Transport & Insurance Update: Business Interruption Insurance: Insurers head to UK Supreme Court

On 15 September 2020 the High Court of England and Wales issued a ruling in a test case brought by the UK’s Financial Services Authority (the FCA). The purpose of the test case was to provide clarity on the application of certain business interruption clauses in the context of the COVID-19 pandemic. The High Court was asked to consider 21 different policy wording types with respect to two key issues:

1. whether, in the absence of physical damage to the property insured under the policies, the policies covered losses connected to COVID-19; and

2. whether a sufficient causal connection existed for losses connected to COVID-19 to trigger cover under the policies.

The ruling of the High Court (FCA v Arch Insurance (UK) Ltd and Others [2020] EWHC 2448) largely found in favour of the FCA’s broad interpretation of the relevant wordings. In particular, the court found that most, but not all, the disease clauses which covered business interruption arising from the occurrence of a notifiable disease within a specified radius of the insured premises provided cover. This meant that cover under these wordings was not limited to losses resulting from local outbreaks of COVID-19. In relation to some of the denial of access clauses considered by the court, the court found that these clauses were to be interpreted more narrowly.

The High Court did not find that the defendant insurers of all 21 policy wording types were liable. Rather, each policy had to be considered against the detailed judgment and the facts of the case to determine the correct policy response.

Following the High Court’s judgment, the FCA, six of the insurers and the Hiscox Action Group applied to the UK Supreme Court for leave to appeal. That leave was granted on 2 November 2020. The appeal commenced on 16 November 2020 and is expected to run for four days.

When the decision is handed down, it will have relevance for insurers and policyholders in the UAE and in the GCC generally. This is because the business interruption wordings to be considered by the UK Supreme Court are widely used by local UAE insurers. In many cases, they are identical. Although the decision will not have any legally binding authority on UAE courts, we expect that it will have a greater than usual persuasive value before UAE and GCC courts which are confronted with construing the same terms as those that will be considered by the UK Supreme Court.

The court’s decision is expected sometime before the end of the year. We will provide a further update when the decision is handed down.

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