It is no secret that the coronavirus (COVID-19) pandemic has caused significant dislocation. By the time the first series of lockdowns were initiated in most countries, holiday plans had been settled, particularly for the summer of 2020, but also for much later in the year. Many of those plans included travel to other countries, package holidays for hotel stays, cruises, excursions and tours, many of which had to be cancelled.
Where holiday bookings required full or partial payment in advance, once the would-be travellers cancelled their bookings, many immediately demanded refunds. In some cases, airlines offered cancellations, without the usual penalties and free rebooking within stipulated timelines. However, many persons then had to pay higher prices for the new airline tickets, an issue for a separate article.
Among the reports about holiday cancellations that can be found online is the situation involving complaints made to the Competition and Markets Authority (CMA), in the United Kingdom, by customers of Virgin Holidays who failed to receive refunds after cancelling their holiday bookings. On www.gov.uk, it is reported that Virgin Holidays received 53,000 refund requests due to COVID-19. The complaints to the CMA included allegations that Virgin Holidays told some customers that they would not receive refunds for up to 120 days after commitments were received for the payments to be made.
I anticipate that there will be litigation related to COVID-19 for many years to come because there is hardly a contract that could have properly contemplated the magnitude and effects of COVID-19.
As a result of the CMA’s intervention, on October 23, 2020, Virgin Holidays made formal commitments to make pay refunds within stipulated timelines. For example, all customers who cancelled on or after November 1, 2020, had to be repaid within 14 days after the holidays were cancelled. Of course, the CMA has threatened court action if Virgin Holidays does not adhere to these timelines and pay the refunds that amount to £203 million.
Many businesses have also learnt harsh lessons as to categories of losses that are not covered under their insurance contracts. In many instances, insurance policies provide no business interruption coverage at all, while, in others, policyholders now realise that diseases do not trigger coverage under policies that include business interruption.
In the UK High Court, a business interruption insurance test case was recently determined. It involved the Financial Conduct Authority, which represented a number of policyholders and several insurance companies — The Financial Conduct Authority and Arch and Others [2020] EWHC 2448. The court reviewed sample wordings from insurance contracts to guide as to when insurance companies need to compensate policyholders for COVID-19 related business losses.
The fact is that most business interruption policies cover loss of profits and expenses incurred by a policyholder as a result of damage to physical property in instances where there is a fire or flood. Although many policies include extensions for matters other than physical damage, the big question was whether there should be compensation where no actual damages can be proven.
In an understandably lengthy judgment, the details of which are complex, the court reviewed clauses that had slightly different wordings, although there were overlapping phrases. For example, in many instances, where the policies covered business interruption caused by diseases, the clauses described a disease that occurred locally, within a certain distance of the policyholder’s premises. In the case of COVID-19, the outbreak was mainly outside the prescribed radii in the policies and did not have a direct local impact for many months after that.
While insurers argued that insurance coverage should be limited to a local outbreak of COVID-19, the court concluded that policyholders should receive coverage, although the disease was not, strictly speaking, a local outbreak, but the consequence of a much wider outbreak. I anticipate that there will be litigation related to COVID-19 for many years to come because there is hardly a contract that could have properly contemplated the magnitude and effects of COVID-19.
Sherry Ann McGregor is a partner, mediator and arbitrator in the firm of Nunes Scholefield DeLeon & Co. Please send questions and comments to lawsofeve@gmail.com.
