Hiscox Action Group v Arch Insurance (FCA intervening), 2021 UKSC 1 The FCA has stepped in to win a major test case favouring insureds’ claims on business interruption insurance

Facts: The FCA as agreed a scheme with the leading UK insurance companies to fast-track major issues of law for early judicial guidance.  In the present case the FCA arranged proceedings to examine 21 separate business interruption policies as offered by wide range of insurers.  The Supreme Court largely found in favour of interpretations of these various policies which benefit insureds.

Particularly, the Supreme Court held:

• “Disease Clauses” (business interruption losses resulting from any occurrence of a notifiable disease within a specified distance of insured premises) will be interpreted broadly.  So if there had been any Covid case within the relevant distance (or radius) then all disruption caused by Covid cases everywhere is recoverable, not just in respect of the local case.
• Prevention of access clauses were stated to apply to any instruction given by public authority, if it either carries the imminent threat of legal compulsion or is in mandatory and clear terms, indicating that compliance is required without recourse to legal powers.
• The Court rejected insurers’ defence argument that if they could show  a concurrent cause outwith the policy then the policy did not respond.  The Court therefore expressly overruled the Orient-Express case in which in 2010 the Commercial Court had disallowed business interruption losses sustained by a hotel in New Orleans on the basis that the damage to the city itself had been so great that the hotel business would have suffered even if no direct loss to the hotel had occurred.

Comment:  The effect of this strong intervention by the Supreme Court is that losses generated, for example, by the Prime Minister’s words on 23rd March asking the nation to stay at home may give rise to interruption claims even though the relevant Regulations were not passed until several days later.

In consequence of this Decision, businesses should review previous refusals by their insurers to pay up on business interruption clauses.  The FCA has made it clear and it will intervene robustly and take further steps in the courts if necessary.

We can also expect that in future business interruption cover will be less widely available, for much higher premiums, on very carefully worded policy terms.