of potential occurrences will be the period of indemnity of the relevant insurance policy. This is because many policies will have come up for renewal during the early stages of the pandemic and insurers understandably across the board have excluded all claims relating to COVID-19 upon renewal. Therefore, only COVID-related occurrences which pre-date the policy renewal will be potential candidates.

Where does all of this leave policyholders and insurers alike?

In cases where policyholders have incurred losses in excess of the policy extension per occurrence/event limit and they are facing unacceptable resistance to the claims that they have legitimately presented, there may be considerable scope to argue for more than one occurrence under their policies.

As for insurers, whilst it is not at all surprising that the aggregation battle is mounting, they would be well advised to take a pragmatic approach to entertaining cogently argued multiple claims per policy since, in the long run, this could be a far less expensive option than facing multiple claims for late payment damages under s 13A Insurance Act 2015.

Keystone’s insurance coverage lawyers can work to assist any business wishing to pursue a claim and/or to assess whether it may have scope to argue for several occurrences under its policy. For any questions, please contact Marie-Claire di Mambro.

¹ See https://www.supremecourt.uk/cases/docs/uksc-2020-0177-judgment.pdf (‘Judgment’).

² See Axa Reinsurance (UK) Plc v Field [1996] 3 All ER 517.

³ See paragraph 67 of the Judgment.

⁴ See paragraph 69 of the Judgment.