18 January 2021
On 15 January 2021, the Supreme Court handed down its judgement in the Covid-19 Business Interruption Insurance Test case of The Financial Conduct Authority v Arch and Others.
This is a landmark business insurance case that will give a lifeline for many businesses in Scotland and across the UK.
The Financial Conduct Authority (FCA) sought clarification from the High Court in the test case (the first of its kind in the UK) to resolve the uncertainty surrounding the validity of business interruption claims arising as a result of the Covid-19 pandemic.
The FCA advanced arguments on behalf of policyholders basing its case on a representative sample of 21 types of policies issued by 8 insurers.
The Supreme Court Judgement
The judgement substantially granted the appeal in favour of the FCA and policyholders. In essence, policyholders who have business interruption insurance should now have claims for coronavirus-related business interruption losses paid.
Previously, the High Court categorised the business insurance cover into three categories, which the Supreme Court referred to in its judgement:
- Disease clauses: Cover triggered by an occurrence or manifestation of a notifiable disease within the vicinity, or a specified radius of the insured premises.
- Prevention of access clauses: Cover triggered by the prevention or denial of access to or use of insured premises as a consequence of action by authorities.
- Hybrid clauses: Cover triggered as a result of both restrictions on insured premises and the occurrence or manifestation of notifiable disease.
The FCA successfully argued for policyholders that the ‘disease’ and ‘prevention of access’ clauses in the representative sample of 21 policy types does provide cover in the circumstances of the pandemic.
Extending the scope of potentially valid claims, the Supreme Court ruled that cover may also be available for partial closure of premises and for mandatory closure orders that were not legally binding. The judgement also rules that valid claims should not be reduced in cases where a loss would have resulted regardless of the pandemic.
How will the Supreme Court judgement impact your business?
It would be wise to review the business interruption provisions of your insurance policy. Depending on the wording of individual policies, certain claims may be subject to time limits. This could result in an otherwise valid claim being declined by insurers.
The judgement is legally binding on the eight insurers that agreed to be party to the test case. Those insurers are:
- Arch Insurance (UK) Ltd
- Zurich Insurance Plc
- Argenta Syndicate Management Ltd
- Ecclesiastical Insurance Office Plc
- MS Amlin Underwriting Ltd
- Hiscox Insurance Company Ltd
- QBE UK Ltd
- Royal & Sun Alliance Insurance Plc
As a direct result of the test case, the above insurance companies will pay out to policy holders as soon as possible if their case meets the policy wording outlined in the ruling. The judgement will also provide authoritative guidance for the interpretation of similar policy wordings and claims from other insurers.
Although the Supreme Court judgement has clarified many of the uncertainties surrounding business interruption insurance, it does not encompass all types of insurance policies - individual policies must be considered against the judgement on a case by case basis.
If you think there might be scope for making a business interruption claim on your insurance or of you would like advice in light of this ruling, Lindsays can offer advice.
For further information and guidance, you can contact:
John Bett, Partner and Head of Dispute Resolution and Litigation