The High Court has handed down its much-anticipated judgment in the COVID-19 Business Interruption insurance test case of the Financial Conduct Authority v Arch and Others.

Following the unprecedented disruption of many businesses caused by the COVID-19 pandemic, many brought claims under the business interruption clauses contained within their insurance policies.

Invariably, these claims were rejected by insurers leading to the FCA bringing the test case to the High Court to provide clarity to insurers and policyholders alike.

The purpose of the test case was for the court to provide guidance in respect to the proper operation of cover under certain standard insurance provisions. The question therefore was to determine whether these provisions operated to cover policyholders for losses suffered as a consequence of the COVID-19 pandemic and the UK Government restrictions imposed as a consequence.

It is hoped that the court guidance will minimise individual disputes over coverage and insurers will pay out swiftly for losses suffered in appropriate circumstances.

The court examined 21 sample wordings from eight leading insurers. The key wordings analysed by the court related to:

⦁ Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.

⦁ Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.

⦁ Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.

The good news for policyholders is that the court found in favour of the FCA on the majority of the key issues.

While the decision is positive for policyholders, the exercise of determining whether a particular BI cover will operate to cover losses caused as a consequence of COVID-19 is not straightforward. Each case is fact-specific and will turn on the precise wording of each individual policy.

It will be necessary to examine the wording of the policy closely to determine whether the wording corresponds with the standard wordings considered by the court.

Following the judgment, the FCA has set out their expectations for insurers in a Dear CEO letter. It confirmed that most policies are likely only to have basic cover which would not cover pandemics, however the watchdog stressed that where it is clear that policies do provide cover, insurers have a clear obligation to ensure that the claims are assessed and settled quickly. Insurers are also encouraged to make interim payments in circumstances where there are reasonable grounds to dispute only part of a claim.

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