(Thoughts on the judgment in Financial Conduct Authority v Arch Insurance (UK) Limited and others –  EWHC 2448 (Comm))
Several years ago now, before embarking on my personal yellow-brick-road of a career in Commercial Law, I studied Philosophy at a reasonably well-known local university. The greater part of my teaching programme consisted of a weekly face to face, one on one meeting with a member of the teaching faculty known as a ‘tutorial.’ Two or three days before the tutorial I had to hand in an essay on the week’s chosen topic and this would then serve as the starting point for our discussions.
In one particular term my tutor was a post-graduate student called Steve Meakin, a large and imposing gentleman.
I can still remember, one week, turning up at my tutorial to find Steve pacing the room with an angry look on his face. Before discussions could begin, he slapped my essay down on the desk in front of me:
“Never,” he said loudly, “write ‘it’s obvious’ in a philosophy essay!”
Some time ago, before the cloud of Covid 19 darkened our horizon, many small and medium sized businesses took out so called ‘business interruption policies’ (BI Policies) designed to ensure the financial well-being of the business was protected in the event the business was affected by an outbreak of disease and/or by steps taken by the Government in response to such an outbreak.
In March, at the height of the Covid outbreak, the Government brought in measures forcing businesses in many sectors – particularly client facing activities such as restaurants and cinemas – to close (or, at the very least, to restrict their activities) and the owners of the various businesses made claims on their policies.
To the unlearned eye (and solicitors are, by definition, “unlearned”) it seemed ‘obvious’ that the policies would now pay out. ‘Not so’ said the vast majority of the insurers and, in due course – the Financial Conduct Authority (FCA) having taken up the cudgel on behalf of the disgruntled claimants – the matter ended up before a special session of the High Court with a team of Queens’ Counsel (QCs) and their juniors instructed by the FCA, facing an even more numerous array of QCs (and their juniors) instructed by solicitors acting on behalf of the various insurers involved.
The net result was a lengthy and technical judgment (running to 113 pages) in which, insurance clauses having been divided into three types (disease clauses, hybrid clauses and clauses covering prevention of access and similar perils), the detailed wording of specific clauses in the policies of individual insurers was examined and, in each case, their applicability to various categories of business covered by the various edicts issued by the Government over the relevant period assessed. The judgment then decided whether cover should be confirmed and, if so, for what period.
To run through (or even attempt to summarise) each and every item considered in the judgment would, inevitably, end up with an article of similar length to the judgment itself. I have chosen rather, therefore, to look at the arguments raised relating to one specific clause to give some flavour of the arguments put forward by Learned Counsel for the insurers to demonstrate that, correctly considered, their clients should not be paying out.
I chose, entirely at random, the so called ‘Government or Local Authorities Action (GLAA’) extension in BI policies issued by Arch Insurance UK Plc (‘Arch’) and others (para 307 et seq in the judgment). Clause 7 of the Arch GLAA extension provides:
“We will also indemnify You in respect of reduction in Turnover and increase in cost of working as insured under this Section resulting from …
Prevention of access to the Premises due to the actions or advice of a government or local authority due to an emergency which is likely to endanger life or property.
(A so called “prevention of access” clause.)
Arguments put forward by Learned Counsel (John Lockey QC) on behalf of Arch to escape the ‘obvious’ conclusion that, in the circumstances, cover should come in to effect, included arguments that, firstly, restrictions imposed by government were mere hindrances rather than preventions; and/or that they affected use rather than access.
In addition, where businesses had an activity, part of which was able to carry on notwithstanding the Government’s restrictions (for example a supply of take away food ancillary to a restaurant), this did not amount to complete prevention and hence, partial prevention not being ‘prevention’ at all, cover did not come into effect.
Most ingeniously of all, however, Mr Lockey (and others acting for the various insurers involved) sought to make use of a so called ‘trend clause’ argument. This focused principally on the expression ‘Turnover.’
The relevant section of the Arch BI Policy contained provision as follows:
Rate of Gross Profit and Standard Turnover may be adjusted to reflect any trends or circumstances which:
- Affect the Business before or after the Damage; or
- Would have affected the Business had the Damage not occurred.
Mr Lockey then sought to argue that ‘the Damage’ in this provision should be given a narrow reading – focusing on the actual prevention/hindrance of access by the Government, rather than the economic recession and lack of consumer confidence caused by the pandemic itself. He then sought to argue, citing earlier case law, that the overall effect of the pandemic should be ‘stripped out’ of any quantification of the Damage and, hence, that the amount payable (if anything) should be restricted in the same way.
In the end the Court had a degree of sympathy with this argument – allowing that any downturn in turnover before the date when businesses closed due to Government advice or Regulations would be a trend or circumstance which affected the Business before the Damage in the relevant sense. By arguing against what was ‘obvious’ it would appear that Mr Lockey (and others) may have saved their clients a very substantial amount of money.
On the whole however, as more widely reported – both in relation to the Arch policy and other policies, the Court required insurers to pay out,no doubt to the great relief of the businesses involved. It does however trouble me somewhat that such a heavy engagement of resources on the part of the FCA was required to secure what would seem to be an ‘obvious’ outcome and there is no doubt that battle will continue in relation to policy clauses which differ, even in relatively minor ways, from the clauses explicitly covered by the judgment.
If you are having difficulty with your Covid business interruption claim, Martin Reynolds and Justin Sadler at Barrett & Co would be very happy to assist. To book a meeting with them please call our team on 0118 958 9711 or email on [email protected]