Chapter 1: The FCA Test Case
The case before the Supreme Court was brought by the Financial Conduct Authority (FCA), the U.K.'s regulator of financial services firms and financial markets, as a test case for the benefit of policyholders, many of whom were small- and medium-sized enterprises. The case was commenced on June 9, 2020, and the court was asked to consider 21 “lead”policies. In a demonstration of what the English courts can do when necessity demands, it was heard just over a month later, and judgment was handed down on September 15, 2020. The FCA was substantially successful, but both it and the defendant insurers were given permission to appeal direct to the Supreme Court via the “leapfrog”procedure, bypassing the Court of Appeal. That hearing took place in November 2020, where the FCA was joined by various intervening insureds, and judgment was delivered on January 15, 2021.
The FCA Test Case dealt with three broad types of clauses:
· Disease clauses (which provide cover for BI loss resulting from the occurrence of a notifiable disease at or within a specified distance or in the vicinity of the insured premises);
· Prevention of access clauses (which provide cover from BI loss where there has been a prevention or hindrance of access to or use of the premises as a result of government or local authority action or restriction); and
· Hybrid clauses (which provide cover for BI loss resulting from an inability to use the premises due to restrictions imposed by a public authority following an outbreak of disease).
The Supreme Court accepted that the disease clauses provided cover for BI loss caused by cases of illness resulting from Covid-19 that occurred within the geographical area specified within the clause (not BI caused by cases of illness resulting from Covid-19 outside that area). However, because each individual case of Covid-19 that had occurred by the date of government action was a separate and equally effective cause of that action, that was sufficient to prove BI was a result of such government action.
The Court also concluded that an instruction given by a public authority could amount to a “restriction imposed”for the purposes of the prevention of access clauses, even if it did not have the force of law (if, from the terms and context of the instruction, compliance was required, and was reasonably understood to be required, without the need for recourse to legal powers). Clear, mandatory instructions given by the government such as “stay at home”regulations, could therefore amount to such restrictions (but not “advice or exhortations, or social distancing and stay at home instructions”).
The “inability to use” or “prevention of access” requirement would be satisfied if the policyholder was unable to use or prevented from accessing their premises for a discrete part of their business activities, or if they were unable to use or prevented from accessing a discrete part of their premises for their business activities. Meanwhile, “interruption” could encompass interference or disruption, and not just a complete cessation of business activities.
Finally, the Supreme Court held that trends clauses (which require regard to be had to the general trend in the business when assessing lost revenue) should be construed so that an insured's standard turnover or gross profit derived from previous trading is adjusted only to reflect circumstances which were unconnected with the insured peril, and not circumstances inextricably linked with the insured peril in the sense that they had the same or originating cause. In this case that meant losses should not have been adjusted on the basis that, if the insured peril had not occurred, the results of the business would still have been affected by other consequences of the Covid-19 pandemic, and the Divisional Court had been wrong to hold that cover should be reduced to reflect pre-restriction downturns in turnover due to Covid-19 that would have continued even if cover had not been triggered.
Chapter 2: The Arbitration
Perhaps inevitably, the FCA test case did not mark an end to the tale and in September 2021, an arbitration award was published in a dispute between various hospitality businesses and China Taiping Insurance (U.K.) Limited. The case concerned the interpretation of a “non-damage denial of access” clause which provided cover for interruption or interference in consequence of the closing down or sealing off of premises in accordance with police or local authority instructions, or in consequence of the actions or advice of the police or other competent local authority due to an emergency threatening life or property in the vicinity of the premises.
While arbitration awards usually remain confidential, in this case the parties agreed to make the award public due to its wider implications for other policyholders. Similarly, while an award will not bind other parties, the experience and renown of the arbitrator, Lord Mance (former deputy president of the Supreme Court) meant that significant regard was likely to be paid to his decision and reasons by future decision makers.
Lord Mance rejected arguments that a disease clause, which provided cover for BI loss in consequence of the occurrence of one of a specified list of infectious diseases that did not include Covid-19, had the effect of limiting the cover otherwise available under the denial of access clause. He also indicated that, given the Supreme Court's decision on causation in the FCA Test Case, he disagreed with the view of the Divisional Court that “in the vicinity of the premises” and “an emergency threatening life or property” meant that the policyholder would need to show that it was an emergency by reason of Covid-19 in the vicinity of the its premises (as opposed to the country as a whole) that led to government actions. However, he concluded that as, in this case, the relevant interruption had to be linked to “actions or advice of the police or other competent local authority”, cover did not extend to losses resulting from the response of the national government or central or countrywide authorities to the pandemic.
Chapter 3: A Return to the Commercial Court
Non-damage denial of access clauses also took centre stage in the next chapter of the saga - Corbyn & King Limited & Ors v AXA Insurance UK Plc  EWHC 409 (Comm). In that case, the owners and operators of various London restaurants and cafes had brought proceedings in relation to a clause that provided cover for loss resulting from interruption or interference with the business where the policyholder's access to its premises was restricted or hindered by actions taken by the police or any other statutory body in response to a danger or disturbance at the premises or within a one mile radius.
In a judgment delivered in February 2022, the Commercial Court held that while, in order for there to be cover under the clause, there would need to be a local “danger or disturbance” in the relevant geographical area, the danger or disturbance did not need to be exclusively local or something of a very local significance. Interpreting the policy by reference to what a reasonable person would understand (i.e., an ordinary owner of a small- or medium-sized business), “danger” could be said to cover disease and there was no locality restriction other than the one mile radius. The danger did not need to be local, and the “relevant authority” did not need to be local. In addition, the “danger” did not need to be “transient”.
Although there was an exclusion where the claim was a result of a notifiable disease listed in a separate clause (which did not refer to Covid), that did not mean cover for disease had been carved out altogether.
