On 15 September 2020, the High Court handed down judgment in the Covid-19 business interruption insurance test case of The Financial Conduct Authority v Arch and Others.
This case was brought by the Financial Conduct Authority (FCA) for policyholders against eight insurers. The purpose of bringing the case was to consider 21 representative sample wordings in policies and to bring more legal clarity to the position of policyholders. The FCA estimates that these sample 21 wordings have the potential to effect 370,000 policyholders. The question was whether the different wordings of the policies entitled the policyholder to cover from business interruption consequent to the effects of Covid-19.
The High Court gave a detailed judgment, in which different conclusions were reached depending on the different wordings of the clauses. Importantly, the Court did find in favour of the FCA on the majority issues. This judgment therefore represents a win for policyholders and will potentially help hundreds of thousands of businesses stay afloat during this uncertain economic time.
Business Interruption Insurance
Most SMEs have basic business interruption insurance, which relate to business interruption caused by damage to property. However, many policies do also cover business interruption insurance consequent to other causes.
Three Categories of Wordings
The 21 different wordings of non-damage related business interruption clauses roughly fall into one of the below three categories.
Diseases wordings: Business interruption in consequence of or arising from the occurrence of a notifiable disease within a specified radius of the premises.
Prevention of access / public authority wordings: Business interruption as a consequence of a prevention of hinderance of access to or use of the premises, because of government or other authority action.
Hybrid wordings: Provisions relating to restrictions imposed on business premises in relation to a notifiable disease.
Brief Overview of Court’s Findings
The below provides a brief overview of the Court’s findings. There are multiple nuances in the Court’s full judgment.
The question in relation to disease wording clauses was whether they only apply where there was a local occurrence of notifiable disease, rather than a wider spread of disease. The Court decided that these clauses applied where the outbreak in the local is an indivisible part of a wider pandemic, as long as there were diagnosable cases of the disease in the relevant policy area.
Prevention of Access / Public Authority Wordings
The Court concluded that the wordings of these types of clauses are to be interpreted more restrictively. The specific wording of the clause; the action taken by the authority in question and the effect of the action of the authority on the business in question will need to be examined closely.
Again, close examination of the wording of these clauses will be required to see whether it provides cover for the policy holder.
The option is open to both the FCA and the defendant insurers to appeal the case. If they do so, they have agreed that this will be done on an expedited basis, meaning that it might progress straight to the Supreme Court, and not through the Court of Appeal first.
The possibility of an appeal does not prevent policyholders from seeking to settle in the meantime.
This case does provide some legal clarity in that policyholders have a judgment to compare their policy to. The Court found in favour of the policyholders on the majority of key issues and this is a positive step forward for many businesses.
If you would like advice on how this judgment might affect your business, please get in touch with Farleys’ litigation team on 0845 287 0939 or contact us by email.