From Mishcon de Reya
15th September 2020
Judgment has been handed down today in the unprecedented and well-publicised FCA v Arch and others business interruption (BI) insurance test case. The FCA represented the interests of policyholders. Mishcon de Reya acts for two groups, the Hiscox Action Group, and the Hospitality Insurance Group Action, the only two policyholder action groups who were granted permission by the Court to intervene in the test case and who each made submissions to the Court.
Eight insurers were involved, including Hiscox, RSA and QBE, and 21 different “lead” policy wordings were examined in detail. The FCA have said that up to 370,000 UK businesses could be affected by insurers’ failure to pay out on BI claims.
The case was overall a resounding victory for the policyholders. The Court held, across all policies, that on the key causation argument run by the insurer defendants, in assessing how a counterfactual, “but for” test or “business trends” clause should be applied, one starts with the insured peril itself. On all policies considered, these were composite clauses covering various interconnected elements.
So for example in the Hiscox wordings, loss resulting from an interruption to business following (i) an inability to use the insured premises, (ii) due to restrictions imposed by a public authority, (iii) following an occurrence of an infectious or contagious disease. In answering the counterfactual question as to what would have been the effect but for the occurrence of the insured peril, the Court found one needs to strip out all the interconnected elements including the national outbreak of COVID-19. One then compares the actual performance of the business with what the business would have achieved in the absence of the COVID-19 outbreak which lead to the restrictions imposed and the inability to use the premises.
Against this backdrop, for the Hiscox Action Group, the Court then gave guidance on the meaning of Government restrictions (essentially ruling these applied from the date of the key Statutory Instruments prohibiting businesses from opening, namely 21 and 26 March); the meaning of an “occurrence” of a notifiable disease (essentially the national outbreak of COVID-1919); this in turn lead to a findings on one form of the policy which had a geographical limit of one mile that, provided there was an outbreak of the disease within one mile, the policyholder did not have to prove a specific local instance of the disease. The Court also considered, amongst other things, the meaning of “inability to use premises” and “interruption”. Overall, this represents a positive outcome for most Hiscox policyholders who we represent. We will continue to press the claims of that group of 400 via the arbitration process that is underway vs Hiscox.
For the RSA4 “Resilience (Marsh/JELF)” wording the Court agreed that the wording provides cover for losses caused by the COVID-19 pandemic under both the Notifiable Diseases clause and the Prevention of Access – Non-Damage clause. For the Disease cover, the effect is that where there has been interruption or interference with the insured’s business occurring within the UK after 31 December 2019, the insurer should pay the resulting business interruption losses. The Court agreed that Vicinity could include be very extensive, and indeed nationwide. The Court went further to say even if Vicinity was not the entire country, a policyholder would still be insured for interruption or interference caused by COVID-19 including the public’s and Government’s response to it. For the Prevention of Access – Non-Damage cover, the Court also found in our favour – that where there has been interruption or interference with the insured’s business as a result of the Government’s advice and actions in the UK in response to COVID-19, the insurer should pay out. Under this clause there is potentially cover available in principle from at least 16 March onwards, where the social distancing measures advised by the Government hindered the use of insured premises.
For QBE, three different wordings were considered. For QBE1 policyholders, again, the decision is a resounding success. The Court accepted that, provided there were cases of COVID-19 within the 25 mile radius, the insurer should pay policyholders for business interruption losses caused by COVID-19 including the Government’s measures in response to it. The Court rejected the insurer’s position that policyholders could only recover if they could prove that the localised cases of COVID-19 were the cause of their business interruption, and that no insured could prove that the Government’s measures were caused by the localised cases of COVID-19, as opposed to the actual or threatened nationwide pandemic and cases outside the area, so they were not entitled to cover. For the QBE 2 and QBE 3 policyholders the result is more disappointing and the Court has found that there are specific differences for those wordings that limit the scope of available cover. This is something that we are considering further with affected parties.The Court will now hear the parties as to appropriate declarations to be made in light of its findings. This hearing is expected to take place in October.
The result is legally binding on the eight insurer defendants to the test case in respect of the policies considered. It will also provide persuasive guidance for the interpretation of similar policy wordings and so directly impacts the resolution of many more claims underwritten by many more insurers who were not involved in the test case, and beyond those specific wordings considered in the test case.
Insurers have asked for more time to put in an application for permission to appeal, indicating that an attempt to appeal by them is likely. In meantime, if any policyholder has any queries, particularly as regards wordings insured by Hiscox, “Resilience (Marsh/JELF)” (whether insured by RSA, Aviva or other insurers) or QBE policies covered by the judgment, they should contact Richard Leedham ( for Hiscox) or Sonia Campbell (for Resilience (Marsh/JELF), RSA, Aviva or QBE).