The test case, Financial Conduct Authority & Ors v Arch Insurance [2021] UKSC 1, concerned the extent of coverage for business interruption under standard policies. Handing down judgment last week, the court considered 21 sample wordings as well as issues of causation, providing clarity for small businesses affected by restrictions imposed due to the COVID-19 pandemic. As well as the particular policies chosen for the test case, the judgment could potentially affect ‘some 700 types of policies across over 60 different insurers and 370,000 policyholders,’ the Justices said in their judgment.
The proceedings were brought by the Financial Conduct Authority (FCA), representing the policyholders, under the Financial Markets Test Case Scheme. The Justices looked at disease clauses, prevention of access clauses, hybrid clauses and trends clauses. They dismissed the insurers’ appeals and allowed the FCA’s appeals.
Stephen Netherway, partner at Devonshires, said: ‘Business owners across the UK will be jubilant at this incredibly important, final court judgment that will potentially see hundreds of millions of pounds paid out to companies in desperate need.
‘The knock-on effect of this landmark judgement, which brings this legal battle to a close, could see thousands of jobs and livelihoods being saved. Had the insurers won it would have spelled further, fatal, economic misery for those just surviving businesses.’
Dene Rowe, partner at insurance law firm Keoghs, said: ‘The focus will invariably turn to the speed of implementing the judgement and, with insurers now facing a potential avalanche of claims from policyholders, it is likely that insurers will require a technology focused approach to ensure the prompt settlement of claims.
‘Failure to respond in an accelerated way will likely risk a major reputational risk to commercial insurance brands.’
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