On Tuesday 15 September, the English High Court published its highly anticipated judgment in the FCA's expedited business interruption insurance test case, The Financial Conduct Authority v Arch and Others  EWHC 2448 (Comm). Lord Justice Flaux and Mr Justice Butcher found in favour of policyholders (represented by the FCA) in respect of the majority of key issues. The decision provides welcome clarity for those considering the validity of their UK business interruption insurance in light of the COVID-19 pandemic. Policyholders must now consider what the judgment means in respect of their own individual policies.
The FCA test case
The purpose of the test case was to provide clarity on the validity of COVID-19 coverage under a range of business interruption insurance policies. For further information on the background to the test case, please see our earlier article here. A representative sample of policy wording from eight insurance providers were considered, these reflected frequently used wording across a variety of business interruption insurance policies. A spokesperson for the FCA noted that the judgment was "a significant step in resolving the uncertainty being faced by policyholders… Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful."
In the 162 page judgment, which you can read here, the Court assessed the wording of 21 sample policies from the eight insurance providers. Within the policies considered, there were three types of wording potentially engaged by COVID-19, these could be split into "disease wordings" (which provide cover for business interruption following the occurrence of a notifiable disease), "prevention of access wordings" (which provide cover for business interruption where there is restricted access to the insured's business premises), and "hybrid wordings" (a combination of disease and prevention of access wordings, which provide cover when restrictions existed on the premises as a result of a notifiable disease).
Whilst the judgment is highly detailed and specific to the wording of each policy, it was held that:
- most, but not all, of the disease wordings and hybrid wordings in the sample provided cover; and
- some prevention of access wordings provided cover, but this would be contingent on factors such as the wording of the clause and how the business was affected by the Government's response to the pandemic, for example, whether the business was under a mandatory order to close.
The judgment also considered issues such as the impact of trends clauses on the policies, the applicable test for causation and the types of evidence which can be used by the insured party to establish the prevalence of COVID-19 in a specific location. We will be providing further detail and guidance on the judgment shortly.
This decision is welcome news to owners of policies within the representative sample and to those with policies containing similar wording. The judgment provides targeted guidance for each of the 21 policies it considers and, as a result, policyholders should obtain specific legal advice in relation to their own business interruption insurance coverage to ascertain whether the relevant insurer should now pay out on the individual policy. Insurers should be contacting their insureds within the next seven days regarding this. Whilst it is anticipated that the insurers may appeal the decision, it is understood that any appeal will be heard on an expedited basis and will ‘leapfrog’ the Court of Appeal, meaning that any appeal will be heard by the UK Supreme Court. In any event, the FCA notes that any appeal "should not preclude policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known."
For further information and updates on this case, please visit the FCA's test case webpage here.
For more information on the impact of COVID-19 on business interruption insurance issues globally, please visit our Business Interruption Insurance Tracker.