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Latest news on business interruption guarantees: the opening of the floodgates for insurance litigation?

A recent ruling of a Paris Court ordering an insurance company, AXA SA, to pay a restaurant owner two months' worth of coronavirus-related revenue losses will undoubtedly open the floodgates of insurance litigation, at a global level.

The French court ruled that the administrative decision to close the restaurant qualified for insurance cover as a business interruption (BI) loss. Although AXA SA stated that it will appeal against the ruling, it is noteworthy that AXA SA also seeks to reach an amicable settlement to meet the bulk of claims from businesses whose contracts contain some ambiguity.

The significance of the aforesaid ruling is unquestionable, especially in relation to the question of insurance coverage when BI guarantees do not involve physical damage and the cost of mitigating the BI, which is why the ruling is being watched closely by restaurants, cafes, nightclubs and catering professionals around the world. Of course the insurers would seek to rely on the argument that pandemic risk is not insurable, thus it is excluded from operating loss insurance guarantees, however if insurance policies leave some scope for interpretation of any ambiguity on BI clauses, it seems that many businesses - including but not being limited to the food industry ones - which suffered great revenue losses during the Covid-19 lockdown, will be relieved to a significant extent.

Turning now to the latest developments in the UK in relation to BI clauses in insurance policies, the Financial Conduct Authority, seeking legal clarity on the matter as well as Court declarations, initiated a test case before the High Court, which will proceed on an expedited timetable; the final hearing will take place in the end of July and will be live-streamed. The result of the test case will be legally binding on the insurers that are parties to it in respect of the interpretation of the representative sample of policy wordings considered by the Court, whilst the judgment will also provide persuasive guidance for the interpretation of similar policy wordings and claims. Essentially, the High Court in this test case will consider the meaning of each word of insuring clauses to determine whether there is cover, however it will not decide issues concerning the measure of indemnity or quantum. With the prospect of an appeal in the context of the aforesaid test case being highly probable, a UK Supreme Court ruling on this matter will be much welcomed, as it is expected to resolve the contractual uncertainty around the validity of many BI claims related to the Covid-19 pandemic and shall therefore set out a precedent for similar claims to be initiated not only in Cyprus, but also in Europe and in the US.

It should be noted that each case is very fact-specific and BI provisions vary from one insurance policy to another. It remains to be seen what will be the English Courts’ approach on the matter and whether we will see a wide interpretation of any ambiguity in insurance policies or even an extension of BI guarantees to include compensation for non-physical damage - such as closure of premises or denial of access, or compensation being explicitly related to contagious diseases.