Court rules on insurance claim disputes

On 9 May 2025, HHJ Russen KC issued a significant judgment in the case of Carbis Bay Hotel Limited & Anor v American International Group Limited ([2025] EWHC 1041 (Comm)). This ruling was crucial as it clarified how business interruption insurance claims should be interpreted amid the challenges posed by the Covid-19 pandemic. The litigation arose from a Part 8 Claim initiated by two claimant companies, Carbis Bay Hotel Limited and Atlantic Bay Hotel Limited, against their insurer, American International Group Limited (AIG). They sought to claim losses incurred due to mandatory business closures imposed by the government during the peak of the pandemic.

The claimants aimed to recover compensation for substantial interruptions to their business operations. They focused on a specific timeframe, delineating losses from 26 March to 6 July 2020, during which their activities were either significantly curbed or completely halted owing to governmental regulations related to Covid-19. The crux of the litigation revolved around whether the terms of their insurance policy, referred to as the ‘Commercial Combined’ policy, provided cover for losses stemming from the Covid-19 outbreak, recognised as a notifiable disease as of 5 March 2020.

In his judgment, HHJ Russen elucidated that the vital point of consideration was whether Covid-19 constituted an ‘infectious disease’ as described within the insurance contract. The court discovered that the policy contained a defined list of specific infectious diseases. Since Covid-19 was absent from this list, the court ultimately concluded that the claimants’ proposition for including Covid-19 as a covered disease under the business interruption section of the policy was not valid. The judgment highlighted that while the insurance policy referred to ‘infectious diseases’, the definition of ‘disease’ was specifically limited and did not include any affliction outside the enumerated list.

Moreover, the judge acknowledged ancillary issues raised throughout the proceedings concerning the nature of the insurance policy and the claimant's rights. Evidence indicated that the claimants faced substantial financial losses, exceeding the £100,000 limit specified in the insurance policy, thereby enhancing their argument about the economic damages inflicted by the lockdown measures implemented during the pandemic. Nevertheless, HHJ Russen concluded that AIG’s denial of the claim was justifiable based on the precise exclusionary terms outlined in the contract.

While the ruling specifically addressed the claims of the hotel operators, it also carried wider implications for businesses facing similar insurance-related challenges during pandemic closures. The case underscores the imperative for policyholders to meticulously examine the definitions and stipulations contained within their insurance contracts, especially in the context of unforeseen global events like pandemics.

Finally, the judgment has been disseminated to all concerned parties and will be publicly accessible through The National Archives. This ruling not only shed light on the contractual interpretations related to pandemic business interruption claims but also potentially sets a precedent for future disputes of a similar nature, encouraging other policyholders to reassess their situations in light of the court's findings.