UK top court to expedite hearing on business interruption insurance

The United Kingdom's Supreme Court will hear the first expedited appeal in a business interruption insurance test case to see which companies, if any, should pay claims by small businesses closed by government orders during the coronavirus pandemic.

In an attempt to offer guidance to hundreds of thousands of policyholders seeking business interruption coverage in the U.K., the test case brought by the Financial Conduct Authority -- a non-governmental financial regulatory agency -- considered 21 representative sample policies from eight major insurance carriers, including some who do business in the United States.

While U.S. courts have mostly ruled in insurers' favor in individual suits thus far, Justice Sir Julian Martin Flaux of the Court of Appeals of England and Wales, handed down a 150-page judgment last month, interpreting most policies in favor of granting coverage, following expedited proceedings that began in May.

Insurance companies were then allowed to leapfrog their appeal past the appellate court directly to the Supreme Court of the U.K.

The Nov. 16 hearing is expected to last four days, according to a statement released by the authority.

"As we have stated previously, we believe that this 'leapfrog' appeal to the Supreme Court is the fastest way to get legal clarity for all parties in the event that it is not possible to find a solution with insurers which resolves the outstanding issues, before the appeal takes place, to enable pay-outs on eligible claims," the statement reads.

While the U.K. court reached different conclusions in respect to each policy, it examined among other things three policy phrases: "disease clauses" which provide coverage from a loss arising from a notifiable disease within a specified radius of the insured premises; "prevention of access and similar wordings," where the coverage is against a prevention of access to or use of the premises as a consequence of government or local authority action; and "hybrid clauses" which are a combination of the first two.

"The test case has also clarified that the COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover," the authority said in a statement following the ruling.

The appeal seeks to clarify whether the 21 policy phrases, affecting potentially 700 types of policies, 60 insurers, and 370,000 policyholders, cover disruption and government-ordered closures amid the COVID-19 pandemic.

Restaurant and business owners in the U.S. claim their existing business interruption policies should have triggered coverage when state and local governments ordered them to close in March. However insurance companies in the U.S. denied claims, saying the policies only cover physical damage or alterations to a property, not the consequences of a government-ordered closure.

While the U.K. test case does not address some of the more pertinent questions facing U.S. courts -- such as what is meant by the policy term "physical loss or damage" -- it has thus far served as an encouraging sign for U.S. policyholders, especially those holding international business interruption policies.