UK Supreme Court Judgement on Business Interruption Insurance issued by UK Insurers

On 15 January 2021 the UK Supreme Court (‘UK SC’) handed down its appeal judgment on certain Business Interruption (‘BI’) insurance covers in relation Covid-19 pandemic related events. The UK SC case considered matters appealed from the UK High Court (‘UK HC’) Decision on the test case brought by the UK Financial Services Authority (‘UK FCA’. The UK SC judgment is complex, running to 112 pages. The UK FCA’s legal team has published a useful bulletin summarising the judgment which can be found here:

The UK HC’s judgment last September found that most of the disease clauses and certain of the prevention of access clauses reviewed under the test case provided cover and that the pandemic, and the UK Government and public response to it, caused the BI losses. Six Insurers appealed the UK HC’s decision.

The UK SC unanimously dismissed all of the insurers’ appeals and allowed all of the FCA’s grounds of appeal (subject to qualifications). The practical effect is that all of the insuring clauses which were considered under the appeal do provide cover for the pandemic related BI. In addition, the UK SC ruled on aspects appealed by the UK FCA that affect the quantum of the claim payable overturning the UK HC’s findings. The findings of the UK SC goes against the Insurers’ ability to reduce its exposure by way of trend clauses and pre-trigger losses; for example insurers cannot take account of a downturn in revenue in the week preceding the lockdown order of 20 March 2020 to reduce its exposure.

The judgment is legally binding on the insurers listed below:

• Arch Insurance (UK) Ltd

• Argenta Syndicate Management Ltd

• Ecclesiastical Insurance Office Plc

• MS Amlin Underwriting Ltd

• Hiscox Insurance Company Limited

• QBE UK Ltd

• Royal & Sun Alliance Plc

• Zurich Insurance Plc

The judgment means that more policyholders, whose policies include the clauses reviewed, will have valid claims and some pay-outs will be higher. The judgment also provides authoritative guidance for the interpretation of similar policy wordings. That is not to say, however, that all policyholders with BI covers from the listed insurers will necessarily have valid claims. Each policy needs to be considered against the detailed judgment to work out what it means for that policy.

Currently there is only one Authority regulated insurer who writes local BI cover. We understand that many local businesses obtain their BI policy through UK regulated insurance companies. The UK SC judgment is legally binding on the insurers listed above. In addition the UK SC judgment will be legally persuasive for other firms that utilised similar policy wording to that tested through the courts. UK SC rulings are persuasive to the Isle of Man Courts and as such it is likely that any policy written on the Island with similar wordings to those in the UK test case would have similar treatment locally.

The UK FCA has stated that it is now working with insurers so that they rapidly conclude their claims processes on claims that the UK SC has said should be paid, providing interim payments wherever possible.

The Authority is currently engaging with the local regulated insurer in relation to the impact of the UK SC judgment for the BI policies it has written.

Policyholders with questions should approach their intermediary or their insurer. If you are contacted by a third party offering to assist with the preparation of a claim you should exercise caution as this may result in unnecessary additional costs being incurred by you or there may be the heightened risk of fraud.