7th October 2020



The Background 

When on 11 March 2020 the WHO declared COVID-19 to be a pandemic, the UK government reacted between 16-23 March by putting the majority of UK businesses into lockdown.  The consequences were that thousands of businesses looked to their insurers, and specifically to their business interruption insurance, to help them survive.  Most SME policies are focused on property damage and the basic BI cover is a consequence of the property damage.  But some policies also cover for BI, from other causes, in particular infections or notifiable diseases, and denial of access and public authority closures or restrictions (disease and denial of access clauses). Despite these clauses many insurers denied liability.  The FCA identified 370,000 businesses with apparently valid BI who are affected by this impasse.

The FCA, as the regulator of insurance companies, brought proceedings as a test case  in order to determine issues of principle on policy coverage and causation under simple insurance wordings.  The proceeding commenced on 9 June 2020, against 8 insurer defendants, considering 21 sample polices.

On 15 September 2020 the High Court handed down its judgement, finding in favour of the FCA on the majority of the key issues.  The judgement is welcome news for thousands of policy holders impacted by Covid-19 related business interruption losses.

What were the issues?

All of the polices differed slightly, however all but two provided cover for loss resulting from;

  • Interruption or interference with business;
  • Following/arising from/as a result of;
  • Any notifiable disease/occurrence of a notifiable disease, manifested by any person;
  • Within 25 miles/1 mile/the “vicinity “of the premises/insured location

Insurers argued  that the cover provided was for a local occurrence of a notifiable disease, and only if the effects of the local occurrence could be distinguished from the wider pandemic, would there be a liability to the insurer.

The FCA’s case was that the cover was effective as the outbreak in the relevant policy area was an indivisible part of the disease, or that the local occurrence was a case in itself.

The High Court agreed with the FCA on most of the policies, finding that the insurers were liable and cover was valid.

Orient Express 
The insurers relied heavily upon the decision in Orient Express Hotels Ltd v Assicurazioni Generali Spa, in particular with their causation arguments.  It is worth outlining the details of this case as it may be very relevant in any appeal.  The claim was in respect of a hotel in New Orleans claiming business interruption losses caused by Hurricanes Katrina and Rita.  There was no dispute as to cover for the physical damage  to the hotel caused by the hurricanes.  However, insurers argued that there was no business interruption losses, because, even if the hotel had not been damaged, the devastation to the area around the hotel caused by the hurricanes was such that the business interruption losses would have been suffered in any event.

Hamblin J held that the insurers were correct in the Orient Express case.

The High Court dismissed the insurers arguments and went so far as to say that had it been necessary for this case, they would have concluded that Orient Express had been wrongly decided and declined to follow it.

Where to Next?

Following the ruling, the majority of the insurer defendant have filed for an appeal.  In anticipation of this the FCA applied to the High Court for a “leapfrog” appeal, straight to the Supreme Court, and by passing the Court of Appeal. Reuters reports that the Supreme Court is expected to consider the appeal by the end of 2020.

What does it mean for policy holders?

Policy holders should be under no illusion that the recovery of claims proceeds will not be swift.  Solicitors for one of the intervention groups heard in the hearing described the appeal as “another nail in the coffin for small businesses” and “it is disgraceful that insurers continue to drag their feet and watch more and more policy holders go to the wall”, urging policy holders to join forces and take action together.

The Long Game 

It is a sad fact that if policy holders become insolvent, then their claims against insurers will be harder to bring, inevitably be less successful, and too late to save the business.  We are currently working with several businesses who have BI policies and are formulating/considering Company Voluntary Arrangements (“CVA’s”) in order to relieve creditor pressure in the short to medium term, enabling them to be alive when the appeals process is resolved.  Formal CVA’s may not be needed, they key issue being survival.

A copy of the judgment can be found at which is over 160 pages and is not recommended reading. 
However the test case involved the following insurers;
Arch Insurance (UK) Ltd
Argenta Syndicate Management Ltd
Ecclesiastical Insurance Office plc
Hiscox Insurance Company Ltd
M S Amlin Underwriting Ltd
Royal & Sun Alliance Insurance plc
Zurich Insurance plc
The judgment deals with each of the above policies in turn and it is worthwhile reading the appropriate section of the judgement if you or your clients have a policy with any of the above.
Should you require any further assistance regarding these developments then please do not hesitate to contact one of us.

Paul Ellison                         07967 471211 / [email protected]
Robert Keyes                       07500 933 022 / [email protected]
Gareth Roberts                   07979 706 392 / [email protected]
David Taylor                       07855 231 103 / [email protected] 

For any further information on our services please do not hesitate to give one of us a call.