The full cost of COVID-19 business interruption losses facing U.K. commercial insurers following the recent Supreme Court ruling will not be clear for some time, with disputes between primary carriers and reinsurers on the cards, according to A.M. Best.Co. Inc.

The ratings agency said most insurers affected by the ruling, which found in favor of policyholders, are expected to increase their COVID-19 business interruption loss estimates and have mainly assumed reinsurance recoveries. But it warned that “possible disputes with reinsurers loom.”

A.M. Best said the level of reinsurance recoveries from COVID-19 business interruption claims will depend on the structure of reinsurance programs and contract wordings. In particular, aggregation of COVID-19-related claims within and across different lines of business and locations, as well as definitions of triggers for reinsurance cover, are likely to be contested.

But it said that as losses mount, reinsurers are “likely to bear a higher proportion of claims due to companies exceeding their retentions”.

Fellow U.S. ratings agency Fitch Ratings Inc. said there is uncertainty about the extent to which cedants will be able to aggregate multiple business interruption claims into single large claims to trigger excess-of-loss policy payments.

Reinsurers are likely to contest cedants that claim for a single event, and will argue claims were caused by separate events and businesses were interrupted by different restrictions, Fitch said. Litigation may follow, it added.

A.M. Best said the level of reserve strengthening following the U.K. Supreme Court ruling is not expected to have a material impact on insurers’ capital or earnings.

Fitch said the ruling is also unlikely to affect the ratings of Europe’s four largest reinsurers, which could have enough capacity from existing reserves for incurred but not reported COVID-19 claims to manage additional or late claims following the U.K. Supreme Court ruling.

A.M. Best said commercial insurers will have to build bridges with clients, in particular small and medium-sized enterprises, following disputes about COVID-19 claims this year. The agency said transparency must be improved and business interruption contracts should be clearer on what is covered.

The majority of COVID-19 exposures should have run off by March 2021, which will mark one year since the U.K.’s first lockdown, said A.M. Best.

Commercial Risk Europe is a sister publication of Business Insurance. More stories from CRE here.