On 15 January 2021 the Supreme Court’s decision was handed down – for the judgment and summary see www.supremecourt.uk/cases/uksc-2020-0177.html
We reported on 26 November 2020 on the hearing of the appeal and provided a summary of the issues and the background – see www.farrarsbuilding.co.uk/business-interruption-insurance-the-supreme-court-considers-the-decision-in-financial-conduct-authority-v-arch-insurance-uk-ltd-and-others
The Supreme Court’s decision was largely a success for the FCA who managed to further strengthen the outcome in favour of insureds from the first instance decision handed down on 15 September 2020 (Lord Justice Flaux and Mr Justice Butcher).
Whilst we will provide a more detailed piece on the outcome, in short:-
Disease clauses:- The decision was reached by a majority. It was held that “we consider that the court below correctly analysed the meaning of the disease clauses in QBE 2 and QBE 3 and was wrong not to interpret the other disease clauses in a similar way. On the correct interpretation of all the relevant clauses, they cover only relevant effects of cases of COVID-19 that occur at or within a specified radius of the insured premises. They do not cover effects of cases of COVID-19 that occur outside that geographical area” (para 95).
Prevention of access & hybrid clauses:- The Supreme Court disagreed with the High Court and up-held the FCA’s appeal, widening the scope of indemnity by finding that instructions given by a public authority may amount to a “restriction imposed” if there was an imminent threat of legal compulsion or compliance was required even without legal power. This could include instructions by the Prime Minister in mandatory terms (para 120).
The Supreme Court also allowed the appeal of the FCA “that “inability to use” the business premises may include a policyholder’s inability to use either the whole or a discrete part of its premises for either the whole or a discrete part of its business activities” (para 145).
Causation:- The Supreme Court agreed with the High Court and rejected the insurers’ appeal, and “as the court below found, the Government measures were taken in response to information about all the cases of COVID-19 in the country as a whole. We agree with the court below that it is realistic to analyse this situation as one in which “all the cases were equal causes of the imposition of national measures” (para 176).
The Supreme Court explained the “but for” test as inadequate and held that there “can be situations (of which the present case is one) where a series of events all cause a result although none of them was individually either necessary or sufficient to cause the result by itself” (para 177 et seq & 228 et seq).
Trends clauses:- The Supreme Court held that trends clauses could not be used to reduce coverage for circumstances arising out of Covid-19 (the same underlying or originating cause as the insured peril) (para 287).
Pre-Trigger losses:- The Supreme Court overturned the High Court’s decision on the relevance of pre-trigger trends and held that they were irrelevant to the quantification of claims where these trends were related to Covid-19, and that adjustment could only be made to reflect circumstances affecting the business which were unconnected with Covid-19 (para 296).
The Orient-Express case:- was wrongly decided and should be overruled (para 297).
Conclusion:- see para 313 “Although we have accepted some of the insurers’ arguments on their appeals, in no case has that affected the outcome of the appeal. It follows that the insurers’ appeals are dismissed. We allow the FCA’s appeal on grounds 1 and 4, and on grounds 2 and 3 in the qualified terms set out in the judgment and in relation to those wordings where the appeal affects the outcome. We allow the Hiscox Interveners’ appeal on ground 1 and on grounds 2 and 3 in the qualified terms set out in the judgment. The parties are encouraged to agree appropriate declarations and orders to be made in the light of the judgment”.
The ABI reported that the outcome affects a potential £1.8 billion in Covid-19 claims across a range of products (www.abi.org.uk/news/news-articles/2021/01/supreme-court-verdict-on-business-interruption-insurance-test-case/).
John Meredith-Hardy practices in insurance law at Farrars’ Building