UK court rules Government support reduces BI payments

The UK High Court has found in a high-profile case involving the Stonegate pubs group that Government support payments during the pandemic can be taken into account to reduce business interruption insurance payouts.

The decision was handed down last week as part of a dispute between Stonegate and insurers MS Amlin, Liberty Mutual and Zurich.

MS Amlin says the court found almost entirely in favour of insurers on several key issues, including on whether losses were limited by policy aggregation language and whether insurers were entitled to credit for furlough payments received by Stonegate as government support.

“We welcome the judgment of the High Court, and believe this brings some genuine clarity to a very complex business interruption case,” MS Amlin Underwriting CEO Johan Slabbert said.

“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 UK.”

The insurers paid Stonegate £2.5 million ($4.5 million) in December 2020 and had denied any further liability. The court judgment says Stonegate contended that its losses exceeded £1 billion ($1.8 billion) and “a very considerable amount” of those losses should be recoverable under its policy.

The UK Financial Conduct Authority business interruption test case was concluded in January last year, with decisions largely going in favour of policyholders, but a number of other legal battles have continued.

Stonegate, which may appeal parts of the High Court decision, owns and operates some 760 pubs, bars, restaurants and other hospitality venues, mostly located in town centres in England, Scotland and Wales.

Legal firm Weightmans says the treatment of furlough payments in loss adjusting calculations is of particular interest.

“In some cases furlough savings will have a significant impact on the loss adjusting process, especially in circumstances where an insured premises has closed entirely and the policyholder has saved close to the full wage bill throughout the indemnity period,” it says.

Any appeal is more likely on the aggregation issues, with the treatment of government assistance “less prone to further judicial scrutiny”, the firm says.