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Supreme Court Appeal hearing on COVID-19 Business Interruption Insurance

Posted on 8 December 2020

The final stage in the FCA Test Case proceedings has culminated in an appeal, which was heard by the Supreme Court from 16 to 19 November 2020. The Supreme Court's judgment is expected to have major ramifications for thousands of businesses, including those within the Real Estate sector. The Supreme Court's judgment cannot be appealed, so it will bring finality for Real Estate businesses, who will be able to ascertain whether, in principle, they can claim from their property insurers for business interruption losses resulting from the COVID-19 pandemic. Mishcon's Insurance Disputes team participated in both the High Court hearing and the Supreme Court appeal hearing.

The Test Case was issued just months ago in June, in circumstances where insurers across the board had denied cover for COVID-19 business interruption losses. The High Court hearing took place in July 2020, and judgment was delivered just weeks later in September 2020. As a result of the High Court's judgment, it was evident that many policyholders would be entitled to payments in principle from insurers for COVID-19 business interruption losses where policies contained specific non-damage extensions to cover, e.g., for notifiable disease, or for denial/prevention of access which resulted in an interruption of or interference with the insured business. Given the prominence of the case, as expected, various parts of the High Court's judgment were the subject of an expedited appeal to the Supreme Court.  

Although Real Estate sector policies were not examined as part of the Test Case proceedings (the case was aimed at providing clarity for SME businesses), to the extent that the Supreme Court upholds the High Court's rulings in favour of policyholders with specific policy wordings, those rulings will in our view be equally applicable to Real Estate sector policies which provide coverage for loss of rent. Accordingly, when the Supreme Court delivers its judgment (which may be later this year or early next year) many property owners will have certainty as to whether they can now take positive steps against their insurers to claim for loss of rent arising from the pandemic. The sums recoverable for COVID-19 business interruption losses are likely to be capped by an aggregate limit or a fixed period of indemnity - but the sums that could be recovered by Real Estate sector policyholders are often substantial, in the tens of millions of pounds. Insurers are well aware that Real Estate sector policyholders are poised to take action depending on the Supreme Court's judgment.

Assuming many policyholders will have grounds to recover from their insurers following the Supreme Court's judgment, it remains to be seen whether insurers will then do the right thing and start to pay claims, or whether they will continue to raise defences to drag out and to delay making payments to policyholders.

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