Business interruption and COVID-19: A UK perspective

Daniel MacKenzie and James Galsworthy

On January 15, 2021, the United Kingdom’s Supreme Court (“Court”) issued a decision which is likely to be viewed as good news for policy holders who have endured business interruption losses arising from the COVID-19 pandemic.

In response to the widening denial of business interruption claims under the standard wording of insurance policies, the Financial Conduct Authority, the regulator of various UK insurers, advanced a test case with the aim of providing interpretive guidance from the courts to the insurance market for the interpretation of certain standard clauses in insurance contracts.

While not binding in Canada, the analysis undertaken by the UK Supreme Court in Financial Conduct Authority v Arch Insurance (UK) Ltd and Others, [2021] UKSC 1 will be informative to Canadian decision makers where litigation ensues following the denial of coverage in relation to the following types of clauses:

1. Disease clauses: Clauses which, in general, provide for cover for business interruption losses resulting from the occurrence of a notifiable disease, such as COVID-19, at or within a specified distance of the business premises;
2. Prevention of access clauses: Clauses which, in general, provide for cover of business interruption losses resulting from public authority intervention preventing or hindering access to, or use of, the business premises;
3. Hybrid clauses: Clauses which combine main elements of the disease and prevention of access clauses; and
4. Trends clauses: Clauses which, in general, provide for business interruption loss to be quantified by reference to what the performance of the business would have been had the insured peril not occurred.

Further widening the decision of the High Court, the Court expanded the notion that “restrictions imposed” to prevent access must be undertaken by “force of law.” Additionally, the interpretation of an “inability to use” one’s premises as a result of the restrictions imposed was also widened, such that it is not required that the whole of the premises be unusable for any business purpose. For example, a restaurant may only be able to offer takeout service, while still being covered for losses stemming from its inability to use its premises for the dine-in aspect of its business as a result of COVID-19.

The analysis undertaken by the UK Supreme Court will be informative though non-binding to judicial decision makers in Canada where litigation ensues with regard to these types of clauses, which are also frequently found in the Canadian insurance market.