Financial Conduct Authority -v- Insurers Business Interruption Case - The Home Run

The Supreme Court will hear the appeals of the residue of the commercial insurers that remain in the Financial Conduct Authority (FCA) versus insurers (known collectively as Arch Insurance (UK) Ltd. and others) i.e. the Business Interruption case who were granted leave to appeal in a leapfrog application, enabling the case to bypass the Appeal Court and go straight to the Supreme Court.  Whilst a number of insurers decided against pressing ahead with an appeal others did not.  The complex judgment in the initial case brought by the FCA, whilst largely finding for the policyholders, contained inconsistences that the Regulator believed left some significant aspects open to manipulation by the insurers which the FCA deemed could allow the insurers to reduce their liability.  

The four-day appeal to the Supreme Court which began today will examine the initial judgment and determine aspects of the following :

  1. Disease clauses
  2. Prevention of Access Clauses
  3. Hybrid Clauses
  4. Some aspects of the Trends clauses
  5. Also, whether the analysis of the Orient-Express Hotels Ltd. versus Assicurazioni Generali S.p.A. was correct.

The case of Orient-Express Hotels Ltd. versus Assicurazioni Generali S.p.A. where the hotel attempted to claim against its business interruption clause following the extensive damage caused by Hurricane Katrina necessitating a two-month closure failed as it was judged, both by the High Court and the Court of Appeal, that the hotel would have suffered losses regardless of its closure due to the fact that the wholesale storm damage to the city of New Orleans caused by Hurricane Katrina had effectively shut down the city.  The judgment has had widespread consequences in insurance litigation and has been successfully invoked by insurers to reduce the value of business interruption claims in causation litigation matters.

Nick McEwen, an associate in the corporate and commercial litigation team commented “the coronavirus pandemic and its consequences comprise the largest and most damaging global peril faced by businesses and insurers in living memory. The judgment will define the short term and long term repercussions for both businesses and insurers.” He further commented, “there is no easy answer in the foreseeable future regardless of whether the insurers have to pay out or businesses have to lose out.”

The FCA test case is of the utmost importance to all parties which is why it has progressed at what seems to be breakneck speed for the legal world.  Giambrone’s lawyers in the corporate and commercial litigation team believe that many of the approximately 370,000 policyholders, particularly in the night time hospitality sector, will stand little chance of survival if their claims for business interruption are not honoured.  The second lockdown and with a question mark hanging over whether there will be a return to normality allowing the sector to pick up some of the crucial Christmas trade are not promising signs. 

The Supreme Court judgment will define the way forward for insurers and businesses and bring an end to the menace of uncertainty. However, the complexity of the whole issue almost certainly means that inevitably be many whose claims and policies fall between the cracks and who will require specialist legal advice to protect their position.  It would be extremely optimistic to believe that if the judgment goes against the insurers that they will give up without a fight.

For more information about how to manage commercial insurance claims please click here