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Business Interruption Policy Cover and Covid-19

The High Court recently handed down its decision in the fast-tracked case of FCA v Arch Insurance (UK) Limited and others [2020] EWHC 2448 (Comm).

The circumstances of the pandemic and the government response has led to many businesses suffering significant disruption, or mandatory closure of their businesses for a significant period of time. There was considerable uncertainty as to how the existing business interruption policy wordings applied in the unusual circumstances of the pandemic.

This was a test case brought by the FCA seeking a determination from the Court on the construction of certain common business interruption policy wordings in light of the current pandemic.

21 common policies were considered in the case. However, the FCA admits that the wordings used are similar in some 700 different policies used by 60 different insurers in the UK market.

The issues involved were argued during a two-week remote trial in July 2020. As the High Court had to consider a number of different policy wordings, the decision is lengthy and complicated and extends to over 150 pages.

While any particular policy wording will need to be considered in light of this judgment, the High Court has generally applied constructions in favour of policyholders.

The Court held that most of the disease clauses in the policies considered provide cover for the policyholder’s losses in the circumstances of the Covid-19 pandemic.

The Court also held that some of the denial of access clauses in the sample were triggered. The Court held that the regulations issued by the government on 21 and 26 March 2020 triggered the cover, but not non-binding advice, or guidance.

However, the Court would have to consider causation in each particular case, including whether the business was subject to a mandatory closure order and whether the business was ordered to close completely, or only partially.

The Court also ruled that the pandemic and the government response to same was a single operating cause, which was crucial to cover being triggered.

When settling claims, the Court held that insurers were not entitled to reduce policyholders’ claims by reference to the wider impact of the pandemic, such as the public’s marked tendency to stay at home and not venture out. However, insurers were entitled to reduce claims for losses suffered prior to the regulations being issued, such as turnover reductions as a consequence of pandemic-related issues before the cover was triggered.

Because of the urgency and importance of the issues involved, The High Court gave permission to the FCA and 6 of the defendant insurers to seek leave to appeal directly to the Supreme Court, in a ‘leapfrog’ application. The Supreme Court is expected to consider the case before the end of the year.

Significance of the case

This case has wide implications for any business that has suffered a loss of turnover, or had to close for a period as a result of the government-mandated lockdown. The above judgment is complex and each policy will need to be considered in light of its own particular wording.

The author of this article is a Partner at Fletcher Day, a Fellow of the Chartered Insurance Institute and has significant experience in advising clients involved in complex and high-value litigation. For advice and information in relation to the issues set out in this article, please contact Jerome O’Sullivan at