A January 15, 2021, decision from the UK’s highest court spells good news for English policyholders. In The Financial Conduct Authority v. Arch Insurance (UK) Ltd., and others, UKSC 2020/0177, the Court held that 21 insurance policies sold by eight leading business interruption insurers provide coverage for losses resulting from COVID-19 and resulting public health measures taken by UK authorities. Approximately 700 types of policies across over 60 insurers and 370,000 policyholders could potentially be affected by the outcome of the Supreme Court’s rulings.
The Court interpreted the following four types of clauses in the relevant policies:
- “Disease Clauses,” which provide business interruption coverage for losses resulting from the occurrence of a notifiable disease (including COVID-19) within a specific distance from the business premises
- “Prevention of Access Clauses,” which provide business interruption coverage for losses from “public authority intervention preventing or hindering access to, or use of, the business premises”
- “Hybrid Clauses,” which combine the main aspects of the Disease Clauses and Prevention of Access Clauses
- “Trends Clauses,” which specify how to quantify business interruption loss
The Supreme Court also considered causation issues in responding to the insurers’ arguments that the policyholders would have suffered the same or similar business interruption losses absent the insured peril.
The Disease Clauses
The Court analyzed certain policies’ coverage for “interruption [of] or interference with the Business during the Indemnity Period following…any…occurrence of a Notifiable Disease…at the Premises…[or] occurrence of a Notifiable Disease within a radius of 25 miles of the Premises.” The Court held these Disease Clauses “provide cover for business interruption caused by any cases of illness resulting from COVID-19 that occur within a radius of 25 miles of the premises from which the business is carried on.” The Court rejected application of a general policy exclusion for “epidemic and disease,” finding application of same would render the Disease Clauses coverage illusory.
The Prevention of Access Clauses and Hybrid Clauses
The Supreme Court also interpreted certain policies’ coverage for “loss…resulting from…[p]revention of access to the Premises due to the actions or advice of a government or local authority due to an emergence which is likely to endanger life or property” (“Prevention of Access Clauses”), and certain policies’ Hybrid Clauses, which provide coverage for:
- “[L]oss as a result of closure or restrictions placed on the Premises as a result of a notifiable human disease manifesting itself at the Premises or within a radius of 25 miles of the Premises”
- “[L]osses resulting solely and directly from an interruption to your activities caused by your inability to use the insured premises due to restrictions imposed by a public authority during the period of insurance following an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority”
The Court concluded the policyholders’ COVID-19 loss falls squarely within the coverage provided by both Clauses.
The Supreme Court rejected the application of the “but for” test to determine causation under the insurance policies. The Court, instead, held that for Disease Clauses, “it is sufficient to prove that the interruption was a result of Government action taken in response to cases of disease which included at least one case of COVID-19 within the geographical area covered by the clause.” Regarding the Prevention of Access and Hybrid Clauses, the Court found coverage for losses resulting from the covered risks, even if losses also resulted from other uninsured effects of the pandemic.
Relying in part on US law, the Supreme Court rejected the insurers’ efforts to “take away cover for losses prima facie covered by the insuring clauses on the basis of concurrent causes of those losses which do not prevent them from being covered.” The Court limited such adjustments “only to reflect circumstances which are unconnected with the insured peril and not circumstances which are inextricably linked with the insured peril in the sense that they have the same underlying or originating cause.”
Although arising from rather unique UK insurance policy provisions, The Financial Conduct Authority ruling reflects a trend, mirrored in the United States, toward interpreting coverage provisions more broadly to encompass COVID-19-related business interruption loss. US policyholders also may benefit from the opinion’s concurrent causation and Trends Clauses rulings.