Business Insurance Interruption Claims – Case Study

The recent ExCeL ruling marks an important development in the business interruption claims market, setting a new precedent for future cases. This article explores what business interruption claims are, their legal basis, and the impact of the ExCeL decision on the future of business interruption claims.

What are Business Interruption Insurance Claims?

Business interruption insurance claims arise when a company seeks compensation from its insurer for losses caused by unforeseen disruptions. These claims can include property damage, liability, and business interruption.

Historically, business interruption insurance was linked to physical damage, however, as businesses evolved, so did the risks they faced. Today, policies also cover disruptions unrelated to physical damage, such as cyberattacks or government shutdowns.

Legal Battles in Business Interruption Claims

The COVID-19 pandemic triggered a dramatic surge in business interruption claims, as widespread closures and economic disruptions led businesses to file claims in unprecedented numbers. However, many insurers denied these claims, arguing that pandemic-related disruptions were not covered under their policies. This led to disputes, as businesses challenged the insurers’ interpretations of policy terms.

Law firms have increasingly taken on these cases, driven by the potential for large settlements and the opportunity to clarify vague policy language. These legal battles are reshaping the landscape of business interruption insurance, forcing courts to interpret policies in light of unprecedented events like the pandemic.

The Legal Precedent: FCA Test Case

The FCA’s business interruption insurance test case was a landmark legal moment that sought legal clarity on whether pandemic-related losses were covered under business interruption policies. Brought by the Financial Conduct Authority in 2020, the case addressed the ambiguity in policy wordings that had led to widespread denial of COVID-19 claims by insurers.

In 2021, the UK Supreme Court ruled largely in favour of policyholders, determining that many pandemic-related claims should indeed be paid. The ruling provided legal clarity, especially regarding policies that did not explicitly exclude non-physical damage, such as losses caused by government lockdowns. This decision provided much-needed clarity and set a precedent for future business interruption claims and influenced how courts may interpret policy terms in future disputes.

The FCA indicated that as many as 370,000 policyholders could be eligible to file claims for business interruption and loss of revenue caused by the COVID-19 restrictions. [1] And insurers estimate that COVID-19 business interruption claims from 2020 could reach £2 billion. [2]

Recent Developments: ExCel’s Test Case Victory

The ExCeL test case focused on whether business interruption policies should cover losses resulting from pandemic-related disruptions.

ExCeL London argued that its policy covered government-mandated closures, even without physical damage to the property. The key legal argument centred on interpreting policy wording that insurers often used to deny such claims.

In 2023, the High Court ruled in favour of ExCel London, granting £16million in compensation for COVID-19-related losses under its business interruption policy. This outcome was largely expected within the industry, as the interpretation of the policy’s “at the premises” clause had already been anticipated. Insurers appealed the ruling, a move that some industry insiders viewed as a tactic to delay payments, but the High Court reaffirmed the decision. This ruling was upheld by the Court of Appeal in 2024, rejecting the insurers’ bid to overturn the decision.

This decision set an important precedent, reinforcing that policies with unclear or broad terms could be interpreted in favour of the policyholder, particularly when addressing unprecedented events like the pandemic.

What the ExCel Case Means for the Future

The outcome of the ExCeL test case is a major win for policyholders, setting a legal precedent that national pandemic lockdowns can trigger “at the premises” clauses in business interruption policies. The ruling has significant implications for both insurers and businesses.

For insurers, the decision highlights the need for precise and clear policy language, particularly around coverage exclusions. In response to the pandemic, many insurers have already adjusted their policies to explicitly exclude COVID-19 and similar infectious diseases, ensuring that future claims related to pandemics are not covered. Moving forward, insurers are likely to continue refining policy wordings to avoid ambiguity, especially concerning non-physical damage claims.

Over the next 12 months, many business interruption cases that have been put on hold due to ongoing legal battles are expected to conclude, providing further clarity on how courts will handle these claims post-COVID.

Litigation Funding for Business Interruption Claims

The ExCeL ruling has increased the chances of success for similar claims, encouraging more businesses to seek compensation. However, most businesses with potential claims have already filed them, with many cases now live with law firms or claims management companies.

Litigation funders, including Fenchurch Legal, are now primarily focused on bringing these existing claims to a successful conclusion, rather than initiating new ones. With strong legal precedents in place, funders are increasingly willing to support the final stages of these cases, allowing businesses to achieve resolution after years of legal battles. This presents a positive outlook for businesses, law firms, and funders, as many of these cases are expected to conclude within the next 12 months.

High-stakes cases, such as ExCeL’s, highlight the value of litigation funding, as it enables companies to pursue lengthy legal battles without bearing the full financial burden.

Conclusion

The ExCeL ruling, has reshaped the landscape for business interruption claims, setting important legal precedents for how courts interpret policy terms in the wake of unprecedented events like the COVID-19 pandemic.

Litigation funders like Fenchurch Legal will play a key role in providing financial support to businesses that need to challenge insurers without bearing the full financial burden.

While no significant influx of new claims is expected, existing business interruption claims are now moving toward resolution. This is good news for businesses, law firms, and litigation funders like Fenchurch Legal, which are primarily focused on supporting ongoing cases to a successful conclusion, providing much-needed compensation and clarity.

For more information on our funding solutions or litigation funding investment opportunities, please contact us.