On 15 September 2020, the English High Court delivered its highly anticipated judgment in the Financial Conducts Authority (FCA) test case concerning COVID-19 business interruption claims.1

As we reported in the August edition of Navigate, the FCA commenced the test case on 9 June 2020 seeking declarations that policy coverage under various representative sample policy wordings provide cover for business interruption arising in the context of the COVID-19 pandemic, and the advice of and restrictions imposed by the UK Government in consequence. The FCA was representing the interests of the policyholders. Its stated purpose of bringing the litigation was to try and obtain certainty for policyholders, many of whom are small to medium sized enterprises, in relation to COVID-19 claims.

The judgment is lengthy and complex.2 The High Court considered 21 sample policy wordings underwritten by eight insurers who agreed to be defendants in the test case. The FCA has, however, reported that around 370,000 policyholders could be potentially affected by the outcome. The sample policies concerned extensions or coverage clauses that do not require damage to the insured’s property.3

The relevant provisions in the sample policies fell into the following three categories:

  1. Disease clauses which broadly cover business interruption arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
  2. Public authority prevention of access. These are provisions which provide cover where there has been a prevention or hinderance of access to or use of the premises as a consequence of Government or other public authority action or restrictions.
  3. Hybrid wordings. These are provisions engaged by restrictions imposed on access to premises and the occurrence of a notifiable disease.

The Court emphasised the overriding importance of the precise wording of each policy, particularly the definition of the insured peril. Consequently, the Court considered the terms of each policy separately.

Disease Clauses

One of the policies under consideration, RSA3, provided business interruption cover for the occurrence of a notifiable disease within a radius of 25 miles of the premises. The Court’s interpretation of this policy provides a good example of the competing arguments and the Court’s findings generally in relation to the disease clauses.

The FCA argued that there was a notifiable disease in all parts of the United Kingdom by 6 March 2020. Specifically, there was an occurrence of that notifiable disease when a person or persons with COVID-19 were within 25 miles of the insured’s premises. There was interruption of or interference with the business from 16 March 2020, or from a later date to be determined by the Court, as a result of the government’s instructions and/or announcements as to social distancing, self-isolation, lockdown and restricted travel and activities, or alternatively, in cases where businesses were ordered to close, from 23 March 2020. Any losses were sufficiently causally connected if they would not have occurred had there been no COVID-19 outbreak or government intervention.

On the other hand, RSA argued that the policy only covers the effect of the disease occurring locally. If, as here, there was a wider disease spread, then the policy only covered the effects of the local outbreak of COVID-19. The cover was only against business interruption and interference proximately caused by a local outbreak of a notifiable disease (e.g. within 25 miles of the premises). Had there been no occurrence of COVID-19 within a 25 mile radius of the insured premises, the insured businesses would still have suffered from a general reduction of demand after 1 March 2020 and would have suffered from the impact of the government’s social distancing measures from 16 March 2020, and from the closure measures because they would have been introduced anyway by reason of the occurrence or feared occurrence of the disease in areas other than the 25 mile radius.

The Court agreed with the FCA that cover was not confined to the effects only of a local occurrence of a notifiable disease. Properly construed, the policy would still respond if the local occurrence was part of a wider outbreak of a disease to which there is a national response. In such a case, the Court considered that the correct analysis is that the proximate cause of the business interruption is the notifiable disease of which the individual outbreaks form indivisible parts. Alternatively, although less satisfactory, each individual occurrence was a separate but effective cause of the business interruption.

Prevention of Access/Public Authority Wordings

A number of the wordings before the Court provided cover where there has been a prevention or hinderance of access to or use of the premises as a consequence of government or local authority action or restriction.

The Court adopted a more restrictive approach to these wordings. It found that certain wordings were intended to respond to specific and localised events which took place at a particular time and place. This means that cover will only apply to actions taken by the authorities specifically in response to a localised occurrence of COVID-19, not to a national-wide lockdown.

The Court held that “prevention” and “hinderance” are not synonymous. Further, that the touchstone of “prevention” is impossibility, whereas hinderance connotes that access is rendered particularly difficult.

In some cases, only total closure rather than partial closure will amount to prevention of access. It follows that any insured business which carried on part of its existing business, such as an existing permitted takeaway service, did not suffer total closure or, therefore, a prevention of access.

The Hybrid Wordings

These clauses are a blend of the disease wording and prevention of access/public authority wording. The Court took a similar approach to the “disease” part of the clause rejecting insurers argument that the only cover was in respect of losses flowing from a local outbreak. However, as with the prevention of access wording, the Court construed the meanings of these clauses narrowly.

Trends Clauses

Some of the policies contained trends clauses which allow for business trends that would have impacted the business anyway had the peril giving rise to the insurance claim not occurred.

The Court made two important points about trends clauses. First, they are not part of the delineation of cover, but part of the machinery for calculating the business interruption loss on the basis that there is a qualifying insured peril. Where the policyholder has, therefore, prima facie established a loss caused by an insured peril, it was contrary to principle (unless the policy wording so requires) for that loss to be limited by the inclusion of any part of the insured peril in the assessment of what the position would have been if that peril had not occurred. Second, subject to the particular wording specifying something different, the object of the quantification machinery (including any trends clause or provision) in the policy wording is to put the insured in the same position as it would have been in if the insured peril had not occurred. Therefore, it was not necessary to strip out of the counterfactual everything that the Court had found was covered by the insuring clause. In other words, the business interruption referable to COVID-19 as well as the authorities and public response.


A key focus of the insurers’ defences was causation. The insurers advocated a “but for” approach to causation in the assessment of the policyholders’ losses and the counterfactual. Underlying their submissions about the “but for” test was the argument that various different potential causes should be isolated; and that the losses were caused by the pandemic and would have been suffered whether or not there had been any government action or restrictions. Accordingly, they were not caused by the insured peril.

The Court, however, ruled that issues of causation resolved themselves as part of the process of construction of the specimen wordings, mainly by the correct identification of the insured peril.

The insurers placed significant reliance on the decision in Orient Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm) to support their case on causation. However, that case has been subject to academic criticism. The Court distinguished it and also said they saw several problems with it. If it had been necessary, the Court said it would have concluded that it was wrongly decided and declined to follow it.

Conclusion and Next Steps

As we advised in our last article, the case is likely to be highly persuasive when the New Zealand Courts come to consider non-property related COVID-19 claims.

The judgment is likely to be welcomed by a majority of policyholders, particularly those who have extensions providing cover for notifiable diseases. Other policyholders will have been left disappointed.

There is presently speculation about possible appeals, particularly by the insurers. The FCA and insurers have agreed they would seek to expedite any appeal. It is expected they will apply to ‘leap-frog’ the Court of Appeal and take the issues straight to the Supreme Court given the general importance of the issues. We will continue to keep you updated with any further developments.

Please contact Darren Turnbull for more information about this case.

  1. The Financial Conduct Authority v Arch Insurance (UK) Limited & Ors [2020] EWHC 2448 (Comm).
  2. 160 pages
  3. “Standard” business interruption cover is contingent on the occurrence of physical or material damage to the insured premises.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.