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Business interruption insurance: COVID-related case extends scope of cover

Why is the Corbin & King case of interest to commercial parties?

With the pandemic having caused financial hardship for many businesses in England and Wales, the high profile Supreme Court ruling in the FCA v Arch Insurance case [1] brought welcome news. The landmark test case, brought by the Financial Conduct Authority on behalf of policyholders, found that a number of businesses who were forced to close as a result of the COVID-19 pandemic and who held certain business interruption (BI) insurance policies were entitled to compensation from their insurers. You can find our briefing on the case here.

a closed sign in the window of a high street business

Initially the court limited the availability of compensation to those businesses with ‘disease clauses’ – that is, those BI losses caused by disease within a geographical limit. However, the ruling given in the more recent Corbin & King v AXA Insurance case [2] is likely to mean that more businesses, with different, less specific clauses within their BI policies, may now also be eligible for compensation.  The Corbin & King decision will be helpful, in particular, for those businesses with ‘non-damage denial of access’ (NDDA) clauses.  (NDDA clauses deal with BI losses that are caused as a result of forced closure by a public authority due to events within the geographical limit.)

What happened in the case?

Mrs Justice Cockerill, who heard the case in the High Court, focused on the two following issues:

  1. Whether the NDDA clause provided effective cover for loss arising from access restrictions to the claimants’ premises as a result of government regulations passed in response to COVID-19.
  2. Whether, if the NDDA clause did provide cover, there was a single limit of £250,000 in respect of all premises for any one claim, or whether there was a limit of £250,000 for each set of premises.

On the first point the defendant, AXA, argued that the NDDA clause only provided cover in the case of an exclusively localised danger or disturbance and that such a clause was therefore ineffectual in respect of BI losses caused by COVID-19, a non-exclusive, nationwide phenomenon.

The High Court disagreed, finding that the risk need not be exclusively local in order for the NDDA clause to bite. The court took the view that while the effects of the pandemic were being felt globally, its effects were also being felt locally (and indeed within a one-mile radius of the claimants’ premises) and so the claimants were found to be entitled to compensation.

On the issue of quantum the court again found in favour of the claimants on the basis that the policy in question was composite in nature. The insurer was therefore ordered to pay, in respect of each insured premises, up to a maximum amount of £250,000 for each instance that the premises was forced to close (being the March 2020 closure, the September 2020 closure and the November 2020 closure).

It has not yet been confirmed whether or not the High Court decision will be appealed.

What practical advice arises?

With the removal of all COVID-related restrictions and with the coming into force on 24 March 2022 of the Commercial Rent (Coronavirus) Act 2022 [3], commercial landlords and tenants throughout England and Wales are now assessing the full financial impact of the pandemic and are considering their strategic response.  The terms of any BI insurance policy and both the FCA v Arch Insurance and the Corbin & King decisions should be taken into account as part of those deliberations.  The ability to recover compensation in respect of any COVID-related business interruption should be ascertained ‘in the round’, alongside any assessment of outstanding rent and other lease sums.  That assessment should also be made in respect of each and every property affected.

Walker Morris’ specialist Real Estate Litigators are experienced and expert in acting for both landlords and tenants and can assist clients with assessing all potential claims and liabilities associated with commercially-let premises.  The team can also advise and assist when it comes to making BI insurance claims, pursuing or defending commercial rent arrears claims, and/or negotiating settlements.  Please do not hesitate to contact David Manda for further information.