Foreshadowing future frontlines, the Court went on to consider quantum and policy limits, concluding that the policy in this instance was a composite policy (insuring the interests of a number of companies in the policyholder's group). The insurer accepted that the policyholder was entitled to a separate £250,000 indemnity in respect of each of the three government restrictions relevant to the claim; the court held that each entity that had a valid claim was therefore entitled to an indemnity in respect of each set of restrictions.
Chapter 4: The Trio of Claims
The Commercial Court returned to consideration of quantum issues in a trio of cases, Stonegate Pub Company Limited v MS Amlin Corporate Member Limited & Ors  EWHC 2548 (Comm), Greggs Plc v Zurich Insurance Plc  EWHC 2545 (Comm) and Various Eateries Trading Limited (formerly known as Strada Trading Limited) v Allianz Insurance Plc  EWHC 2549 (Comm), which were heard separately, but consecutively, in July 2022. The claimants were restaurants, bars, pubs and hospitality venues, and a “food-on-the-go” retailer, and the policies in question all concerned the Marsh Resilience Form. This included a disease clause which was subject to a £2.5m limit of liability on any one single BI loss, and a prevention of access clause which was subject to a £1m limit of liability on any one single BI loss. The policies defined a single BI loss as losses that “arise from, are attributable to, or are in connection with a single occurrence”. While insurers accepted that the insureds may have suffered some Covid-19 related BI loss caused by events covered by the policy, they contended that the amounts that could be recovered were limited.
The first question was whether BI losses could be aggregated. The High Court rejected insurers' argument that there was just one occurrence and considered that many of the alternatives put forward by insurers as to what this might be, including the initial transfer of the virus to humans, were too remote. However, governmental action, including the government's decision on March 16, 2020, to advise the public to avoid pubs, restaurants and clubs; the instructions given to all pubs, bars and restaurants to close on March 20, 2020, and not to reopen; and the announcement and implementation from September 24, 2020, of early closing and other restrictions on restaurants were relevant occurrences. The judge also rejected the policyholder's arguments that the limits applied per premises, since this was not a composite policy.
As to causation, the judge rejected arguments that in the FCA Test Case the Supreme Court had decided that each case of Covid-19 was equally the cause of governmental (or consumer) response at any given time. It could not be said that the cases in the period of insurance were equal or approximately equal as causes of the government measures during the indemnity period with the cases of the disease occurring after the period of insurance; that (subject to certain specific exceptions such as customer death and infection with long covid) cases of the disease in the period of insurance had a material negative effect on consumer behavior in the indemnity period; that Covid-19 cases during the period of insurance had caused occurrences of disease after the period of insurance; or that the prevalence of the disease at the end of the period of insurance meant the subject matter of the insurance had sustained its “death blow” (the “death blow” principle being inapplicable to a case in which there were losses covered by covered events in the period of insurance, and further losses caused by different occurrences after the period of insurance which were not covered events). However, it could be said that the cases of Covid-19 that constituted covered events caused losses due to the continuation of the first lockdowns to July 2020.
Finally, the court addressed the effect of government support payments such as grants to employers under the Coronavirus Jobs Retention Scheme and grants for payment of business rates under Business Rates Relief on the claims. The basic indemnity in the policy covered a fall in standard turnover, less costs normally payable out of turnover that had ceased/reduced due to a covered event. It was accepted that employment costs were normally paid out of turnover and that grants under the Coronavirus Jobs Retention Scheme were a consequence of the pandemic. To the extent that employment costs were defrayed by the government under the scheme, they were reduced, and so had to be taken into account in assessing the sums that the insured could recover. If business rates would have been paid out of turnover, the same analysis applied.
Epilogue: An End in Sight?
Although the FCA Test Case, and the decisions which followed, resolved many of the uncertainties around Covid-19 BI claims and enabled policyholders to recover under their policies, many questions are still awaiting answers.
Permission to appeal in the Stonegate, Greggs and Various Eateries cases has been granted in relation to various issues, including the effect of government support payments on loss and aggregation, with a five-day hearing anticipated for before Christmas 2023.
In the meantime, judgment is awaited in the case of World Challenge Expeditions Limited v. Zurich Insurance PLC, a case brought by a student travel company under a corporate personal accident and business travel insurance policy rather than a BI policy. The case was heard in April 2023, and concerns various issues, including construction of the relevant insuring clause, the application of an event limit clause and the effect of various estoppels.
Judgment is also awaited following a preliminary issue hearing in six sets of proceedings concerning “at the premises” cover, of which London International Exhibition Centre PLC v Royal & Sun Alliance is the lead case. However, the court has already handed down judgment in one of those cases, PizzaExpress Group Limited & Ors v Liberty Mutual Insurance Europe SE & Anr  EWHC 1269 (Comm), on a separate issue, concluding that a £250,000 sub-limit under the policy applied to “any one occurrence” rather than something narrower.
Finally, issues as to non-damage denial of access cover and credit for furlough payments are to be examined again in seven further sets of proceedings, of which Gatwick Investment Ltd t/a Crowne Plaza London Gatwick Airport & Ors v Liberty Mutual Insurance Europe SE is the lead case. That hearing is expected to take place in October 2023.
In the meantime, the judiciary has invited parties to other cases involving Covid-19 related issues to identify them so the Commercial Court can consider whether any further coordinated case management is appropriate. Notably the judiciary specifically refers to section 13A Insurance Act 2015, which requires an insurer to pay claims within a reasonable time, suggesting this issue might be the next chapter in the BI Covid-19 claims saga.
Richard Leedham and Leah Alpren-Waterman are attorneys in the London office of Mishcon de Reya, and typically represent policyholders.