FCA test case on BI insurance: The Supreme Court judgment

The Supreme Court has handed down judgment in the FCA Business Interruption Test Case. It has held resoundingly in favour of the FCA (on behalf of the policyholders) in relation to all types of clause under consideration - "disease" clauses, "Prevention of Access" clauses and "Hybrid" clauses.

In relation to disease clauses, the Supreme Court agreed with insurers (and disagreed with the 1st instance court) that the insured peril was the individual occurrence of a notifiable disease within the radius specified by the policy, rather than the disease as a whole (provided there was an instance of the disease within the radius). However, via an innovative approach to causation, the Supreme Court has held that the individual occurrence(s) of the disease within the radius caused the policyholder's Business Interruption losses. Despite accepting that the lockdown would have been imposed even in the absence of any individual occurrence - ie, despite accepting that the individual occurrence did not cause the loss in a "but for" sense - the Supreme Court has held that the causal test which the parties must be taken to have agreed in relation to these disease clauses did not require 'but for' causation. Rather, each individual case within the policy radius, in combination with the thousands of cases outside the radius, was a concurrent proximate cause of the loss.

The Supreme Court has also overturned significant gains which the insurers of the Prevention of Access and Hybrid clauses had made at 1st instance - holding that any 'pre-trigger' downturn in revenue was not to be used in calculating the losses after the policy was triggered; and stating that the trends clause, in reducing quantum, could only take into account circumstances or trends which had nothing to do with the insured peril or their originating cause, namely the pandemic. Finally, despite the fact that two members of the Supreme Court giving the leading Judgment (Lords Hamblen and Leggatt) had decided the Orient Express case 10 years ago (on which the insurers relied in relation to causation and the operation of the trends clause), the Supreme Court held that that case had been wrongly decided, and overturned it.