The impact of COVID-19 on hospitality and retail
Two sectors that have been significantly affected by the Coronavirus pandemic are hospitality and retail.
The Office for National Statistics has published data showing the impact on the hospitality sector. In 2019, the hospitality sector represented 3% of the UK economy, contributing £59.3billion worth of revenue and employing £2.3million.
As of April 2020, the sector was down by 92% compared to activity in February 2020. Eat Out to Help Out assisted the sector over the summer, but it has been adversely affected by the subsequent lockdowns. This is demonstrated by the fact that as of December 2020, 59% of hospitality businesses were trading, compared to 84% of all sectors across the economy, and 41% had poor trading altogether, compared to 13% across all sectors.
A direct example of how seriously the sector has been affected comes from Gordon Ramsey, who confirmed that in the run up to Christmas Gordon Ramsay Holdings Limited had to cancel 22,000 bookings across all venues.
The retail sector has been similarly affected, particularly in the case of businesses that cannot easily adapt to online operations.
The effect of the pandemic therefore has been dramatic in these sectors and is ongoing.
The FCA Claim
In the Financial Conduct Authority v Arch Insurance UK Limited and Others  (“the FCA Claim”) the Court was asked to look at business interruption policy cover in relation to a limited number of policies. The Court was asked to interpret 21 policy wordings for eight insurers. The Court found in favour of the policyholders.
Whilst on the one hand the FCA Claim could be seen as limited (given that it only covers a small number of insurers and policy wordings) it does hopefully serve to show the Court’s overall attitude towards claims of this nature.
The Court’s Findings
The Court was asked to determine the interpretation of three different types of clause. The first clause related to a notifiable disease. Typically, this clause covers a situation where a business must close because a disease has been identified in or near the premises.
The second type of clause is prevention of access to premises; claims were rejected because the government only initially advised businesses to close.
By the time the FCA Claim was launched, only 1% of business interruption claims had been accepted by insurers.
The Court took a pragmatic approach to the interpretation of these provisions. In respect of Notifiable Disease cover, the Court determined that the provision would provide cover if there had been a COVID outbreak within a close geographical proximity to the affected premises. The insurers’ attempts to avoid liability on the basis that COVID was a worldwide pandemic and therefore the geographical proximity provisions in the policies were void was not accepted by the Court.
In relation to the Prevention of Access clauses, the Court determined that the Prime Minister’s instruction for all businesses to close on 20 March 2020 onwards was as good as a mandatory instruction, and whilst it was not at that stage codified in law, it was clear to any sensible businessman that they ought to be closing their businesses in accordance with that instruction.
The FCA Claim therefore provides helpful guidance in relation to the approach Courts might adopt in relation to claims of this nature. However, it should not be seen as a case that provides a binding precedent for all claims for business interruption cover; only 21 policies were considered, and there is perhaps anything upwards of 700 different variations in policy wording. Clearly therefore an individual policy needs to be properly reviewed before a decision as to whether or not a legal action is taken.
Even if a claim has previously been refused by an insurer, an insured should still consider getting independent advice in relation to whether or not there is a claim, and the prospects of any recovery.
How we can help
We have a great deal of experience of advancing business interruption insurance claims and giving proactive legal advice on the applicable law, in what is a fast moving legal environment.
Potentially, there may be alternative methods of funding claims to make them more assessable for businesses that are potentially financially distressed as a result of what has happened during the pandemic.