Recent Supreme Court judgment in FCA’s business interruption case provides welcome news for businesses

8th February 2021

Recent Supreme Court judgment in FCA’s business interruption case provides welcome news for businesses

Hundreds of thousands of businesses hit hard by the pandemic have been thrown a potential lifeline after a significant Supreme Court ruling.

On 15 January the Supreme Court handed down its final ruling in a high-profile test case brought by the Financial Conduct Authority (FCA), providing clarity on how certain clauses within business interruption insurance policies should be interpreted.

The Court’s judgment affects businesses which were forced to close or experienced disruption as a result of the COVID-19 pandemic. The result means that more businesses will now be able to claim insurance pay-outs under their business interruption (“BI”) insurance policies.

Julia Lowe, Head of Dispute Resolution at Higgs & Sons, said: “This will come as particularly welcome news to many small and medium sized business owners, especially those whose industries have been hit hardest by recent COVID-19 restrictions. Many policyholders whose claims were previously rejected by insurers may be able to resubmit their claims, which may offer a lifeline to their businesses.”

Background and issues 

To resolve the contractual uncertainty surrounding these varied and often complex policies as soon as possible, the FCA had brought an urgent test case in the High Court.

Most BI insurance policies only provide cover where there has been physical damage to property, which would not cover pandemic-related losses. However, some policies include specific extensions for losses caused by matters other than physical damage. For example, the wording of the policy may provide cover where there has been an outbreak of a notifiable disease within a specified area, or where there has been a prevention of use of the insured premises as a consequence of government action.

The purpose of the test case was to obtain guidance on the interpretation of such clauses and the extent to which they covered BI losses arising out of the COVID-19 pandemic. The Court was provided with a representative sample of a number of different policies.

The High Court found in favour of the FCA (for the policyholders) on most, but not all, of the key issues in its original judgment in September. Following this, the parties were then granted permission to appeal directly to the Supreme Court.

Decision and impact

The Supreme Court substantially allowed the FCA’s appeal on behalf of the policyholders, though had a different approach to the High Court in relation to several issues.

Julia added: “The Court’s judgment is complex and nuanced, but provides helpful guidance relating to various key issues at the centre of many disputes between policyholders and insurers. For example, it has clarified that insurance cover may be available for partial closure of premises as well as full closure. The effect of this is that more businesses will be able to make valid claims and/or will be entitled to higher pay-outs. In addition, the legal clarity provided by the Court will allow many individual disputes to be resolved more quickly and cheaply.

“While this decision improves the chances of success for a large number of policyholder businesses, the outcome of any claim in respect of a BI insurance policy will depend heavily on the facts of the case and the specific wording of the policy.”

The dispute resolution team at Higgs & Sons is well placed to assist with issues relating to and arising out of business insurance interruption claims.  Please do not hesitate to contact Julia Lowe on or 01384 327157 to explore how we may be able to assist you.


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