COVID Business Interruption Claim Developments in the UK
As you may have heard, the Supreme Court of the United Kingdom recently issued a landmark decision holding that certain business property policies must pay their insureds’ COVID-19-related business interruption claims. This issue has been hotly litigated across the United States since the beginning of the COVID-19 pandemic, with the overwhelming majority of court decisions agreeing with the insurance companies’ arguments that these claims are not covered. While the UK Supreme Court’s decision may be an encouraging sign for some, as we will describe in more detail below, it does not appear likely that this decision will have any significant impact on how American courts address these issues.
Initially, while the UK and US court systems function similarly, they do not interact with one another. American courts generally will not consider foreign courts’ decisions in deciding the cases before them unless there is a clear parallel between the cases. Even then, foreign decisions may be considered as guidance, but the court has no obligation to follow them.
But more importantly, there are critical differences in policy language being evaluated in the US vs. the UK. At the root of the US COVID-related business interruption coverage disputes is a general determination that there was no “direct physical loss”. Why? Because the US policies generally include a requirement that there first be “direct physical loss” to “property” caused by a “covered cause of loss” before business interruption coverage can be triggered. This requirement usually also applies to any “Civil Authority” coverage provided in these policies.
By contrast, the representative policies that were examined as part of this recent UK Supreme Court ruling had no such requirement. Most of them provided coverage for business interruption resulting from occurrences of a “notifiable disease”. The majority of these policies also had “Denial of Access” clauses that are similar to our “Civil Authority” coverage in the US, except without the “damage to property” requirement that is contained in most American policies.
According to the University of Pennsylvania Law COVID litigation tracker, at the time of writing, there have been 1,342 COVID-related business interruption cases brought in the United States, with only four that have resulted in favorable outcomes for policyholders. However, we can expect that those four decisions will be appealed, and may yet be overturned in favor of the insurers.
We are continuing to closely monitor all developments in this critical area of the law to ensure that the interests of our clients are protected to the fullest extent possible.