Thoughts on the Supreme Court ruling in Financial Conduct Authority against Arch Insurance (UK) Limited and others  UKSC1
Some of you may remember that, back in October (2020), I wrote an article about the decision of the Queen’s Bench Division Commercial Court in Financial Conduct Authority against Arch Insurance (UK) Limited and others  EWHC 2448 (COMM). In this decision the Queen’s Bench Division, in a clear if somewhat lengthy judgment, required Arch Insurance (UK) and a raft of other insurers to pay out on various types of ‘business interruption’ policies with respect to the losses incurred by policyholders as a result of the COVID pandemic and/or the government’s response to that pandemic (see Reynolds report September 2020 ‘It’s obvious!’).
So how did the insurance companies respond to this decision? Did they, promptly and with good grace, make the payments which the Queen’s Bench Division felt should be made?
Well, no. What they did was appeal the Court’s decision.
Given the extreme sensitivity of the issue, and no doubt aided by mellifluous argument from the ranks of Queen’s Counsel on display, permission to appeal (and to cross appeal and to intervene) was given and the matter was fast-tracked to the Supreme Court. The judgement of the Supreme Court was produced on 15 January 2021.
The judgement of the Supreme Court, given by Lord Hambleden and Lord Leggatt (with Lord Reid in agreement) (and Lords Spriggs and Hodge concurring in result but differing in some of the reasoning), runs to some 90 densely worded pages in print. It is complete with verbatim citations from ministerial speeches made over the relevant period and from the raft of regulations brought in to address COVID issues.
In the end, however, their Lordships upheld the decision of the lower court and dismissed the appeals of the insurance companies (although allowing in part cross appeals from the FCA and other interveners). A range of standard policy clauses/policy types were upheld:
- Disease clauses – these provide insurance cover for business interruption loss caused by the occurrence of a notifiable disease at or within a specified distance of the policyholder’s business premises; and
- Prevention of access clauses – these provide cover for business interruption losses resulting from public authority intervention preventing or hindering access to or use of business premises
(There was also a third category – hybrid clauses – which combine the main elements of disease clauses and prevention of access clauses.)
Their Lordships also dealt with the issues of so-called ‘trends clauses’ and pre-trigger losses.
In this respect it was held that the Queen’s Bench Division had been wrong to find that the indemnity for business interruption loss sustained after cover was triggered, should be reduced to reflect a downturn in the turnover of the business due to COVID-19 generally (which, it was argued by the insurers, would have continued even if the cover had not been triggered by the insured peril).
Losses should be assessed on the assumption that there was no COVID-19 pandemic and, consistently with that conclusion, it should have been held that, in calculating loss, the assumption should be that pre-trigger losses caused by the pandemic would not have continued during the operation of the insured peril (i.e. prevention of access).
The rejection of proposed ‘trend clause’ adjustment – requiring losses to be adjusted on the basis that if the insured peril had not occurred the business would still have been affected by other consequences of the COVID-19 pandemic – was upheld in the Supreme Court.
It remains to be seen whether the insurers affected will now pay out with good grace – although it does seem they have little wriggle room left. It may prove more problematic to repair their relationship with the numerous policyholders who feel, at the very least, aggrieved in this matter.
If you are having difficulty with your COVID business interruption claims Martin Reynolds and Justin Sadler of Barrett & Co and would be very happy to assist. To book a virtual meeting with either of them please call our team on 0118 958 9711 or email on: [email protected].
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