On 15 January 2021, judgment was handed down in the leapfrog appeal heard by the Supreme Court in the test case brought by the Financial Conduct Authority in relation to the responsiveness of business interruption insurance in the context of loss caused by the COVID-19 pandemic. You can find our article on the original High Court judgment here.
The appeals made by insurers were rejected on all grounds. The appeals by the FCA and the Hiscox Action Group, who had brought limited appeals after being largely successful in the High Court, were substantially accepted. The decision will affect many thousands of policyholders and will result in the payment of claims in the hundreds of millions, if not billions. We summarise some of the key points of the Supreme Court’s decision, below.
The Supreme Court held that the ‘disease clauses’ only applied where there had been an occurrence of COVID-19 within the specified radius of the insured premises. It departed from the High Court by determining that small differences in construction, such as the use of the word ‘event’ versus ‘incident,’ would affect the validity of the clause. This was a narrower approach than that taken by the High Court, where the construction of some clauses removed the radius requirement.
However, the Supreme Court tempered this part of its decision through its careful assessment of causation, ensuring that policyholders would not be denied claims by strict rules on the geographical locations of COVID-19 cases. It held that coverage is not restricted to business interruption that occurs only as a result of COVID-19 cases within the area.
Prevention of Access and Hybrid Clauses
In respect of prevention of access and hybrid clauses, whilst it did not provide a firm date of interruption, the Supreme Court held that a mandatory, clear instruction given by the Government could be capable of being a “restriction,” even if it was not legally capable of being enforced. Similarly, the “stay at home” order issued in March was capable of being a “restriction imposed,” even if it did not directly order a particular business to close. The Supreme Court also ruled on the triggers for different clauses. Overall, the Supreme Court’s judgment on prevention of access and hybrid clauses was wider than in the High Court, enhancing the potential scope for claims by policyholders.
The Supreme Court also ruled that the case of Orient-Express Hotels Ltd v Assicurazioni General SpA  EWHC 1186 had been wrongly decided. This case, which overwhelmingly favoured insurers, allowed insurers to deny claims in circumstances where there are two simultaneous business interruptions that occur concurrently, on the basis that the ‘but for’ test was not met. Insurers attempted to rely on the Orient Express ruling in these proceedings to argue that policyholders would have suffered similar loss as a result of the pandemic generally, even if the insured risk (i.e. a disease outbreak in the local area, or public authority restrictions) had not occurred. Instead, the Supreme Court ruled that both loss factors would be covered, providing they emanated from the same underlying cause, and that it was not always necessary to satisfy the ‘but for’ test when considering the question of causation. This aspect of the judgment is of particular significance to those in the insurance industry and will have much broader implications for insurers in the future.The authors would like to thank Rebecca Palfreman for her assistance with this article.