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FCA’s business interruption test case moves on to the UK Supreme Court

One of the most important questions following on from the judgment handed down by the Commercial Court on 15 September 2020 was whether the defendant insurers would appeal the judgment of the Court and, if so, in what manner. The comments made by Lord Justice Flaux in his judgment anticipated at least the possibility of appeals concerning certain areas of the judgment.

The answer to this question is no longer in doubt. Both the FCA and all of the insurers have made successful applications to the Commercial Court for “leapfrog” certificates enabling them to apply straight to the UK Supreme Court (the “Supreme Court”) for permission to appeal. The FCA and the insurers, with the exception of Ecclesiastical Insurance, have all now been granted permission to appeal by the Supreme Court. An expedited appeal hearing will take place at the Supreme Court over four days from 16 November 2020 to 19 November 2020. Judgment will undoubtedly be reserved.

The appeals brought by both the FCA and the remaining insurers are wide-ranging and comprehensive. Both sides seek to appeal a very large proportion of the Commercial Court’s judgment, although in the writer’s opinion some points are likely to be more successful than others. The Supreme Court will be venturing into new territory. There are a number of novel points of law raised by all of the appeals on which there is little or no Supreme Court guidance. The Supreme Court has never considered the application of business interruption insurance or the application of principles of causation to composite perils in its previous case law. The absence of established Supreme Court case law has been focussed on by both the FCA and the insurers to support their respective positions but from unsurprisingly different angles.

The judgment from the Supreme Court will stand as the final judgment in relation to the arguments raised by both sides in the Commercial Court and the Supreme Court. For that reason, it should provide guidance to policy holders and insurers alike. This will certainly be the Supreme Court’s aim with regard to the policy terms in question.

Notwithstanding this, the Supreme Court’s judgment will not necessarily act as a universal reference point for deciding the outcome of business interruption insurance claims for two reasons.

First, the FCA was selective in the policy wordings that it chose to put before the Court. The policy wordings were all from larger insurers. None of them was a classic property damage only wording. Several large insurers (such as AXA and Aviva) and a very significant number of smaller insurers were not included in the test case. The FCA has estimated that there are in fact over 700 different types of business interruption policies in existence in the UK from around 60 different insurers. It would be impossible for any court to hand down a judgment concerning such a multiplicity of policy types either in good time or indeed at all.

Secondly, as the FCA states itself, even if the Supreme Court judgment provides clarity in relation to the policy wordings in question, the assessment of damages “provides a huge element of uncertainty that is likely to delay the adjustment and payment of claims even where cover has been accepted or found”. Even if the insurers come off badly at the hands of the Supreme Court they are highly likely to raise a second line of “defence” over the actual value of individual claims.

We will report on the Supreme Court’s judgment in due course.


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