Business Interruption Insurance Disputes - Is Arbitration Obligatory?

Many commercial property occupiers whose businesses were interrupted during the COVID-19 pandemic remain in dispute with their insurers regarding to what extent, if any, they were covered against such losses. In an important ruling, the High Court found that there was no obligation to refer one such dispute to arbitration.

Two companies that owned and operated numerous restaurants and bars claimed on their business interruption policy after they were required to close their premises during the first lockdown. The policy covered losses caused by interruption of, or interference with, business arising from the occurrence of a notifiable disease within a 25-mile radius of relevant premises. The policy, however, specified a maximum indemnity period of three months.

Insurers accepted that they were liable to the meet the claim and paid out more than £2 million. The companies, however, subsequently made further claims, for in excess of £4 million, in respect of losses arising from later government interventions, which imposed reduced opening hours and the second lockdown.

In asserting that their further claims were not caught by the three-month indemnity period, the companies contended that every separate occurrence of COVID-19 within 25 miles of each of their premises gave rise to a separate claim under the policy. The insurers took a contrary view, insisting that only one indemnity period applied and that they had satisfied their obligations under the policy.

After the companies launched court proceedings, the insurers applied for the action to be stayed in favour of arbitration. They pointed to an arbitration clause in the policy, in a commonly used form, which required any disputes concerning amounts to be paid out under the policy to be referred to arbitration.

In refusing to stay the proceedings, the Court found that the dispute encompassed not only a difference of opinion as to amounts to be paid out under the policy, but also a disagreement as to whether the insurers were liable to satisfy any part of the further claims. There was thus no contractual obligation to engage in arbitration and the companies were entitled to pursue their case in court.