The English high court, in a test case between the Financial Conduct Authority and Arch Insurance (UK) Limited and a number of other insurers, engaged in a nuanced analysis of their different policy wordings relating to business interruption cover for COVID-19 related losses. The court largely sought to resolve causation issues by interpreting each policy.

For most of the policies the court allowed cover for the consequences of a notifiable disease even where losses may have been caused by national government measures rather than the local loss occurrence (the disease itself).

In doing so, the court reduced the local occurrence requirement to a trigger, rather than a causative event.

The court held that the trends clause (which provided for an adjustment of cover for the trends of the business had the incident not occurred) was applicable to the non-damage loss but the insured peril (which is business interruption loss caused by COVID-19) and the government response had to be taken out of the adjustment calculation.

The insurers’ argument that the requirements of causation and the trends clause mean that there can be no indemnity because, even if there had been a local outbreak, the lockdown would still have been imposed, was rejected.

In a few of the policies the court found that there could only be cover if the insured could demonstrate that the local occurrence of the disease in fact caused the business interruption.

The substance of the distinction between the wordings of those particular policies and others in which the analysis went the other way is difficult to discern although some points of difference were identified. The result is that there are differing outcomes for many similar but partly different wordings.

The parties have been granted leave to appeal the judgment directly to the Supreme Court and most insurers are appealing the judgment. The appeal is being argued before the Supreme Court on the 16th to the 20th November 2020.

In broad terms insurers adversely affected by the judgment will argue on appeal that:

  • the court misidentified the insured peril by reducing the requirement that the disease must occur within the stipulated radius of the insured’s premises to an adjectival function, whereas the insured peril is in fact the occurrence of the insured peril within the radius; and
  • the court wrongfully found that the local occurrences were somehow part of an indivisible larger cause, and were therefore substantial causes of interruption in their own right, where no such concept exists in the law relating to causation.

None of the wordings are identical to the infectious disease wordings used in the South African market.

If you want to follow the proceedings you can do so by way of live stream.