Despite the challenges faced in 2020 and notwithstanding the difficulties of working from home, the UK Courts continued to operate with trials conducted remotely, with a number of significant judgments handed down in the last year. This alert considers some of the key decisions in the financial services sector from the past year, and considers what we might expect in the sector in the year to come.
The Financial Conduct Authority v Arch Insurance (UK) Limited & Ors
One of the biggest cases of 2020 was the Financial Conduct Authority’s (the “FCA”) test case which it brought to try to resolve the legal uncertainty regarding the interpretation of common business interruption policy wording in light of the Covid-19 pandemic. This was the first case brought under the Financial Markets Test Case Scheme, which can be used in Financial List claims which raise issues of general importance on which there is no precedent and immediately relevant authoritative English law guidance is needed, and there need not be a cause of action between the parties.
The FCA commenced the proceedings on behalf of consumers, representing the interests of the policyholders, against 8 defendant insurers. The case started in the High Court in June 2020 – the expedited trial commenced on 20 July 2020, 17 weeks after the UK’s lockdown commenced, and a decision was handed down 7 weeks later. Given the importance of the case, a “leapfrog” appeal directly to the Supreme Court was granted and that appeal was heard in November 2020, and the judgment handed down in January this year.
The test case considered 21 different sample policy wordings, addressing a sample of non-damage business interruption wordings that had insuring clauses falling into three broad categories:
- Disease clauses, which provide cover for business interruption losses resulting from the occurrence of a notifiable disease (i.e. Covid-19) at, or within a specified distance of, the insured premises;
- Prevention of access clauses, which provide cover for business interruption losses resulting from public authority intervention that prevented or hindered access to or use of the insured premises; and
- Hybrid clauses, which combine the main elements of the disease and prevention of access clauses.
The High Court judgment contains a great amount of detailed analysis on each of the sample wordings considered and for each sample, the Court determined what peril was covered by the policy and specified exclusions. As a general comment the Court’s conclusions were favourable to policy holders’ interest in the majority of the key issues (i.e. the position put forward by the FCA) with the FCA reporting that of the disease clauses considered, “most, but not all” provided cover; and in relation to denial of access clauses, “certain” of the sample policies provided cover.
The insurance companies appealed, and the FCA cross-appealed on certain points also. The matter went straight to the Supreme Court.
The Supreme Court substantially dismissed the insurers’ appeals against the High Court decision and allowed the FCA’s appeal. In effect, the Supreme Court upheld the High Court’s judgment, albeit based on different reasoning in some important respects.
Although the judgment is likely to assist many policyholders in their business interruption claims, there are a number of issues that have been left unresolved by the Supreme Court judgment, for instance how a policyholder will establish the presence of one or more Covid-19 cases within the policy’s geographical area and how policies requiring physical damage will be interpreted. We expect these issues will be considered further this year. Also, while the judgment relates to 21 sample policies, affecting several hundreds of thousands of policy holders, there is still uncertainty for those policy holders with similar but different policy wording. Again, these are likely to form the basis of further disputes in the year ahead.
Full details of the Supreme Court judgment are set out in our alert UK Supreme Court Resolves Test Case on Covid-19 Business Interruption Losses.
Even though this was the first time a test case had been commenced in the five year pilot period, the scheme has now become a permanent feature of the practice directions (see PD63AA). Given the success of the pilot in the FCA’s business interruption insurance case, we expect the process will be used again, particularly by the…
Read More: 2020 in Financial Services – Lexology