The High Court in England and Wales has delivered its judgment in the Financial Conduct Authority (FCA) business interruption insurance test case, The Financial Conduct Authority v Arch & Ors, marking a significant victory for policyholders. This 160-page judgment provides guidance to an estimated 370,000 business owners seeking payouts under business interruption insurance following the COVID-19 pandemic.

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Scope of the Judgment

 

The court examined 21 lead policies, broadly divided into three categories:

1. Disease wordings – Coverage for business interruption caused by notifiable diseases within a specified radius of the insured premises.
2. Prevention of access / public authority wordings – Coverage triggered by government-imposed restrictions or hindrance of access to the premises.
3. Hybrid wordings – Coverage linked to restrictions imposed due to notifiable diseases.

Businesses should review their policies carefully and seek expert guidance, given the variety of wordings considered.

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What We Can Learn From the Judgment

 

• Proof of Outbreak: Policyholders do not need to prove a COVID-19 outbreak occurred within a precise area unless specified by the policy.
• Diagnosis Not Always Required: Individuals affected by COVID-19 do not necessarily need to be diagnosed for coverage.
• Definition of “Interruption”: The court interpreted “interruption” broadly, including disruption and interference, not only complete cessation of business.
• Guidance, Not Blanket Liability: The judgment clarifies policy operation under pandemic conditions but does not impose universal liability on insurers.

Huw Evans, Director General of the Association of British Insurers, stated:

“Insurers have supported this fast-track court process led by the FCA to help bring clarity for customers. The national lockdown posed understandable questions of interpretation for some business insurance contracts.”

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Implications for Irish Businesses Dealing With Business Interuption Claims

 

Irish businesses, particularly publicans pursuing claims against FBD Insurance, will closely monitor this case. While the UK judgment is not binding in the Republic of Ireland, it may provide persuasive guidance to the Irish Commercial Court in upcoming test cases.

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Next Steps for Policyholders

 

Lacey Solicitors recommends business owners to:

1. Review Policies: Consult insurers or legal advisors to see how the court’s principles apply to specific policy wording.
2. Prepare Evidence: Consider additional documentation required to substantiate a claim, given the varying conclusions reached for different policy wordings.

The FCA and insurers are exploring potential appeals, which may escalate directly to the Supreme Court on an expedited basis. While the judgment clarifies key contractual uncertainties, it does not determine exact payouts under individual policies.

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Conclusion

 

The FCA’s landmark test case represents a crucial step in clarifying business interruption insurance coverage during COVID-19. Irish businesses should review their policies and seek professional advice to understand their entitlements and the potential impact of this UK judgment on Irish claims.

 

Business interruption insurers in UK, Ireland and across the World have been scrutinising policy wordings more than ever in the wake of COVID-19, as the pandemic continues to test the limits of coverage and liability. The stakes are high, and small print uncertainties could determine the outcome of claims.

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UK Court Scrutiny

 

The British Financial Conduct Authority (FCA) plans to seek clarity from the courts regarding whether certain business interruption insurance policies in the UK should provide cover for losses caused by COVID-19. The FCA intends to select test cases involving the most frequently used policy wordings that have caused uncertainty for businesses seeking claims. However, the regulator maintains that most policyholders do not have coverage that warrants a payout. The court action is expected as early as July.

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Hiscox Policy Action Group

A Hiscox policy with a business interruption clause is under particular scrutiny. A group of UK Hiscox policyholders, mainly publicans and restauranteurs, met with the FCA prior to the announcement of court referrals. Hiscox, a Lloyd’s of London member serving the Irish market, has informed customers that its policies do not cover diseases linked to pandemics like coronavirus due to difficulties in quantifying such risks.

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Concessions in Ireland

 

In Ireland, retail and vintner groups have been affected by government-mandated closures. On 15th March, the government requested public houses to close, escalating to a full closure order on 27th March. Some insurers initially indicated that valid claims from closures after 27th March would be met.

