Key facts on Covid-19 Business Interruption insurance from FCA test case


On 19 March 2020, the UK found itself in a national lockdown as a result of the Covid-19 pandemic and many business were forced to close their doors for a period of time and sustain significant financial losses as a consequence.

A large number of those businesses made claims for their losses under their Business Interruption (BI) insurance policies. However, many found that their policies were either inadequate or that their claims were being rejected. This led to widespread concerns about the lack of a positive response from some insurers and the basis on which they were refusing Covid-19 related claims.

FCA test case on behalf of policyholders

The FCA sought to resolve this contractual uncertainty and brought, on behalf of policyholders, a test case against eight insurance companies including Arch Insurance (UK) Ltd; Argenta Syndicate Mangement Ltd; Ecclesiastical Insurance Office Plc; Hiscox Insurance Company Ltd; MS Amlin Underwriting Ltd; QBE UK Ltd; Royal & Sun Alliance Plc and Zurich Insurance Plc.

The High Court was asked to consider a representative sample of 21 BI policy wordings and to assess whether those BI policies covered losses resulting from the Covid-19 pandemic. They were also asked to consider whether there was the necessary causal link between the losses suffered by the policyholders and the pandemic. The matter proceeded to an eight-day hearing towards the end of July 2020. Judgment was handed down on 15 September 2020.

Supreme Court judgment favours claimants

The High Court ruled in favour of policyholders on the majority of the issues in September 2020 and made a number of declarations. The FCA and several of the insurers then appealed which was fast-tracked to the Supreme Court.

The appeal was heard in November 2020. The Supreme Court judgment was then handed down on 15 January 2021 and provides clarity on the matters in the test case.

The Supreme Court substantially allows the FCA’s appeal and dismisses those of the insurers.

Recommendation for policyholders

The FCA has been actively encouraging insurers to take a ‘pragmatic, transparent and consistent’ approach with policyholders when discussing outstanding claims pending the outcome of the Court process.

It will take some time for the insurance industry and affected policyholders to digest the complex and lengthy judgment but it is clear that insurance pay-outs will be triggered under certain “no damage” clauses that cover disease and/or denial of access to business premises and that any such pay-outs should put a business or organisation in the position that they would have been had Covid-19 not occurred.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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