Feature
Landmark UK business interruption case by Andrew Horne and Nick Frith
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n our previous edition, we discussed the various jurisdictions in which insurers’ approaches to business interruption cover following Covid-19 were being scrutinised. In the UK, the Financial Conduct Authority (FCA) initially worked together with insurance companies to aim to provide transparency and clarity in their existing policies for their insureds. It was soon clear that there was a growing problem in the market, largely due to the multiple action groups arising, especially with policies affecting SMEs. The FCA therefore collected 21 sample policy wordings from eight insurers and sought declarations as to how certain extension wording in each of them would respond to Covid-19 interruptions. This case was known as the “test case”, with judgment delivered with significant speed on September 15, 2020. The case involved the FCA, eight insurers and two class action groups (Hiscox Action Group and the Hospitality Insurance Group Action) as interveners. The judgment was complex and meticulous. The court largely sided with the FCA on many of the key issues. Example policy 26
December 2020
extensions concerning disease and prevention of access, as well as causation, were all given considerable legal analysis. The FCA and various of the other parties have received certificates from the High Court allowing them to apply to the Supreme Court for a “leapfrog” appeal. We understand that appeals are likely to be pursued if agreement cannot be reached with the eight insurers and two interveners on how to treat claims going forward. KEY FINDINGS Disease clauses Most disease clauses examined followed the general structure of: interruption or interference with a business that was “following”, “arising from,” or “as a result of ” any “notifiable disease”, “occurrence of a notifiable disease”, or arising from any human infection or human contagious disease “manifested” by any person. Some policies contained geographic boundaries, mostly being within 25 miles of the “vicinity” of the insured premises. The insurers’ argument was that cover was provided only for a local occurrence of
a notifiable disease, where they could be distinguished from wider effects. In other words, discrete instances of Covid-19 cases, if necessary within the stated boundary. The FCA argued that the causation requirement was less than “proximate”, and cover should be provided because Covid-19 was an outbreak that had multiple indivisible parts. The outbreak itself was the ‘occurrence’, rather than separate diagnoses in certain areas. “Following” indicated that the proximity required was indirect, and therefore a nation-wide response to the Covid-19 outbreak would fulfil the causal nexus required. Although cover was dependent on the policy terms in each instance, the court found in favour of the FCA on many of the disease extensions. Prevention of access clauses In general, the court afforded these clauses a much narrower construction than disease clauses. Cover was limited only to certain circumstances under certain clauses. In particular, the court held that these clauses required specified events to have occurred within the relevant area at a certain
