The latest batch of court judgments in the long-running battle over COVID-19 business interruption claims in the U.K. has provided some more clarity on the payouts policyholders should receive — but has also paved the way for further disputes and appeals.

Three big players in the U.K. hospitality industry sued their insurers after they each received claims payments of £2.5 million to cover the business interruption losses they suffered in the pandemic. The payments were based on the limit for a single business interruption loss specified in the widely used Marsh Resilience policy wording the companies were covered by.

However, the policyholders said they had suffered multiple business interruption losses and so were entitled to far larger payouts. In the biggest of the three claims, pub group Stonegate argued that insurers MS Amlin Corporate Member Ltd., Liberty Mutual Insurance Europe Societas Europaea and Zurich Insurance PLC owed it £1.1 billion on the grounds that the £2.5 million limit should apply to each of its 760 premises. Bakery chain Greggs argued that its insurer, Zurich Insurance, owes it in excess of £150 million, while restaurant chain Various Eateries contended Allianz Insurance PLC should have paid it more than £16.3 million.

The policy defined a single business interruption loss as one attributable or connected to a single "occurrence."

Unanswered questions

Justice Christopher Butcher, a judge in the High Court of England and Wales, concluded in his Oct. 17 judgments in the three related cases that certain government actions in response to the COVID-19 pandemic could be considered separate occurrences. For example, Butcher regarded the restrictions imposed on specific areas of the country, such as those in parts of Leicester on July 4, 2020, as separate occurrences. But he rejected Stonegate's argument that each premise should have a separate coverage limit.

The judge also left it up to policyholders and insurers to determine which losses were covered by the occurrences he identified. "That, I think, is the next battleground — which losses arise out of which occurrence. And that's going to turn on the facts for each insured," Lydia Savill, counsel in law firm Hogan Lovells' international insurance team, said in an interview.

If, for example, all the losses a company suffered can be attributed to just one of the occurrences, the policyholder will only have access to one limit, Savill said. "This judgment clearly recognizes that there may be some further dispute about that," she added.

In its case, Greggs highlighted around 120 government announcements and regulations that could trigger coverage. Butcher said in his judgment that if the parties could not determine how many of them were relevant single occurrences "I will hear further argument by reference to each of the different announcements/regulations pleaded by Greggs."

One gray area is what constitutes a coordinated government response when determining how many occurrences there should be, according to Josianne El Antoury, an associate at law firm Covington. "I'd be surprised if the parties didn't go back for some further clarification in certain areas such as that one," El Antoury said in an interview.

In the Stonegate judgment, for example, Butcher said he regarded instructions to close pubs, bars and restaurants on March 20 as a single occurrence, but added that if he was wrong, there should be one occurrence each on that date for England, Scotland and Wales.

A further area of potential contention is whether there should be coverage for losses that occurred after the policy's insurance period expired but within the indemnity period, during which policyholders can file claims they incurred during the insurance period.

Stonegate, whose insurance period expired April 30, 2020, argued that government actions taken during its 36-month indemnity period were caused by instances of COVID-19 that occurred during its insurance period and so are covered. Butcher largely disagreed but acknowledged that there were instances where manifestations of the disease in the insurance period could have triggered losses in the indemnity period.

Naz Gauri, principal associate, insurance and reinsurance, at law firm Eversheds Sutherland, said in an interview that although he felt there were no obvious areas for challenge in the judge's reasoning on how claims should be aggregated, "I think there's more scope for question or scope for appeal" of his decision on whether losses in the indemnity period could have been triggered by events in the insurance period. But Gauri added, "In my view [Butcher] reached a balanced view and I personally like his approach."

Appeals likely

Some policyholders are likely to appeal certain parts of the judgments. A blow for policyholders was that Butcher found payments the U.K. government made to companies to pay furloughed workers under the Coronavirus Job Retention Scheme should be deducted from claims payments.

"We believe that the Court's interpretation on a number of issues which are generally applicable to policyholders is out of step with the approach taken by the Supreme Court in the test case and with the approach of Courts in other jurisdictions (such as on furlough). We intend to appeal those elements of the decision," Stonegate said in a statement.

However, Gauri said he found Butcher's arguments on furlough payments "persuasive," and while one or more of the policyholders may appeal the decision, "to my mind, they face an uphill battle in doing so."

Not all policyholders are similarly troubled by the judgments. "This outcome vindicates Greggs commencing proceedings and has wider implications for all businesses that purchased the Resilience Insurance policies," Manoj Vaghela, partner at law firm Charles Russell Speechlys, which represented Greggs, said in a statement on the company's website. Policyholders' fortunes in the cases were determined in part by how much of 2020 was captured in their policy term. Stonegate's policy expired April 30, 2020, while Greggs' ran until Dec. 31.

Various Eateries declined to comment.

Some of the insurers involved in the cases have also declared victory. "This is a positive outcome for us and is of significance to the entire insurance industry, who I'm sure will be keen to read the full details of the judgment, as issues around furlough payments and aggregation in particular have the potential to have an enormous financial impact for insurers throughout the U.K.," Johan Slabbert, CEO of MS Amlin Underwriting Ltd., said in a statement.

Lee Watts, director of technical claims in Allianz UK's commercial division said, "The judgement provides a step forwards in providing clarity to Resilience policyholders and insurers alike. We will now be considering the judgement in detail and engaging with our policyholders on next steps as soon as possible."

Liberty Mutual declined to comment. Zurich did not respond to a request for comment.

More to do

The batch of three judgments has taken insurers and policyholders closer to resolving their differences on COVID-19 business interruption claims, but lawyers feel there is still far to go.

"It's definitely a good start and a welcome judgment in that sense that we have some clarity ... in the COVID-19 space. But I think there is more to go," El Antoury said. She noted that there were more cases coming to court, including one where eight football clubs in the English Premier League are suing their insurers over COVID-19 business interruption losses.

The cases to date have also not addressed claims issues relating to instances of COVID-19 at policyholders' premises rather than within a specific radius. "There are cases coming down the track that, if they do go all the way to trial and aren't settled beforehand, will look at that," Savill said.