Global menu

Our global pages


FCA Test Case – Supreme Court Judgment

  • United Kingdom
  • Insurance and reinsurance
  • Litigation and dispute management


Supreme Court Broadens Circumstances in which Covid-19 BI Policyholders can recover

15 January 2021 - The Supreme Court has today widened the circumstances in which business interruption insurance policyholders affected by the FCA Covid-19 Test Case can recover their losses. The Judgment decides a “leapfrog” appeal of the High Court Judgment delivered last September which also granted policyholders a significant victory. We set out our preliminary observations below.


The FCA brought the Test Case in June 2020 to seek judicial clarification of the extent to which certain non-damage “disease clauses” and “prevention of action” clauses in business interruption insurance policies would respond to losses arising out of the UK Government Lockdown measures taken to combat the spread of Covid-19 in March 2020.

The Test Case was brought against 8 defendant insurers who between them had issued the 21 sample policy wordings to be considered by the High Court. The parties agreed to expedite the case timetable given the importance of the decision to the affected policyholders.

In July 2020 the FCA issued guidance to all insurers and intermediaries falling under its jurisdiction in which the FCA confirmed that insurers would be expected to apply the outcome of the Test Case to the extent that it affected the policy wordings which they issued. On that basis the FCA estimates that over 370,000 policyholders will be affected by the Test Case.

High Court Decision

The High Court issued its ruling in September 2020. The Court found that policyholders would generally be able to establish cover under policies containing “disease clauses” which cover losses arising from the occurrence of a notifiable disease within a specified radius or vicinity of the insured premises (typically 25 miles). The Judgment determined that policyholders did not have to distinguish the effects of the nationwide outbreak from the effects of the local outbreak within the relevant area, in order to establish that they had suffered a loss caused by the occurrence of the notifiable disease. It was held that the clauses covered the effects of the nationwide outbreak of the Notifiable Disease provided that it could be shown that there was one undiagnosed case within the relevant policy area.

The “denial of access” clauses encompassed a broad range of wordings providing cover where there had been prevention or hindrance of access to or use of the insured premises as a consequence of public authority action of some kind. The Court interpreted these more narrowly, ruling that they were intended to provide narrow localised cover and that action taken in response to the nationwide pandemic would not suffice.

The Court also identified a category of “hybrid” clauses which included elements of disease clauses and elements of denial of access clauses. Usually they specified that there was an occurrence of disease which had led to restrictions imposed on the insured premises by a public authority.

The Court gave a narrow construction to phrases such as “restrictions imposed” in that it held only public authority instructions in mandatory terms with the force of law would qualify. The effect of this was that certain Government “advice” regarding Covid-19 preventative measures would not be caught by the clause. Further, in relation to wordings requiring that the loss be caused by an “inability to use” to premises, the Court said that this would require a complete inability to use those premises, as opposed to only part of them, or an inability to use to them for some purposes but not others. Thus businesses who were still able to use their premises in some sense could not recover under these clauses.

Supreme Court Appeal and Decision

Both the FCA and Insurers appealed aspects of the High Court Judgment via a “leapfrog” appeal procedure available in relation to matters of sufficient national importance. The Supreme Court held a 4-day hearing in November 2020 before delivering its Judgment on 15 January 2021.

The Judgment is divided into six parts which may be summarised as follows:

Disease Clauses

The Supreme Court did not agree with the High Court’s precise interpretation of these clauses, although it ultimately agreed that the clauses would respond because of its rulings on causation (see below). The Supreme Court held that the High Court was wrong to conclude that, on the correct reading of the clause, all of the effects of the nationwide outbreak of Covid-19 were insured if it could be proved that there was one undiagnosed case of Covid-19 within the relevant policy area. Instead, the correct analysis is that the clause only covers the effect of the particular case or cases of Covid-19 within the policy area (but as we explain below, each individual case of Covid-19 was an equally effective proximate cause of the Lockdown and the public response to it).

