While case law in the US is still developing
, international courts considering business interruption claims against insurers have made meaningful findings in favor of policy holders.
UK High Court Grants Coverage to Policy-Holders with Extension Clauses
In the UK, the High Court of Justice issued a lengthy ruling
in a test case brought by the Financial Conduct Authority (“FCA”) consolidating the claims of small businesses whose insurers denied coverage for COVID-19 losses under 21 different policies. Unlike the majority of American cases (where the courts were primarily focused on whether the core policies covered insureds’ losses) the High Court considered whether certain extensions of coverage, which are not contingent on physical damage, applied to business losses due to COVID-19. These extensions include:
- Disease Clauses: provisions that cover business interruption as a result of the spread of a disease proximate to the insured’s property.
- Denial of Access Clauses: provisions that cover loss of use or access of the insured’s property as a consequence of government or local authority regulations.
- Hybrid Clauses: provisions that combine denial of access and disease coverage.
In what is being considered a big win for claimants, the High Court advised that, generally, COVID-19 losses should be covered by any of these three kinds of extensions, but that individual determinations may turn on the specific wording of the policy provision. Small businesses involved in the 700+ business insurance cases pending across the UK will be able to use this opinion to bolster their claims for coverage.
South African Insurers Likely To Continue Providing Coverage
Furthermore, it is believed that the ruling of the High Court will be influential in resolving cases concerning similar insurance provisions across the globe, such as in South Africa, where the “watershed” case of Ma-Afrika Hotels v. Santam
is pending before a Western Cape High Court.
Unlike in the US and UK, insurers in South Africa were initially quick to payout claimants looking for coverage for COVID-19 losses. Their decision was supported by the High Court’s June ruling in Café Chameleon CC v. Guardrisk Insurance LTD. In that case, the insurer argued that the insured’s business losses were a result of government regulation causing them to shut down their business, and not the spread of disease itself. Therefore, the insured could not claim its losses under a Disease Clause that covered “interruption or interference with the business due to notifiable disease occurring within a radius of 50 km of the premises."
The Court was not persuaded by this reasoning and found in favor of the insured. It interpreted the causation requirement for coverage as follows:
“The question that now arises, is whether the Applicant has established that the regulatory regime that was imposed on its business from 27 March 2020 was directly caused by the Covid-19 outbreak within the permitted radius of its premises and as a result suffered a loss. Put differently, whether the Covid-19 as a Notifiable disease, caused or materially contributed to the "Lockdown Regulations" that gave rise to the Applicant's claim (this is a factual enquiry).”
Following the High Court’s ruling, Guardrisk appealed. As such, the Court in Ma-Afrika found that Guardrisk’s holding was non-binding. Furthermore, while South African insurers pledged in August to continue supporting policy-holders’ claims, a new decision in the Ma-Afrika case could reverse this trend.
It is unclear what influence, if any, these international rulings will have on American courts.