Supreme Court backs policy holders in FCA test case on COVID-19 insurance claims

In June 2020, the Financial Conduct Authority (FCA) issued an expedited test case in the High Court to address the uncertainty as to whether non-damage business interruption (BI) insurance policies cover losses sustained as a result of COVID-19. The conclusions reached by the judgment varied significantly between different policy wordings, but many were found to provide cover. The judgment was appealed and heard by the Supreme Court in November 2020. On 15 January 2021, the judgement was handed down, dismissing the insurers’ appeals and supporting policy holders.

The FCA test case and High Court judgment

The case covered a variety of insurance policy wordings and it was estimated that as many as 370,000 policyholders were affected with claims totalling approximately £1.2 billion. The BI insurance related to cover for non-physical damage, such as denial of access (prevention of access clauses), or cover related to infectious diseases (disease clauses).The High Court previously found that most of the disease clauses and certain prevention of access clauses provided cover and that the pandemic and the Government public response caused the BI losses.

The Appeal

Six of the eight insurers appealed the High Court decision, and the FCA and the Hiscox Action Group also appealed on a number of issues.

Overall the appeal related to:

  1. The interpretation of “disease clauses”
  2. The interpretation of “prevention of access” clauses
  3. The causal link required between BI losses and the occurrence of a notifiable disease
  4. The effect of “trends clauses”
  5. The significance in quantifying BI losses which occurred before the cover was triggered
  6. The status of the decision in the Orient Express case.

All parties were granted permission for a ‘leapfrog appeal’, where the case bypasses the Court of Appeal and is appealed directly to the Supreme Court.

Supreme Court judgment

The Supreme Court dismissed the insurers’ appeals and ruled there would be cover under 14 of the 21 types of polices included in the test case.

Disease clauses

The High Court had previously accepted the FCA’s submissions that cover was not confined to situations where the BI resulted only from cases of a notifiable disease within the 25 mile radius; and given the policies covered diseases which could spread rapidly, it did not make sense to confine cover to the effects of local occurrences only.

However, the Supreme Court reached a different view, although the ultimate position as to cover remained unchanged due to their findings on causation. It focused on the requirement for an occurrence of the disease within the specified area, by a particular person at a particular time and place. Consequently, BI was only covered where it was caused by any cases of illness resulting from COVID-19 that occur within 25 miles of the insured premises.

Prevention of access and hybrid clauses

The High Court had previously adopted a narrow interpretation of such clauses, determining instructions to close would need to be mandatory terms with the force of law. Instead, the Supreme Court concluded that an instruction from a relevant authority could amount to a “restriction imposed” if it carried the “imminent threat” of legal compulsion or where it is “in mandatory and clear terms and indicates that compliance is required without recourse to legal powers”. The Court was also willing to adopt a wider definition of “inability to use” premises, accepting that a partial inability to use or reduced use of premises may be sufficient.


The Supreme Court was prepared to move away from the “but for” test in circumstances where it would be inadequate. Whilst the insurers argued there should be a connection between an individual case of Covid-19 within a geographical location and the BI loss for which a claim was being made, the Court accepted the FCA’s argument that where there are multiple cases of Covid-19, that each individual case was an equally effective cause for government measures and BI losses. Moreover, given that government measures are often taken for different regions at once, the Court rejected the insurer’s argument that loss had to be caused by a case of Covid-19 within a 25 mile radius. The Court goes into substantial detail regarding causation and the resulting judgement is likely to have an impact on this issue beyond the world of insurance.

Trends clauses

The Court provided clarity as how to trends clauses should be interpreted, rejecting the insurers’ view that the amount of recoverable losses should be reduced to take account of the negative impact of the uninsured effects of Covid-19. Instead, matters inextricably linked to the insured peril should be considered.

The significance of BI losses which occurred before the cover was triggered

The Supreme Court rejected the High Court’s analysis and were sympathetic to policy holders, ruling claims should not be reduced by reason of the circumstances caused by the source of the insured peril pre-trigger, i.e. where a business had closed in reliance on Government advice before it subsequently became mandatory for them to do so the quantum of its claim should not be reduced.

Orient Express

This case was a controversial decision arising out of damage caused to a hotel by hurricanes in New Orleans, where it was decided the hotel could not claim for BI losses caused by property damage, as on the application of the “but for” test of causation, it would have suffered the BI losses regardless of the property damage, due to the serve access restrictions to the city.

The High Court had distinguished this case, but suggested, had it been relevant, they would have declined to follow the decision. However, the Supreme Court stated the case should be overruled, based on the reasoning in relation to causation and trends clauses as set out above.

This meant that Lord Leggatt and Lord Hamblen overturned their own decision from the Court of Appeal (Orient-Express Hotels Limited v Assicurazioni Generali Spa (UK) [2010] EWHC 1186 (Comm)). In so doing the Court quotes Lord Westbury who said of himself while overturning one of his prior judgements “I can only say that I am amazed that a man of my intelligence should have been guilty of giving such an opinion.” The Supreme Court justices concluded by saying that they invoked whatever ways by which they might “gracefully and good naturedly” surrender “former views to a better considered position”.

What happens next

Insurers will now need to determine how much each policy holder is entitled to receive, where cover is triggered, based on the guidance in the judgment and further guidance to be published by the FCA. The FCA has encouraged insurers to provide interim payments to affected policyholders where possible.


The swift resolution of the test case and the expedited process is likely to be welcomed across the industry by both policy holders and insurers. The Supreme Court’s willingness to include cover for partial closures of business is significant and will offer relief to many policyholders. In addition, the Court’s pragmatic approach to causation will make it challenging for insurers to deny cover. Whilst the timetable of the case was ambitious, it has been successful in delivering clarity and has set a precedent for regulators bringing expedited public interest litigation.

Perspectives on test case
Perspectives on High Court judgment
High Court judgment
Supreme Court judgment

With thanks to intern Lisa Mildt for her assistance with this blog. 

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