Supreme Court Rules In Favour Of Policyholders

Financial Conduct Authority (Appellant) v Arch Insurance (UK) Ltd and others (Respondents) UKSC 2020/0177

A significant number of businesses faced ruin in 2020 due to the covid-19 pandemic. However, when many sought to rely on business interruption cover provided by insurance policies, their claims were refused. In a landmark case, the Supreme Court has largely ruled in favour of policyholders and the regulator, meaning that more policyholders will have valid claims and some pay-outs will be higher.

In the judgment handed down today, the Supreme Court said it “substantially allowed” the appeal by the regulator, the Financial Conduct Authority (‘FCA’), and campaign groups Hiscox Action Group and Hospitality Insurance Group Action in dismissing the claims of insurers Arch, Agenta, Hiscox, MS Amlin, RSA and QBE.

Background To The Appeal

When the COVID-19 pandemic first hit, thousands of businesses made claims on their business interruption insurance, but many leading insurers refused to pay out on the basis that their policies did not provide cover. This resulted in the FCA bringing a test case with the aim to provide clarity to both policyholders and insurers as to whether a variety of policies covered business interruption losses resulting from the pandemic.

Prior to this appeal, the claim was heard in the High Court and provided a mixed result for policyholders. The High Court determined that those businesses that closed when lockdown started could claim on their policy, but that losses arising from a general reduction in consumer demand due to the government’s lockdown measures could not.

The FCA objected to the ruling of the High Court and appealed to the Supreme Court.

The Supreme Court Decision

The Supreme Court was asked to determine, amongst other questions, matters of construction relating to:

• “Disease Clauses” (i.e. those which can be triggered by the occurrence of COVID-19, typically within a specified distance of the insured’s premises);
• “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); and
• “Hybrid Clauses” (i.e. those clauses which contain wording from both Disease and Prevention of Access Clauses).

The Supreme Court ruled that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover.

What This Means For Policyholders

The FCA has said that the judgment “brings to an end legal arguments under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market will now lead to claims being successful”.

Each policy will need to be considered against the detailed judgment to work out what exactly it means for that policy.

If you are the holder of a policy that you believe may be affected, or if you have any questions in relation to this judgment, do not hesitate to contact our specialist Commercial Dispute Resolution team who will be happy to assist with any queries you may have.