November 30, 2020

FCA business interruption appeal


FCA Test Case Update – Appeal Date Set for 16 November 2020


Ascend FCA Business Interruption Test Case – Update


At a ‘Consequentials’ hearing on 2 October 2020, the FCA, named insurers and Hiscox Interveners were given certificates to enable them to appeal to the Supreme Court. The Supreme Court agreed to hear the appeal; however the short timeline has surprised many. This is excellent news for policyholders, particularly those who have claims being held in abeyance, awaiting the outcome of the appeal.


A statement from the FCA about the case outcome, together with summary of the key points of the decision can be found on the FCA’s website HERE.


The hearing will take place by video link, starting on Monday 16 November and is anticipated to last for four days. The appeal will be heard by five Supreme Court judges: Lord Reed, Lord Hodge, Lord Kitchin, Lord Hamblen and Lord Leggatt.


Specifically, these appeals concern the construction of certain provisions in insurance policies, written by the Appellant Insurers, and held by a range of policyholders, which purport to provide coverage in the event of business interruption as a result of COVID-19. The FCA, the Appellant Insurers and the Hiscox Interveners appeal on several points.


In general terms, the Supreme Court will consider appeals around the following two points:



– Disease Clauses” – Construction and interpretations of occurrence, triggers and vicinity issues in relation to COVID-19.

– “Prevention of Access Clauses” (i.e. those triggered by public authority intervention preventing access to, or use of, premises as a result of COVID-19).

– “Hybrid Clauses” (i.e. those clauses which contain wording from both Disease and Prevention of Access Clauses).


Was the High Court correct?

– To apply certain counterfactual scenarios in relation to the operation of the clauses in relevant policies which provided for loss adjustment (the “Trends Clauses”), and:

– In its analysis of Orient-Express Hotels Ltd v Assicurazioni Generali S.p.A.


In layman’s terms, the ‘counterfactual’ is the position insurers should adjust the loss against, being the position ‘but for the loss’. In Orient Express, insurers succeeded in demonstrating that the counterfactual was the fact that all surrounding events had taken place, (i.e. widespread flooding and devastation due to Hurricane damage) rather than the alternative belief that the counterfactual should have been to adjust the claim as though Hurricane Katrina had not happened at all.


It should be remembered that the scope of the case and appeal is limited; they will not be considering the following:


•             Damage (it is accepted in the UK that losses flowing from ‘disease’ have not occurred as a result of damage)

•             Specified Disease cover (where the list of covered diseases does not include COVID-19)

•             Disease at the premises – this was not part of the case as coverage could be considered as clear on this point

•             Pandemic exclusions

•             Loss of Attraction extensions (they mainly require damage in the vicinity, but wordings need to be individually                       considered in respect of findings for non-damage extensions)

•             Aggregation

•             Stacking of limits


What this means for policyholders


Whilst the FCA case in the High Court sought clarity for policyholders and insurers alike, the decisions of the judges were so nuanced and subject to individual interpretation that the matter did not move on as significantly as hoped, despite early press reports of a significant victory for policyholders. The reality is, that whilst some insurers are pressing on to obtain the financial information from clients, the vast majority of insurers are not prepared to fully adjust losses until the determination by the Supreme Court, particularly in respect of the ‘trends clause’ which, if this overturns the decision from the High Court, has the potential to significantly reduce or potentially remove the ability to claim for many policyholders.

Whilst Zurich and Ecclesiastical have decided not to appeal and RSA has decided to appeal on only two of their four contested wordings, the reality remains that whilst they are not appealing against the interpretation of their specific policy wording, they also will await the outcome of the ‘wide area damage’ test amongst the other key elements.

The case is due to conclude on 19 November, however we have not been given any timelines as to when the Supreme Court will deliver its decision. It is likely to be before year end, though this is speculation. The urgency with which this appeal is happening is good news for policyholders, as clarity is vital to help every affected business move forward.


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