Prevention of Access and Hybrid Clauses

The FCA successfully appealed the High Court’s narrow interpretation of public authority instructions. The Judgment confirms that in fact an instruction from a relevant authority can amount to a “restriction imposed” if it carries the “imminent threat” of legal compulsion or where it is “in mandatory and clear terms and indicates that compliance is required without recourse to legal powers”. Thus, the instructions would not need to be in mandatory terms with the force of law, as the High Court had decided. It remains to be seen which of the Government’s measures satisfy the Supreme Court’s standard since as it did not assess them individually, but the Supreme Court gave the illustrative example of Boris Johnson’s mandatory instructions to certain businesses to close on 20 March 2020 as likely to qualify regardless of whether they could be legally enforced.

Similarly, the Supreme Court considered that the term “inability to use” premises did not mean a complete inability to use them, but could also cover an inability to use part of them or an inability to use them for a discrete purpose.


The decision on causation is perhaps the most significant part of the Judgment in terms of impact on future insurance claims. It clarifies that, in order to determine whether a loss has been caused by an insured risk, the courts are not beholden to the “but for” test as was repeatedly suggested by counsel for Insurers at the hearing. Whilst the test remains very significant, there are instances such as the present case where it is inadequate i.e. where a series of events all cause a result, but none was on its own necessary or sufficient to cause that result.

Accordingly, the Supreme Court concluded that there would be cover under disease clauses since all individual Covid-19 cases as at the date of the Lockdown measures were equally effective proximate causes of that measure and of the public response to it. A policyholder need only therefore show that there was at least one case of Covid-19 in the relevant policy area.

In relation to denial of access and hybrid clauses it was said that whilst the losses would have to result from all elements of risks covered by the clause in the correct causal sequence, the policyholder could still recover losses which were also caused by other uninsured effects of Covid-19.

Trends Clauses

The Supreme Court did not accept Insurers’ argument that “trends clauses” required the amount of recoverable losses to be reduced to take account of the downward impact of the uninsured effects of Covid-19. It was held that such clauses would not allow for adjustments on the basis of circumstances arising out of the same underlying or originating cause as the insured peril, being the effects of the pandemic on the present facts.

Pre-Trigger Losses

The High Court had allowed insurers to use trends clauses to reduce the quantum of claims based on the Covid-19 where some, but not all of the elements of the insured peril had occurred. For example, where a business had closed in reliance on Government advice before it subsequently became mandatory for them to do so. The Supreme Court rejected that decision in accordance with its more general decision on trends clauses.

Status of the Orient-Express case

The Orient-Express was a controversial decision arising out of the hurricane that ravaged the city of New Orleans. The Orient Express hotel suffered property damage as a result of the hurricane, but was not able to recover its business interruption losses on an application of the “but for” test of causation, because it was held that these would have been suffered anyway as a result of the severely restricted access to the city, including the hotel.

The leading judgment in this case was delivered by Lords Leggatt and Hamblen, both of whom were involved in deciding the Orient-Express case at arbitration and on appeal to the High Court respectively. Their Lordships noted the following in overturning this case for the reasons given in the causation and trends clauses sections above:

1. The original decisions had been framed by the arguments of the parties involved, which arguments were not as detailed and wide-ranging as those put before the Supreme Court on this occasion.

2. The terms of reference to the High Court in the Orient-Express case had been limited by section 69 of the Arbitration Act 1996.

3. The High Court had in fact granted permission to appeal to the Court of Appeal in recognition of the fact that the contrary case was arguable. However, the case settled before an appeal was heard.


The full implications of this decision will not be understood for some time yet, but its significance is hard to underestimate given the sheer number of policyholders which will be positively impacted. In that sense it is clear that the Supreme Court has only broadened the circumstances in which policyholders may recover their losses compared with those allowed by the High Court, particularly those bringing claims under prevention of access and hybrid clauses.

Furthermore, in our view it is to be welcomed that the Supreme Court has both clarified the limitations of the “but for” test and addressed the anomalous position with respect to cases of “wide area” damage that was created by the Orient-Express case. As to the latter, it was clearly unsatisfactory that the worse the underlying state of affairs giving rise to the insured risk, the less likely a policyholder would be able to recover.

For more information, please contact: