Update: Business interruption insurance test case – Supreme Court Judgment

Following on from our previous blog on the test case proceedings commenced by the Financial Conduct Authority (FCA), which were issued in order to provide clarity for policyholder’s seeking to rely on their Business Interruption Insurance (BI Insurance) as a result of losses caused by the COVID-19 pandemic, subsequent appeals were issued by the FCA and the Defendant Insurers and the Supreme Court has now delivered its decision.

The High Court Judgment had found in favour of policyholders and confirmed that:

  • most of the disease clauses provided cover;
  • certain prevention of access clauses provided cover; and
  • that the COVID-19 pandemic and the UK Government’s response had resulted in BI losses

The FCA and the Defendant Insurers were unable to reach an agreement as to what this would mean for policyholders and the parties issued their respective appeals on specific points in order to get further clarity from the Court.

The basis of the Defendant Insurers appeals related to specific points of policy construction, causation, trend clauses and case law (in particular, the approach of the Commercial Court in its decision in the Orient Express case).

The Supreme Court unanimously dismissed the Insurers appeals and allowed all four of the FCA’s appeals, and the decisions is summarised as follows:

(1) Disease Clauses

Generally, a disease clause will provide cover for losses resulting from BI due to a ‘notifiable disease’ within a ‘specific radius’ of the premises, for example a 25-mile radius.

From the sample policies considered, the High Court had determined that cover would not be limited to losses arising from a notifiable disease within a 25-mile radius and that notifiable diseases included diseases capable of spreading rapidly and therefore cover should not be confined to a local occurrence.

During the appeal to the Supreme Court the Defendant Insurers tried to argue that there would only be cover if a notifiable disease occurred within the specified radius of the premises. To the contrary, the FCA argued that it would be impossible to show that BI losses resulted from the local occurrences of the disease as opposed to the wider pandemic and the UK Governments response.

In its decision the Supreme Court concluded that disease clauses should be interpreted more narrowly in that cover should be provided for BI losses caused as a result of any occurrences of a notifiable disease within the specified radius, that each case of illness sustained by an individual within that radius would amount to a separate occurrence and that the ‘notifiable disease’ is the illness suffered by an individual as a result of the disease (within the radius) and not the pandemic itself.

Whilst the Supreme Court took a narrower approach than the High Court in the interpretation of disease clauses, as a result of its determination as to causation, ultimately its findings did not change, and cover would remain operative in the wider area.

(2) Causation

When considering the insured peril, otherwise known as the damage causing event (i.e. the COVID-19 pandemic and the UK Governments response), one key issues for the Court to consider was whether the interruption to the business and the resulting losses was the UK (or global) restrictions caused by Covid-19 or the UK government’s response to the disease or whether it was something else entirely.

The Defendant Insurers argued that because of the widespread nature of the global pandemic businesses would have suffered the same BI losses even if the insured peril had not occurred within the specified radius and therefore cover would not be available. It was the Defendant Insurers case that it was necessary for policyholders to show as a minimum that the loss would not have occurred but for the insured peril.

The Supreme Court rejected the Defendant Insurers argument holding that the but for test was not decisive in concluding whether the test for causation had been met and that as the UK Government introduced measures in response to the COVID-19 cases in the UK as a whole, that it would be sufficient for policyholders to show that BI losses was ‘proximately caused’ by one or more occurrence of the disease.

(3) Prevention of access and hybrid clauses.

Prevention of access clauses would typically provide cover for BI losses incurred as a result from public authority intervention which would restrict use or access to the premises, whereas hybrid clauses combine the core elements of both disease and prevention of access clauses.

In respect of the disease element, the Supreme Court reached the same conclusion as it did for the disease clauses (as set out above).  Regarding the prevention of access clauses, the Defendant Insurers position was that the public authority intervention that was required to trigger prevention of access clauses had to be mandatory under the law and therefore as the Government’s ‘stay home instructions’ did not form part of UK Statute until the 21 and 23 March 2020 regulations, any losses sustained prior to these regulations would not be covered.

The Supreme Court rejected this interpretation that prevention of access clauses would only apply to restrictions which were ‘imposed under the law’ upon the basis that the interpretation was too narrow. In its decision the Supreme Court affirmed that an instruction from a public authority could amount to a “restriction imposed” if it carried the threat of legal force (such as a fine), is in mandatory and clear terms and indicates that compliance is required without the use of legal powers.

The Supreme Court’s interpretation of the prevention of access and hybrid clauses was far wider than that given by the High Court and it is this element of the policy that policyholders should revisit considering this Judgment to determine whether they now have a valid claim.

(4) Trends Clauses

Trend clauses form part of the quantification element of policies and are there to guarantee that the indemnity is reflective of the cover within the policy and is not reduced (or inflated) by outside factors unrelated to cover.

It was the Defendant Insurers argument that due to the wider impact of the Covid-19 pandemic they were not liable to indemnify for losses which would have arisen in any event. As this argument relied upon the application of the ‘but for test’, it was once more rejected by the Supreme Court.

It was the Supreme Court’s findings that Trend Clauses are included in policies for the purpose of quantifying loss based upon the businesses results in the previous years (after adjusting account for trends/other circumstances affecting the business) and accordingly, should not be interpreted as a mechanism for the Insurers to reduce or exclude cover.

As a result, the Supreme Court held that any effects stemming from the pandemic should be disregarded when assessing trends for the purpose of calculating business losses and should be constructed so that standard turnover or profit from previous trading years should only be adjusted to reflect circumstances unconnected with the insurer peril.


The Supreme Court judgment provides long-awaited guidance for businesses on the scope of their cover for COVID-19 related BI losses. Whilst this judgment will be binding on the sample of insurer’s party to these proceedings, it provides helpful guidance to insurers and policyholders with similarly worded policies. With the Supreme Court taking a more flexible approach to the Prevention of Access and Hybrid Clauses policyholders should ensure that they are revisiting clauses within their own policies to assess whether their coverage position is more favourable as a result of this decision.

How Tolhurst Fisher can help

Should you have any queries in respect of the extent of your Business Interruption Insurance and/or a claim under your Business Interruption Insurance, please contact a member of the Litigation Department on 01702 352511

Author: Amy Hadley