In January this year, we reported on the Supreme Court’s ruling in a landmark £1.2 billion legal battle over businesses ability to claim business interruption insurance, which decisively removed many of the roadblocks faced by policyholders: The Financial Conduct Authority v Arch Insurance (UK) Ltd & Ors  EWHC 2448.
After the United Kingdom High Court passed its long-awaited judgment on the Financial Conduct Authority’s Business Insurance Test case in September 2020, ruling in favour of policyholders on the majority of key issues, the United Kingdom Supreme Court granted permission for the Financial Conduct Authority and a group of insurance and reinsurance companies to appeal its ruling, specifically, Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Hiscox Insurance Company Ltd, MS Amlin Underwriting Ltd, QBE UK Limited and Royal & Sun Alliance Insurance Plc. Zurich Insurance Plc was also a respondent to the Financial Conduct Authority’s appeal, but did not separately appeal the decision of the court.
We now look at the practical implications of the judgment and consider how future disputes may be treated as a result.
The Financial Conduct Authority v Arch Insurance (UK) Ltd & Ors
The Supreme Court addressed the issues arising on the appeals of the Financial Conduct Authority with respect to five areas:
- The interpretation of ‘Disease Clauses’ (i.e. those which can be triggered by the occurrence of severe acute respiratory syndrome coronavirus 2 (Covid-19), typically within a specified distance of the insured’s premises);
- The interpretation of ‘Prevention of Access’ clauses (i.e. those triggered by public authority intervention preventing access to, or use of, premises as a result of Covid-19);
- The interpretation of ‘Hybrid Clauses’ (i.e. those clauses which contain wording from both Disease and Prevention of Access Clauses);
- Whether the High Court was correct in its interpretation of ‘Trends Clauses’ (i.e. certain counterfactual scenarios in relation to the operation of the clauses in relevant policies which provided for loss adjustments); and
- The High Court’s analysis of Orient-Express Hotels Ltd v Assicurazioni Generali S.p.A.
In the Supreme Court ruling, Lord Hamblen noted that the High Courts interpretation of the aforementioned issues was ‘too narrow’. The Judge further went on to state that “An instruction given by a public authority may amount to a ‘restriction imposed’ if it carries the imminent threat of legal compulsion or is in mandatory and clear terms and indicates that compliance is required without recourse to legal powers”.
In a separate concurring judgment, Lord Briggs stated: “On the insurers’ case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed to policyholders”. Lord Briggs further went on to state: “The outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue”.
Whilst the Supreme Court ruling was a largely positive outcome for policyholders, not all Business Interruption policies will guarantee the insured a pay-out in the event of interruption caused by Covid-19.
In Rockcliffe Hall Ltd v Travelers Insurance Company Ltd , insurers were successful in obtaining a summary judgment against a policyholder’s Business Interruption claim on the basis that the policy in question contained a ‘closed list’ of specified diseases, which did not include Covid-19.
Such a closed diseases clause, listing specific diseases was not among the clauses considered by either High Court or Supreme Court in the test case but it is likely that the decision in Rockcliffe would have been followed given the general approach to interpretation of such exhaustive clauses.
Whilst the ruling is unlikely to cause great controversy, it does provide further guidance to policyholders considering Business Interruption claims under policies that contain ‘closed list’ disease clauses.
Impact in Practice
Whilst the test case provided much sought-after clarity for the insurance industry, many Business Interruption claims still experience delays, with policyholders reporting that they are being asked to resubmit claims, despite providing the required information.
Shortly after the judgment in January, the Financial Conduct Authority issued a ‘Dear CEO’ letter, encouraging insurers to reassess and settle claims as quickly as possible and make a interim payments where possible. Reports from the Financial Conduct Authority indicate that Hiscox have been making such payments and it is hoped that this trend continues. Data published by the Financial Conduct Authority on 12 May shows that the value of the final settlements now total 433.2 million, across 13,895 claims.