Financial Conduct Authority v Arch Insurance (UK) Ltd & others

The case was initially heard at the Commercial division of the High Court of Justice.[1][9] The trial took place over 8 days, between 20 and 30 July 2020 by a court of two judges.[14] The 162-page ruling was given on 15 September 2020.[14] Analysing 21 different types of policy wording, the High Court found substantially in favour of the FCA.[15][12] The ruling did not find the insurers were automatically liable for all the tested policy wording claims. Instead, the regulator stated that each policy would have to be tested against the judgement to determine coverage.[9]

In response to the judgement, the FCA said the ruling had "substantially found in favour of the arguments we presented on the majority of the key issues".[15] The Association of British Insurers stated in response that business interruption policies "are not generally designed, priced or sold to cover unspecified global pandemics".[16]

The Supreme Court heard four days of arguments, from 16 to 19 November 2020,[6][19] considering 13 of the 21 types of policy wording considered by the High Court.[16] The parties sought to clarify the interpretation of clauses which cover for business losses in cases of: a "notifiable disease" at or near the business premises; prevention of access to business premises due to public authority intervention; an estimation of business performance had the disruptive event not occurred.[20]

On the disease clauses, the court held that while there was a variation across policies in the wording of these clauses, none of these differences materially altered their interpretation.[21] Insurers argued that business interruption cover only covered local outbreaks of COVID-19. The High Court held that whether the outbreaks were local was relevant because business disruption had been caused locally, as a result of the broader pandemic.[15] The Supreme Court found that the clause covers only occurrences of the effects of the disease, inside the specified geographical area.[22]

Insurers argued that their business interruption policies did not cover unprecedented events or restrictions, such as the March lockdown in the United Kingdom,[6][23] adding that payouts should be denied in line with strict interpretations of the policy wording.[3] A lawyer for MS Amlin told the court only business loss claims as a result of COVID infections within a local, 25-mile radius of the insured property were covered, specifically excluding claims as a result of a nationwide lockdown.[11]

The Supreme Court unanimously found in favour of the claimants on 15 January 2021.[3][6] Nicholas Hamblen, handing down the decision, said "the FCA's appeal is substantially allowed and the insurers' appeals are dismissed."[3] Michael Briggs, another Supreme Court Justice, said that the insurers' claims seemed, to him, to be "clearly contrary to the spirit and intent of the relevant provisions of the policies in issue", adding "it is clear from the use of the definition of a 'notifiable disease' in most of the relevant clauses[] that Covid-19 [when it appeared] fell squarely within the types of disease for which all the relevant disease and hybrid clauses provided cover."[16][23]

Although only eight insurers were named parties in the case – including Hiscox, MS Amlin, QBE, Arch, Zurich, and Royal & Sun Alliance – the ruling provides guidance for as many as 700 policies from 60 insurers selling similar products, affecting up to 370,000 businesses.[3][6] Labelled a "complex ruling", the decision is expected to guide decisions by the Financial Conduct Authority, the Financial Ombudsman, and the insurance sector, on similar insurance claims involving disease clauses, business access to properties, and lost earnings.[6][24]