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Business interruption insurance: Supreme Court's judgment

Many businesses under extreme financial pressure as a result of the ‘lockdowns’ and restrictions imposed by the government have turned to their business interruption insurance policies for financial assistance.

The decision by the Supreme Court on the 15 January 2021 in the test case of The Financial Conduct Authority v Arch and Others, provides clearer guidance on claims under such policies.

Background

The FCA (Financial Conduct Authority) brought the claim together with eight insurance companies on behalf of policy-holders in the High Court. The court found in favour of the FCA and gave guidance on many key issues. However, the FCA was not entirely successful and those issues were the subject of the appeal to the Supreme Court.

Supreme Court decision

The Supreme Court considered multiple issues but broadly these can be categorised as: the interpretation of ‘disease clauses’, access clauses and ‘hybrid clauses’, causation, the effect of ‘trend clauses’, Pre-trigger losses and the court’s decision in Orient Express (which was held to have been wrongly decided). The key findings are set out below: 

  1. Disease clauses

Disease clauses provide cover for losses resulting from the occurrence of a notifiable disease. The court considered what was meant by a typical clause restricting cover to, ‘any …occurrence of a Notifiable Disease within a radius of 25 miles of the premises’

The court agreed with the insurers that only a case of disease within the 25-mile radius can be an insured peril, and that each case of illness should be treated separately.

It also held that ‘the language of the disease clause does not confine cover to business interruption which results only from cases of a notifiable disease within the 25-mile radius, as opposed to other cases elsewhere’.

  1. Prevention of access and hybrid clauses

Prevention of access clauses concern losses caused by the intervention of a public authority preventing access or use of the insured premises.

The court held that ‘an instruction given by a public authority may amount to a “restriction imposed” if, from the terms and context of the instruction, compliance with it is required, and would reasonably be understood to be required, without the need for recourse to legal powers’.

Cover could be available where the insured premises had not been closed for all purposes, such as restaurants that are able to stay open for take-away.

  1. Causation

The court held that it was sufficient for policyholders to show at least one case of coronavirus within the area covered by the clause at ‘the time of any relevant government measure’.

  1. Trends clauses

The court held that trends clauses, ‘should not be construed so as to take away cover provided by the insuring clauses…and that the trends and circumstances for which the clauses require adjustments to be made do not include circumstances arising out of the same underlying or originating cause as the insured peril’.

  1. Pre-trigger losses

The court held that ‘adjustments should only be made to reflect circumstances affecting the business which are unconnected with COVID-19’.

Comment

Although it does not cover all possible disputes, the judgment given by the Supreme Court does provide useful guidance on how business interruption policies should be interpreted.

The judgment is likely to provide a welcome relief to many businesses.

If you have already submitted a claim which was previously rejected by your insurance company, or you have yet to make a claim or are unsure whether you are eligible, we can help. We will review your policy contract and advise you on your prospects of recovering business interruption losses as a result of the court ruling.

 

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