Since last week’s Supreme Court decision on the high profile business interruption insurance test claim, we have been speaking to colleagues and contacts about the impact on the property industry. You can read details of what the Supreme Court said and why in the article below, by my colleague Dellah Gilbert.

The Supreme Court’s decision largely confirms and expands upon the High Court’s previous judgment, which broadly supported the claims of the policyholders. Indeed, as Dellah points out, this decision has likely widened the pool of policyholders who can claim on their insurance policies and increased the levels of claim that they can make. In light of this, little has changed from our previous view as to the impact this might have on the property industry, namely:

  • Business occupiers have the most to gain from the decision.
  • Occupiers may choose to pay their arrears with any insurance monies received, although in most cases that would be at their discretion.
  • Payments to occupiers might help prevent or delay insolvency, leading to a reduction in the anticipated number of void commercial units.
  • Most landlords have already either reached compromises with their occupiers or are dealing with unpaid rent as a separate issue. Where a landlord has entered into some sort of rent concession, they will still be bound by it, even if the tenant subsequently recovers under a business interruption policy, unless there was a specific right to clawback in those circumstances.
  • Much still depends on the wording of individual policies, so businesses should consider their business interruption policy wording in light of the Supreme Court’s decision.
  • Claimants and insurers should now be able to focus on settling claims and quantum of damages and the FCA has called upon insurers to do this quickly.
  • We anticipate that the terminology and principles established by the court hearings will impact upon drafting of COVID-19 and wider pandemic clauses in future leases.
  • It is likely that the decision will trigger new insurance exclusions, unless there is government action to stop this (like the terrorism Pool Re fund, but for pandemics). Insurers have already pointed out that while a party might be insured, and have the relevant business interruption coverage, they still have to prove loss in order to bring a claim.
  • It is possible that specific pandemic insurance might become available and, if so, that landlords might require tenants to put this in place, or to cover the cost of the landlord providing such cover.

While the High Court’s decision has brought clarity to certain issues around business interruption, there remain other questions that have not yet been addressed (such as policies which are dependent on damage to the premises), so in our view this issue is not over yet. We continue to watch this space, to see what the wider impact on legal and insurance drafting and on the property industry will be.