The Financial Conduct Authority v. Arch Insurance UK Ltd., & Others

UK Supreme Court Case No 1 of 2021

This is a very important case for those who hold Business Interruption Insurance

 

THE KEY POINTS

For Policy Holders and for Insurance Companies in Hong Kong

  1. The Previous Year i.e. 2019 is the base year for Assessment of Loss comparisons;
  2. Trends Clauses should not be used to make adjustments for the effects of Covid 19 on the actual business year of the pandemic.  The pandemic is the triggering event itself.
  3. So any adjustment clause should be interpreted so as to exclude the effects of the Covid 19 in Pandemic in the Claim Year;  So the fact that there is an ongoing Covid 19 Pandemic for successive years, and the insured’s continuing business turnover is down, should not be taken into account.  Para 289-294  This overruled the Court below’s decision. This is most important, and insurers must take this on board.
  4. Business interruption losses before Covid 19 was pronounced as a “notifiable disease” can be claimed even if, it occurred before the local triggering event.   To exclude such losses would be against the spirit of the cover provided by the policy; Lord Briggs Para 315/6
  5. In the context of a Territory Wide Pandemic, there may not be just 1 “triggering event”, but a succession of triggering events causing the business interruption loss.   If the losses have been caused by the continuing pandemic, and continuing lockdowns, then there is cover in such a situation is otherwise illusory.   So if the insured runs a restaurant on the Isles of Scilly, he can still make a claim for business interruption loss, even though there has been no case on the islands. Lord Briggs Para 321
  6. In cases where the wording of the policy requires there to be a notifiable disease within a radius of say 1 mile from the premises, but there are many more cases outside the required area, the insurers cannot argue that it was the cases outside the area and the Administration’s response thereto, which was the “proximate cause” of the business loss.   Weighing of the dominant proximate cause by the insurer is unworkable and unreasonable. Paras198-200 202-205
  7. Sometimes clauses combine a geographical requirement and prevention of access to premises.   (Hybrid Clauses) In these cases the required chain of events have to happen in order to be able to obtain cover.  The fact the losses were also caused by other uninsured effects of Covid 19 does not exclude cover.  Paras 221-242
  8. Save in cases where a clause excludes other concurrent events, each and every outbreak is a separate insured peril which causes a Territory Wide reaction and triggers the cover.  Lord Briggs Para 319
  9. “Occurrence” equals an outbreak of the  Covid 19 virus and is a sufficient event or cause of the business loss.
  10. A “restriction by a public authority” is wide enough to cover a mere announcementsby the Chief Executive, and even though it does not have the force of law.  Each announcement after an outbreak is an “emergency” demanding mandatory closure of businesses.  Para 106- 123.  Thus one finds that a closure order may be given on a rat-infested restaurant, which is obliged to comply then and there before the court order is made. Advance closures are common in public health cases.
  11.  Where a clause covers “inability to use the premises”,  then complete closure is not required, if the closure gives significant business loss.  Thus if a bookshop obtains 80 % of its business from browsers inside the premises, and 20 % from telephone calls, then the physical closure which causes 80 % losses is “an inability to use the premises”.  Para 133   Thus if a restaurant has to close its seating areas, but continues its takeaway business, this might not be a complete inability to use its premises.  However where there was no takeaway business before, and only seated customers were served,  then this would still amount to an “inability to use the premises.”
  12.  Thus if takeaway services are subsequently provided, this will not provide a reason for an insurer to deny cover and complain there is an “inability to use the premises”.
  13. If the policy states that the occurrence has to proximately cause the loss, this can be directly or indirectly, and the earlier case of Orient Express Hotel Case is overruled.   And following Section 55 (1) of the UK Marine Insurance Act  Para  162, 299-300, 304-312
  14. So there have been first, second and third lockdowns,  and insurers cannot argue the losses were caused by the first lockdown, and if there is a second lockdown, they do not continue. .  Losses caused by the second lockdown cannot be ignored as the results are caused by the same underlying or originating cause as an insured peril.  Para 268, 287, 288.
  15. Thus in the relevant period of time, the restaurant or premises are closed pursuant to the first mandatory order for closure because Covid 19 Cases are in the Territory.  The closure order is rescinded, and then re-imposed later for the Covid 19 pandemic, so the losses continue after several “triggering events”, then the Insurers cannot argue these were separate events.  

Barrister, Wyndham Chambers