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Landmark Supreme Court judgment on business interruption

Landmark Supreme Court judgment on business interruption

15th February 2021 - Published by Kuits Litigation team

On 15 January 2021, the Supreme Court handed down its landmark judgment on the Financial Conduct Authority (FCA) business interruption test case The Financial Conduct Authority v Arch and Others. The Supreme Court found largely in the favour of policyholders by allowing the FCA’s appeals and dismissing those of the Insurers.

Judgment

Considering the sample policy wording, the Supreme Court ruled as follows:

  • Disease clauses: The Court ruled that these could be interpreted more widely to cover business interruption losses resulting from COVID-19 where there had been an occurrence, i.e. at least one case, of the disease within the geographical radius. The FCA has published guidance on how policyholders can try to ascertain whether there was an instance of COVID-19 in their vicinity.
  • Prevention of access and hybrid clauses: All the specified requirements should be met before the insurer is liable to pay. Where there is a requirement of “restrictions imposed” by a public authority following an occurrence of a notifiable disease, this would be interpreted to include mandatory measures, not necessarily requiring the force of law but carrying the “imminent threat of legal compulsion or is in mandatory and clear terms and indicates that compliance is required without recourse to legal powers”. The Supreme Court did not rule on individual measures, but indicated that the argument is stronger in relation to general measures, for example instructions from the Prime Minister. Where business interruption loss was caused by the “inability to use” the insured premises, complete inability, rather than hindrance of use must be established. This may be satisfied where a policyholder is “unable to use the premises for a discrete business activity” or is unable to use a “discrete part of the premises for its business activities”. Policy wording requiring “prevention of access” to the premises should be interpreted in a similar manner.
  • Causation: The Court ruled that the Orient- Express case, which is relied upon by Insurers in relation to causation of loss and the effect of the trend clauses, should be overruled. It will be more difficult for insurers to deny cover or reduce the indemnity on the basis that the losses incurred by the policyholder would been caused in any event from uninsured events whose underlying cause is the COVID-19 pandemic.
  • Pre-Trigger Losses: Adjustments to these should only be made to reflect circumstances affecting the business which are unconnected with COVID-19.

What should policyholders take away from this case?

The ruling has provided much needed clarity on the interpretation of the above clauses as well as guidance for other clauses within insurance policies involving elements of causation.

This article is only a summary of the Supreme Court’s decision and does not cover each of the Supreme Court’s findings. The judgment will be the subject of detailed analysis over the next few weeks. The key issue for policyholders is to review their policies and determine whether any of the Supreme Court’s findings apply directly to their policy wording.

Get in touch with a Litigation lawyer in Manchester

It is always advised to have an expert review your policies to make sure they are as accurate as possible. If you would like your polices reviewed, please contact Senior Litigation Associate Phillip Warburton on 0161 838 8171 or email phillipwarburton@kuits.com.

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