The United Kingdom Supreme Court (UKSC) handed down its judgment on 15 January 2021 in The Financial Conduct Authority v. Arch Insurance (UK) Limited and Others. This test case was brought by the FCA on behalf of SME business interruption (BI) policyholders who have suffered financial losses as a result of COVID-19. The High Court judgment was handed down on 15 September 2020, with the special direct appeal to the UKSC taking place on 16 – 19 November 2020. The UKSC decision was largely seen as a victory for policyholders. As commented by Reed Smith partner, Mark Pring, in the Financial Times, “it can be said, without fear of hyperbole, that in principle at least this really is a catastrophic outcome for insurers.”
We have been reporting on these matters closely since March of last year, and have produced several more detailed alerts, which can be found on our Perspectives platform.
The court was asked to consider three broad categories of BI policy wordings, namely:
- Disease wordings – which provide cover for BI losses sustained in consequence of, following or arising from the occurrence of a notifiable disease within a specific radius of the insured premises (COVID-19 was made a notifiable disease in England and Wales on 5 March 2020);
- Hybrid wordings – which provide cover for BI losses sustained where restrictions have been imposed on the insured premises in relation to a notifiable disease; and
- Prevention of access / public authority wordings – which provide cover for BI losses sustained where access to the insured premises has been prevented or hindered as a consequence of authority action/restrictions owing to an emergency in the vicinity of the insured premises.
In this post, we summarise some of the key points of the UKSC’s most recent decision and set out our views on some of the implications of the decision for policyholders (subject always to their individual circumstances).