Case law update
IPA Insolvency Practitioner newsletter, March 2025
An insolvency case law update prepared by Caleb Bompas, Associate Director at Manolete Partners PLC.
Caleb is an Associate Director with over a decade of experience in complex insolvency litigation and commercial disputes. He joined Manolete in 2023 from a leading international city law firm where he was a senior associate in its highly regarded Chambers-ranked personal insolvency and insolvency disputes practice. He has acted primarily for Insolvency Practitioners on a wide variety of contentious insolvency matters, including several high-profile bankruptcies. He has been recognised in Legal 500 as having “great litigation instincts”.
Unmasking COVID-19 Business Interruption Insurance Claims in Insolvent Estates: An Update for Insolvency Practitioners
COVID-19 has a profound financial impact on businesses, driving thousands into insolvency as a result of prolonged trading restrictions in 2020 and 2021. Yet, the very cause of many insolvencies has also left many insolvent estates with an overlooked asset – business interruption insurance (“BII”) claims. Many businesses either failed to claim under their policies or had claims rejected in the early stages of the pandemic, when insurers were taking a hard-line approach. However, with a growing body of case law clarifying the scope of Covid-19 BI coverage and strengthening the position of policyholders, there is now a renewed opportunity for Insolvency Practitioners to investigate and realise substantial recoveries for creditors.
Key Legal Developments: The Evolution of Business Interruption Claims
One of the most significant turning points in the BII litigation landscape was the FCA Test Case (Financial Conduct Authority v Arch Insurance (UK) Ltd & Ors [2021] UKSC 1). Following insurers’ refusal to pay claims submitted under relevant business interruption policies, the Financial Conduct Authority launched a test case against 8 insurers, with a representative sample of 21 policy wordings included. In January 2021, the Supreme Court’s ruling provided much-needed guidance on how BI policies should be interpreted in relation to COVID-19-related losses.
Crucially, the court determined that businesses could claim under disease clauses if at least one COVID-19 case occurred within the area specified in the policy, without needing to demonstrate an outbreak directly on their premises. The judgment also established that government-imposed restrictions, such as lockdowns, could constitute an insured cause of loss, significantly broadening the scope of valid claims.
However, the FCA Test Case left several critical questions unanswered. Not all policy types were considered, and the Supreme Court did not rule on certain key provisions.
Recent Key Cases: Strengthening the Case for Policyholders
Since the FCA Test Case, more than 250 BII claims have been issued, some of which have resulted in important rulings further clarifying the scope of BII coverage. One of the most consequential was London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2024](also known as the Excel case), which addressed whether the Supreme Court’s analysis on causation applied to policies with ‘At the Premises’ disease wordings. In September 2024, the Court of Appeal confirmed that the causation analysis from the FCA Test Case applies to ‘at the premises’ clauses, allowing businesses to claim for COVID-19-related losses if the virus was present at their premises. This outcome has significant implications for policyholders, opening the door for other businesses to claim Covid-19 financial losses.
Similarly, Bath Racecourse Co Ltd v Liberty Mutual Insurance Europe SE & Various Ors [2025] EWCA Civ 153 examined policies containing “Prevention of Access (Non-Damage)” and “Denial of Access” clauses, an area the Supreme Court had not addressed in the FCA Test Case. The Court of Appeal ruled in favour of the policyholders on the composite policy issue, confirming that insurance limits apply separately to each insured business, rather than being aggregated across all policyholders. This interpretation was based on the distinct premises and risks associated with each policyholder, ensuring that one business’s claim would not diminish another’s coverage unless explicitly stated otherwise. This has significant financial impact as it had the potential to increase total payouts exponentially if there are multiple premises.
However, it is not all one-way traffic as in Bath Racecourse, the insurers prevailed on the “furlough issue”, with the court determining that government furlough payments should be deducted from indemnity claims to prevent double recovery.
Overall, these rulings have reinforced policyholders’ rights and significantly improved the prospects for claims that were previously denied.
The Opportunity for Insolvency Practitioners
For insolvency practitioners, these legal developments present a valuable opportunity to recover assets that may have been overlooked. Many businesses that suffered financial distress due to the pandemic had BI insurance in place but either did not claim or were wrongly denied coverage. The fact that the business has been placed into administration, or any other insolvency process does not affect the IP’s right to pursue a claim on behalf of the business. In fact, the claim is an asset of the estate which the officeholder is duty bound to consider and realise for the benefit of the creditors.
The FCA reported, following collection of Insurers’ data, that 370,000 policies could respond to COVID-19-related claims, yet by 2023 (when the data was last published) only 43,000 had resulted in payouts. It is estimated that the UK’s insurance industry could face up to £2 billion in business interruption claims alone. Given the 98,000 insolvencies recorded since 2020, the number of businesses with untapped claims is substantial.
IPs reviewing an insolvent estate should assess whether the company held a BI policy covering the period from March 2020. Policies incepted from April 2020 onwards likely contain exclusions for pandemic-related losses, but earlier policies may still respond. It is particularly important to examine policies with non-damage business interruption extensions, such as disease clauses or denial of access provisions, as these have formed the basis of many successful claims. Certain sectors—hospitality, retail, leisure, and entertainment—are especially likely to have held relevant coverage.
What makes these claims so attractive is that they can hold considerable value with SME’s being potentially due £100,000+ and larger companies £1m+. What’s more, the targets, insurers, have the deep pockets to satisfy judgments. Solomonic’s analysis shows that the unresolved BII claims in the High Court have a total combined value of about £735m.
Challenges and Considerations
Despite the positive trajectory of case law, pursuing these claims is not without its challenges. While the courts have largely ruled in favour of policyholders, insurers remain well-resourced and determined to resist large payouts. Fortunately, there are options to assist those insolvent estates which do not have sufficient resources to pursue litigation, for example litigation funders.
Another challenge for office holders is that, while the Excel case confirms that ‘at the premises’ policies can be claimed, claimants must still prove that a symptomatic COVID-19 case was present at the premises. This can be hard when there is limited information, and the directors are disengaged with the insolvency process. The Court has not provided clear guidance on how to prove this, but ideal evidence could include contemporaneous records such as text messages describing symptoms, communications with staff or visitors, sick notes, GP records, or test results.
Time is also a pressing concern. The six-year limitation period for BI claims means that losses arising from the first UK lockdown in March 2020 will start expiring from March 2026. Although many insurance policies include strict notification provisions, the FCA has instructed insurers not to raise late notifications as a defence to Covid business interruption claims.
Conclusion
Given the potential value of BI claims, IPs should take proactive steps to identify and pursue viable claims before limitation periods expire. Insurance policies should be reviewed, supporting evidence gathered, and legal experts consulted where necessary. Even if a claim was previously denied, recent case law may have altered its prospects.
As the case law in this area is constantly evolving and is complex, we would recommend contacting specialists in the area for an opinion as to the prospects of success in relation to any claim.
With the limitation period rapidly approaching, insolvency practitioners must act now to secure recoveries before these claims expire. By identifying and pursuing valid claims now, IPs can unlock hidden value in insolvent estates, ensuring the best possible outcome for creditors.
Content courtesy of IPA principal sponsor Manolete Partners PLC.
Manolete Partners PLC is an investment business focused on dispute finance. It is not a law firm and does not provide legal advice.
Please note that guest articles do not necessarily represent the views of the IPA.