Blow for policyholders in latest BI ruling

Whilst the decision in the business interruption (BI) claims FCA test case in the High Court[1] and Supreme Court[2] (see our earlier articles here and here) was billed as a major success for insured parties in BI claims, it was of limited scope and application. The FCA selected a number of policies for the test case from 8 insurers for consideration, those selected were some of the policies more likely to cover losses caused by the COVID-19 pandemic.

A number of other types of policy wording exists across many policies in the UK and the test case ruling is of limited application to these policies. One of the most common types of policy wording not covered by the test case is where there is a disease clause providing for losses caused by disease at or within the vicinity of a business, but that clause contains a closed list of named diseases. As COVID-19 was a new disease, it cannot have been named on insurance policies.

For the first time, the Courts have considered whether a closed list disease clause can provide cover by analogy to diseases such as “plague”. In a blow to policyholders, the High Court has categorically rejected any such application by analogy.

In Rockliffe Hall Ltd v Travelers Insurance Company Ltd [2021] EWHC 412, the Newcastle Circuit Commercial Court has struck out and summarily dismissed a claim from a hotel against its insurers for BI losses resulting from COVID-19.

The policy included an extension for BI cover for non-damage loss from, among other things:

“1. Infectious Disease manifested by any person whilst at the Business Premises which results in closure of the whole or part of the Business Premises by the order of an appropriate competent authority.

2. An outbreak of Infectious Disease within 10 miles of the Business Premises.”

Upon consideration the judge determined that the closed list disease clause could only cover loss resulting from one of the specific diseases referred to in the policy. As the list was closed and exhaustive, the judge held that it could not be applied by analogy to COVID-19 losses. Arguments were put forward that the list could be construed as including COVID-19 because plague was included in the list, which could mean either the bacterial disease or an infectious disease with a high mortality rate, epidemic or pandemic. However, the judge dismissed this argument and determined that reference to “plague” meant a specific type of disease rather than having a more generic meaning.

The wording of policies included in the FCA test case generally referred to Notifiable Diseases, which meant that new diseases would be included if they became notifiable or were reasonably similar to the diseases listed. These Notifiable Disease clauses expressly referred to a central list regularly updated by the government, whereas the policy in this case contained its own closed list referencing specific diseases without reference to anything wider or unknown.

This outcome is not surprising, as the Court would have had to depart significantly from the ordinary meaning of words in the policy in order to extend cover for COVID-19, but will nonetheless be a blow to many businesses with this type of policy wording. The ruling may be appealed in this case or subsequently, but there seems to be little prospect of any immediate success for policyholders with these types of policies.

Case: Rockliffe Hall Ltd v Travelers Insurance Company Ltd [2021] EWHC 412 (Comm) (25 February 2021).

[1] Financial Conduct Authority v Arch Insurance (UK) Ltd & Ors [2020] EWHC 2448 (Comm)

[2] Financial Conduct Authority v Arch Insurance (UK) Limited & Ors [2021] UKSC 1