No more interruption for policyholders?

Mon, 18 Jan 2021

Maria Mulla and Changez Khan consider the decision of the Supreme Court in Financial Conduct Authority -v-Arch Insurance (UK) Limited & Ors [2021] UKSC 1

The Supreme Court handed down its much-awaited judgment on Friday 17th January 2021.

The appeal was heard urgently under the Financial Markets Test Case Scheme to clarify whether there is in principle cover for COVID-19 related losses under a variety of standard insurance policy wordings.

It is estimated that some 370,000 policyholders could be impacted by the outcome of the decision. Many who felt they did not have a claim (following the decision in the Court below) may now have a claim following this determination.

The Court firstly considered the proper interpretation of clauses:

  • Disease clauses

These clauses are clauses which provide insurance cover for business interruption loss caused by the occurrence of a ‘notifiable disease’ at or within a specified distance of the policyholder’s business premises. Considering the sample clauses (RSA 3, Argenta, MSA 1, MSA 2, and QBE 1 -3) the Court concluded that the disease clause is properly interpreted as providing business interruption caused by any cases of illness of COVID-19 that occurs within a geographical radius (specified within the policy) from which the business is carried out.

  • Prevention of access clauses

These clauses apply where access is prevented to a premises. The Court considered the Arch, RSA1 (hybrid clause), and the Hiscox 1-4 (Hybrid clause) and interpreted this aspect wider than the court below which determined that an ‘inability to use’ entailed a complete inability to use the premises save for a use that is de minimis.

The Court held that the requirement is satisfied either if 1) the policyholder is unable to use the premises for a discrete part of its business activities or 2) if it is unable to use a discrete part of its premises for its business activities.

The Court emphasised that these cases will be fact specific. The Court provided the example of a department store which has to close all of the store except its pharmacy as potentially being an inability to use a discrete part of its business premises.

Interestingly on the interpretation of ‘interruption’ the Court found that the ordinary meaning of ‘interruption’ is quite capable of encompassing an interference or disruption which does not bring about a complete cessation of business activities and which may even be slight.

The Court then turned to the issues of causation and quantum:


The insurers argued that there was no causation. In any given case, a local occurrence of COVID-19 had not been the true cause of the business interruption. It could not be said that “but for” a local case, there would have been no lockdown: rather, lockdown was a nationwide measure taken in response to the national spread of the virus. The Supreme Court rejected this argument. Its view was that all individual cases of COVID-19 – whether local or further afield – had been equal and indivisible causes of the lockdown. They had all contributed to the Government’s decision and the consequent business interruption.

In the case of prevention of access/ hybrid clauses, however, the Supreme Court recognised that proving a liability to pay-out would be trickier. Liability would be engaged only if all the elements of the clause operated in the correct causal sequence.


The Court also considered the operation of so-called “trends clauses” in the policies. Such clauses go to the calculation of loss. When comparing pre-/ post-COVID turnover, they allow an insurer to make adjustments to reflect “special circumstances” or “business trends”. However, the Court considered that an insurer cannot simply nullify a loss by treating the national lockdown as a special circumstance, which eclipses any loss caused by local COVID cases.

Nor can an insurer adjust the loss downwards to reflect the growing public anxiety in the weeks leading up to lockdown. The Court held that the overall principle is that losses must be assessed as if there had been no COVID pandemic. This is an important safeguard and prevents abusive arguments by an insurer on quantum.


It is hoped that the determination will now facilitate prompt settlement of many claims.

Maria Mulla and Changez Khan will be hosting a webinar where these issues will be explored in more detail and where guidance will be provided on claims for lost profits.

Details on registration on this webinar will be available on our events page in the near future.

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