15/09/2020

Coronavirus business interruption test case – judgment in the “insurance case of the century”

FCA v Arch Insurance (UK) Ltd and others [2020] EWHC 2448 (Comm)

Flaux LJ and Butcher J today handed down judgment in the test case brought by the FCA to explore whether hundreds of thousands of businesses can recover under their business interruption policies for losses caused by the pandemic, in the “insurance case of the century” – the only claim heard under the Financial List Test Case Scheme. Many of those businesses will, today, be celebrating a fantastic win for them.

Insurers have refused to pay out on claims for losses caused by the pandemic, relying on legalistic causation defences and on “trends clauses” buried in the quantification machinery. The Court rejected these generic arguments, variously describing them as “totally unrealistic and artificial” and involving “fundamental fallacies”.

In fact, the judges found there was one indivisible cause of the interruption/interference to businesses: the widespread outbreak of COVID-19 and the government and public’s response to it.

Having found for policyholders on insurers’ key causation argument, the judges decided the wide range of issues across 21 lead policies on the basis of the individual wording of each insured peril or exclusion. In broad summary:

• The vast majority of “Notifiable Disease” clauses provide cover for pandemic losses.
• “Hybrid” clauses, which require both disease and e.g. a resulting “inability to use” also respond, but only if the premises were completely closed as a result of legislation.
• “Prevention of Access” and similar clauses generally provide narrow localised cover, with the exception of the Arch and the RSA4 Resilience policies.

The claim was brought by the FCA, with the Court permitting two policyholder action groups to intervene. Philip Edey QC and Susannah Jones (with Josephine Higgs of 7 KBW) instructed by Sonia Campbell of Mishcon de Reya LLP acted for one of the interveners, the Hospitality Insurance Group Action (“HIGA”).

HIGA won resounding victories on the “Resilience” and QBE1 wordings, with the Court adopting much of HIGA’s analysis.

It is anticipated that insurers and the FCA will seek permission to appeal and will ask that any appeal be expedited. The FCA and insurers have agreed to explore the possibility of a leapfrog appeal to the Supreme Court.

Read the judgment of Flaux LJ and Butcher J

The case has been reported widely in the media, including:

Financial Times
BBC News
The Lawyer
Reuters
Sky News

Further reading: FCA test case to assess business interruption insurance policies