Following industry lobbying, Finance Minister Paschal Donohoe reportedly obtained two concessions from insurers:

1. The initial government request on 15th March is considered binding, meaning claims arising from that date should be recognised.

2. Any ambiguity in policy wording should be interpreted against the insurer, consistent with the contra proferentem rule.

However, insurers have stressed that these concessions do not extend coverage beyond existing policy terms.

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Principles of Policy Construction

 

Irish insurers and policyholders are watching the UK court action closely. Irish Supreme Court decisions, including Analog Devices v Zurich Insurance and Emo Oil v Sun Alliance, have affirmed that the principles of construction set out by Lord Hoffmann in the UK ICS v West Bromwich Building Society case apply to insurance contracts. Where policy wording is clear, courts interpret it as written. Where exceptions to coverage exist but are ambiguous, the contra proferentem rule applies, favouring the policyholder.

Justice Geoghan, in Analog Devices, emphasised that exceptions are strictly construed against insurers:

“Since exceptions are inserted in the policy mainly for the purpose of exempting the insurers from liability for a loss which, but for the exception, would be covered by the policy, they are construed against the insurers with the utmost strictness.”

Lord Diplock’s dicta, as quoted by Lord Hoffmann, further warns that semantic or syntactical analysis should not override common business sense:

“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”

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Time Will Tell Over UK Business Interuption

The FCA’s court referral over UK business interruption policies has significant implications for Irish insurers and policyholders. Ambiguities in policy wording, especially regarding pandemic-related losses, may be interpreted against insurers, demonstrating once again that in insurance, the devil is in the details.

The global spread of Covid-19 has prompted businesses to examine their insurance policies to determine whether business interruption cover can help mitigate financial losses caused by the pandemic.

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What is Business Interruption Insurance?

 

Business interruption policies are policies of indemnity, designed to place a business in the position it would have been in had the interruption not occurred—subject to the policy’s terms, conditions, and limits.

Lacey Solicitors has seen an increase in enquiries regarding business interruption coverage, particularly around whether disruptions caused by Covid-19 are included.

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Historical Context: SARS and Insurance Coverage

 

The 2003 SARS outbreak, also caused by a coronavirus, resulted in significant claims for business interruption. Insurers responded by amending policies to explicitly list the diseases covered, often under “Notifiable Diseases.”

Covid-19, unlike SARS, has had a far greater global impact, with over 349,000 infections and 15,000 deaths in just four months at the time of writing.

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Notifiable Diseases and Trigger Dates

 

• In the Republic of Ireland, Covid-19 was added to the list of notifiable diseases on 20th February 2020.

• In the UK, it was classified as a notifiable disease on 5th March 2020.

These dates are critical in determining the trigger date for insurance coverage. Coverage typically applies after a disease is officially recognised or listed, not retroactively.

The Hong Kong case of New World Harbourview Hotel Co. Ltd v ACE Insurance [2012] confirmed that insurance cover is generally not retrospective—losses occurring before the trigger date are usually not covered.

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Challenges for Covid-19 Claims

 

Most insurers maintain that business interruption policies are unlikely to cover losses from Covid-19, especially if the disease was not listed at policy inception.

AXA Insurance DAC stated:

“When Covid-19 was added to the list of notifiable diseases in England, it did not change policy coverage.”

Insurers argue that covering a previously unknown disease would make insurance unviable and premiums unaffordable for the wider business community.

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Where Businesses May Have Cover

 

Some policies provide broader coverage, allowing indemnity for business losses due to any contagious or infectious disease, without listing specific illnesses.

However, insurers may attempt to restrict claims to ordinary operational interruptions, so careful policy interpretation is essential.

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Lacey Solicitors’ Expertise

 

Lacey Solicitors has specialists in Northern Ireland and the Republic of Ireland dedicated to complex business interruption claims. Our expertise includes:

• Detailed policy interpretation

• Advising insurers, policyholders, and private clients

• Identifying where coverage may respond to Covid-19 losses

We can review your policy, assess the extent of your cover, and advise on potential claims arising from the current crisis.