On 15 January 2021 the UK Supreme Court upheld the High Court's original test case determination as to COVID-19 business interruption insurance: The Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1.

The decision is the most recent in a line of cases in the UK and Australia to explore the effect and validity of certain extensions and exclusion clauses contained in business pack insurance policies offering business interruption cover. From a local point of view, the decision will be contemplated by the Insurance Council of Australia (ICA) and the Australian Financial Complaints Authority (AFCA), to determine whether similar issues should be vented in the Australian test cases. Those Australian test cases are exploring similar, but not identical, policies and wordings to seek a satisfactory legal position in the local market.

The UK Supreme Court was tasked with reconsidering the issues determined by the High Court last year. The decision involved an assessment of 21 exemplar insurance policy wordings from eight insurers in the UK market. The Court considered afresh whether the policies could respond to certain types of business interruption loss that affected insureds during the Novel Coronavirus SARS-CoV-2 (COVID-19) pandemic.
 

“In brief, the UK Supreme Court dismissed the insurers' appeal and held in favour of the Financial Conduct Authority (FCA). The insuring clauses in dispute will cover business interruption caused by COVID- 19.” 

Insurance Claims & BI Policies

It has become increasingly clear that the global COVID-19 pandemic has led to increasing losses to a myriad of business types. This is due to the disease itself, interruption to trade, and government-mandated closures among other factors. In turn, the insurance market has experienced an upswing of insurance notifications against various policy types. In Australia, the policies against which most claims have been notified are Industrial Special Risks (ISR) and business pack insurance for small to medium businesses. Insurers have been working to assess each notification on its facts, and respond to the notifications, with varying effect.

The business interruption policies in question in the UK Supreme Court were issued by insurers to small, medium and large businesses. Similar, but not identical, insurance policy types are also common in the Australian market. Such policies are ordinarily intended to cover damage and loss to business premises, but add cover in certain circumstances where the business suffers consequential loss of profit and any additional expense consequent upon the original physical loss.

Classically, the business interruption cover in those policies would trigger following incidents such as floods, fires and building collapses. However, a large number of those policies also extend to cover other incidents which do not strictly result from damage to the property. Those types of cover are being examined by numerous courts in order to provide clarity to the true purpose and effect of those policies – particularly where insurers in general did not intend to cover highly contagious transmissible disease (such as COVID-19) in those policies.

Background facts to the case

The background facts to the case are now well-known, and reflect similar facts to the state of affairs in Australia. They are set out in more detail in our article on the original test case determination.

The Court re-examined three specific categories of policy wording arising from the 21 exemplar policies assessed:

• 'Disease clauses' — these were sections of the insurance policy which afforded business interruption cover in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises. Considering the High Court's original decision, the Supreme Court effectively found that insureds under would only be able to recover if they could show that disease cases in that local area (but not elsewhere) were the cause of their business interruption. This was subject to the specific policy wording in question.
• Prevention of access / public authority clauses — these were policy sections which afforded business interruption cover in the event of a prevention or restriction of access or use of the insured's premises as a consequence of government or other authority action or restrictions. The Supreme Court indicated that the restriction did not need to necessarily have the 'force of law' to trigger the policy. Further, where a policy covered loss due to 'inability to use' the premises, it could be sufficient for an insured to establish that they could not use part of the premises. However, a mere hindrance of use would not qualify as 'inability to use'.
• Hybrid disease & prevention clauses — these were a hybrid of the first two categories, where policies featured cover which would be triggered by restrictions imposed on the premises in relation to a notifiable disease. Practically, the hybrid clauses should be dealt with by considering the principles set out in relation to the Disease Clauses and the Prevention of Access Clauses noted above.
  The UK Supreme Court also considered causation (whether the insureds would have suffered the same or similar losses even if the insured peril had not occurred), and the 'Trends Clauses' (whether the loss is to be quantified by reference to what the business performance would have been in the absence of the occurrence of the insured peril).

Practical takeaways for Australia

As previously reported in relation to the High Court's decision, the Supreme Court's revised interpretation of the policies will assist a large number of insureds in assessing whether their particular circumstances fall for cover under the Disease Clauses, Prevention of Access Clauses or Hybrid policy wordings.

As noted above, the Australian test cases are still ongoing and have not yet been required to address the scope or extent of issues that were canvassed by the UK Supreme Court. However, in light of the Supreme Court's decision, we anticipate the Australian market will seek to clarify similar issues that arise under Australian policies. Until then, the common law doctrine in England and Australia dictates that, while compelling, the English Court's determination is not strictly binding on Australian courts and should be considered a guide only until the questions are raised in Australian courts.

Find out more about the case in our article, COVID-19 business interruption insurance: UK Supreme Court test case details.