On 17 October, the honourable Mr Justice Butcher handed down the eagerly anticipated judgment in Stonegate Pub Company Limited v MS Amlin Corporate Member Limited & Ors. Although the first 57 pages of the 66 page judgment dealt with other matters, principally aggregation, the part of the judgment which is likely to garner most attention amongst lawyers, insurers and policyholders alike is the 9 page section at the end dealing with the treatment of payments made under the Coronavirus Job Retention Scheme (furlough payments) and Business Rates Relief (BRR).
In short, the Court held that, both as a matter of contractual construction and ‘general law’, furlough payments and BRR should be taken into account in quantifying an insured’s BI claim under the Marsh Resilience policy wording. Butcher J found that furlough payments and BRR related to (in Stonegate’s case at least) costs which would have normally been payable out of the business’s ‘Turnover’, which ceased or were reduced as a result of the ‘Covered Event’ (the pandemic).
The judgment is a huge blow for the thousands of policyholders whose claims have essentially been paused pending the outcome in Stonegate. Policyholders will be particularly disappointed in some of the reasoning adopted by the Court in the judgment, which Stonegate has already said it will look to appeal. In particular, the Court’s finding that the cost of employee wages ‘ceased or reduced’ during the pandemic seems at odds with the reality of the situation; as Stonegate had argued, it was a prerequisite of the CJRS that this was specifically not the case and businesses had to show that the cost to them had not ceased or reduced in order to benefit from government support. Similarly, the Court’s reliance on the fundamental principle of insurance law that the policyholder “shall never be more than fully indemnified” and the suggestion that some insureds might profit from the situation if furlough payments were not deducted from their claims, will be galling for many affected businesses who, even if fully indemnified by the BI policies, will have suffered huge losses since March 2020.
Although the Court made it clear that it did not affect the outcome in Stonegate, it is of note that attention was given to the way in which Stonegate had accounted for furlough payments and the fact that Stonegate had received furlough payments in relation to wages paid and due to be paid. Policyholders with a different factual matrix, and those with different policy wordings, technically still have scope to argue that furlough and BRR should not be taken into account, although those arguments are undoubtedly now much harder in the light of Stonegate.
As noted above, Stonegate intends to appeal the judgment. In circumstances where there are no impending limitation concerns, policyholders who are financially able to, will wish to await the outcome of any appeal before settling their claims with insurers.
