Businesses have suffered heavy financial losses in the wake of Covid-19 and the resulting public health measures taken by the government. Those with business interruption insurance sought to claim on their policies, leading to a test case that leapfrogged from the High Court straight to the Supreme Court because of its urgency and importance. And its decision, in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1 in which it interpreted 21 sample policy wordings, will be warmly welcomed by policyholders.
Because the Supreme Court had to examine the policy wordings separately, its decision – which includes a separate judgment adopting different reasoning on two points without disagreeing with the outcome – is a lengthy one. The court began by addressing sample “disease clauses” covering losses resulting from the occurrence of a notifiable disease at or within a specified distance of business premises and decided that, correctly interpreted, the clauses insured Covid-19, wherever and whenever it occurred, without any geographical or temporal limits, so long as there was an occurrence within the radius of the insured premises specified in the policy – in which case cover ran from the date of the occurrence.
This made it necessary to address causation – the connection between the occurrence of the insured peril and the loss claimed. Clearly, no one individual case of Covid-19 had caused the government to impose the restrictions that led directly to business interruption. But the court analysed the situation as one in which all the cases were equal causes of the national measures and ruled that policyholders needed only to show that at the time of any relevant government measure there was at least one case of Covid-19 within the geographical area covered by their policy.
The court also considered “prevention of access clauses”, which cover losses resulting from a policyholder being denied access to or use of its property due to restrictions imposed by a public authority. The High Court had interpreted the clauses restrictively, ruling that governmental advice – as opposed to regulations having the force of law – had not prevented businesses from accessing their premises. But the Supreme Court decided that this was too narrow. A public authority may issue a mandatory instruction, anticipating that legally binding measures will follow shortly afterwards, or will do so if the instruction is not followed – and such an instruction is capable of being a restriction imposed by a public authority.
So the prime minister’s instruction to named businesses to close “tonight” was capable of triggering the cover. But an “enforced closure of an insured location” would not include “advice or exhortations, or social distancing and stay at home instructions”. And what of loss caused by a policyholder’s “inability to use” the insured premises? The Supreme Court ruled that this could include a policyholder’s inability to use either the whole or a discrete part of its premises for either the whole or a discrete part of its business activities.
The court also made it clear that Orient-Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm) – which concerned a hotel that had suffered significant hurricane damage, but was denied cover because the court ruled that its business would have been interrupted anyway since the surrounding area had been closed off – was wrongly decided. When interpreting the policy in that case, the court should have ignored damage that had the same underlying cause, ie the hurricane damage, as the damage to the hotel.
Allyson Colby, property law consultant
