Financial Conduct Authority v Arch Insurance (UK) Ltd

This appeal involves a test case brought by the Financial Conduct Authority (FCA) under the Financial Markets Test Case Scheme to clarify whether there is cover in principle for COVID-19 related losses under a variety of different standard insurance policy wordings. The appeal concerns the proper interpretation of four types of clauses: disease clauses, prevention of access clauses, hybrid clauses, and trends clauses. It also raises issues of causation, particularly in relation to how the trends clauses operate. The case has significant implications for policyholders and insurers, as it is estimated that over 370,000 policyholders and 60 different insurers could be affected by the outcome of this litigation.

The Supreme Court considered the interpretation of the disease clauses, which provide cover for business interruption losses resulting from the occurrence of a notifiable disease, such as COVID-19, at or within a specified distance of the business premises. The court held that the disease clause in RSA 3 provides cover for business interruption caused by any cases of illness resulting from COVID-19 that occur within a radius of 25 miles of the premises from which the business is carried on. The clause does not cover interruption caused by cases of illness resulting from COVID-19 that occur outside that area. The court rejected the FCA's argument that the clause should be read as covering the business interruption consequences of a Notifiable Disease wherever the disease occurs, provided it occurs within the 25-mile radius. The court found that the words used in the clause clearly indicate that the insured peril is an occurrence of illness sustained by a particular person at a particular time and place, and that the clause covers only cases of illness resulting from COVID-19 that occur within the specified radius.

The court also addressed the issue of whether General Exclusion L in RSA 3 excludes claims arising out of the COVID-19 epidemic. The court concluded that the exclusion does not apply to the cover for business interruption caused by an infectious disease, as it would obliterate that cover. The court found it unreasonable to assume that the general exclusion could have been intended to apply to the business interruption cover, as it would have been done transparently as part of the wording of the extension and not buried away in a general exclusion of contamination and pollution risks at the back of the policy.

The Supreme Court's decision provides clarity on the interpretation of disease clauses in standard form business interruption policies and the extent of cover for COVID-19 related losses. The outcome of the case is expected to facilitate prompt settlement of many of the claims and achieve considerable savings in the time and cost of resolving individual claims. The court's reasoning emphasizes the importance of interpreting insurance policies objectively and in accordance with the words used, without attempting to rewrite the wording of the policy or impose a meaning that the words cannot fairly bear.