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COVID-19 & Business Interruption Insurance: The Financial Conduct Authority & Ors v Arch Insurance (UK) Ltd & Ors [2021] UKSC 1

In principle, is there cover for COVID-19 related losses under standard insurance policies? Yes. This will facilitate prompt settlement of claims, and achieve considerable savings.

by Dominic Bright


This test case was brought by the Financial Conduct Authority (“FCA”). Many small and medium-sized enterprises will benefit. In addition to the policies in this case, about 700 types of policies, and 370,000 policyholders could be affected.

It was brought under the Financial Markets Test Case Scheme (“the Test Case Scheme”). This enables a claim of general importance to financial markets to be determined: a) without the need for a specific dispute; and b) where immediately relevant and authoritative guidance is needed.

The defendants are leading providers of business interruption insurance.


There were two main issues.
First, the proper interpretation of the following types of clause:

  1. “Disease” – generally providing cover for business interruption losses resulting from a notifiable disease at or within a specified distance of business premises;
  2. “Prevention of access” – generally providing cover for business interruption losses resulting from public authority intervention preventing access / use of business premises;
  3. “Hybrid” – combining the main elements of ‘disease’ and ‘prevention of access’ clauses; and
  4. “Trends” – generally providing for business interruption loss to be quantified by what the performance of the business would have been had the insured peril not occurred.

Secondly, causation. In particular, the insurer defence, that the same or similar business interruption losses would have be incurred, even if the insured risk / peril had not occurred.


On 10 February 2020, the Health Protection (Coronavirus) Regulations 2020 were made. They provided for the detention and screening of persons reasonably suspected to have been infected with COVID-19. On 25 March 2020, they were repealed.

On 5 March 2020, COVID-19 was made a “notifiable disease” in England. This was through an amendment to the Health Protection (Notification) Regulations 2010. It was already a notifiable disease in Scotland, and Northern Ireland.

This creates two duties. First, registered medical practitioners must notify the local authority where there are reasonable grounds for suspecting that a patient has COVID-19. Secondly, local authorities must report such notifications to Public Health England.

On 11 March 2020, the World Health Organisation declared COVID-19 a pandemic.

On 16 March 2020, the UK Government published guidance that: a) vulnerable people should avoid mixing; b) people should work from home where possible; and c) large gathering should not take place.

The Prime Minister also made a statement that: a) non-essential contact should stop; b) unnecessary travel should stop; c) people should work from home where possible; and d) social venues should be avoided.

On 20 March 2020, the Prime Minister made a statement that the following were being told to close: a) cafes, pubs and bars; b) restaurants; c) nightclubs; d) theatres; e) cinemas; f) gyms and g) leisure centres.

On 21 March 2020, the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 (“the 21 March Regulations”) were made. There were equivalent regulations for Wales.

The 21 March Regulations provided for closure of businesses: a) restaurants, cafes, and bars, except for the sale of food or drink other than for consumption off the premises; and b) cinemas, theatres, nightclubs, bingo halls, concert halls, museums, galleries, betting shops, spas, gyms, and other leisure centres. Offences were introduced to enforce compliance.

On 22 March 2020, the Prime Minister announced “shielding” for vulnerable people.

On 23 March 2020, the Prime Minister announced that: a) “you must stay at home”; b) limited exceptions included shopping for basic necessities and travelling to work, where absolutely necessary; c) all shops selling non-essential goods would close; and d) all social events would stop, including weddings and baptisms, but excluding funerals.

UK Guidance was issued to businesses: a) breach of the 21 March Regulations was proscribed; and c) offenders would be subject to prohibition notices, and potentially unlimited fines.

Public Health England issued a document stating that there were rules that everyone must follow: a) ‘you must stay at home’ unless ‘you really need to’ for one of the specified reasons; b) most shops should stay closed; and c) no more than two people may meet in public places.

On 24 March 2020, the UK Government issued guidance that holiday accommodation must only remain open for specified purposes, such as supporting key workers or the homeless.

On 25 March 2020, the Coronavirus Act 2020 was enacted. It applies throughout the UK. In general, it established emergency arrangements for health workers, food supply, and inquests.

On 26 March 2020, the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (“the 26 March Regulations”) were made. Similar regulations were made for Wales, Scotland, and Northern Ireland. The 26 March Regulations replaced most of the 21 March Regulations.

The 26 March Regulations imposed more extensive restrictions: a) nail, beauty and hair salons, barbers, tattoo and piercing parlours, playgrounds, outdoor markets, and car showrooms had to close, in addition to those that were already closed under the 21 March Regulations; b) further restrictions and closures were imposed for retail shops, holiday accommodation; and places of worship; c) people could not leave their home ‘without [a specified] reasonable excuse’; d) gatherings of more than two people in public places were mostly prohibited; and e) offences were created for breach, punishable on summary conviction by a fine.

The 26 March Regulations were amended on several occasions: a) on 13 May 2020, garden centres and outdoor sports courts were allowed to stay open; and b) on 1 June 2020, outdoor markets and certain showrooms were allowed to stay open.

On 4 July 2020, the 26 March Regulations were replaced with more limited restrictions. They are in the Health Protection (Coronavirus, Restrictions) (No 2) (England) Regulations 2020.

Further legislative changes occurred since trial. They were not considered.

Procedural history

On 9 June 2020, the FCA issued proceedings in the Commercial Court. A declaration was sought as to the meaning, and effect, of the relevant policy wordings.

Between 20 and 30 July 2020, trial took place remotely by Flaux LJ and Butcher J. On 15 September 2020, joint judgment was given. All parties were given permission to appeal. It was certified as suitable to ‘leapfrog’ the Court of Appeal.

On 2 November 2020, the Supreme Court gave permission to appeal. Between 16 and 19 November 2020, the appeal hearing was held.

Issues for the Supreme Court

The FCA was substantially successful. The main appeal was by the insurers.

Issues raised on the appeal were addressed under six headings: a) disease clauses; b) prevention of access and hybrid clauses; c) causation; d) trends clauses; e) pre-trigger losses; and f) Orient- Express.

Principles of construction

Lords Hamblen and Leggatt (with whom Lord Reed agreed) gave judgment for the majority. They agreed that Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 is the leading case:

“The core principle is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.”

Disease clauses

Generally, these provide insurance cover for business interruption loss caused by a notifiable disease at, or within a specified distance of, the policyholder’s business premises. There are variations in the wordings. This does not materially alter their interpretation.

There were three agreed facts.

First, by 6 March 2020, COVID-19 had been designated in the UK as a ‘notifiable disease’. Secondly, for the illness resulting from COVID-19 to be ‘sustained by any person’, it is sufficient that the person should have contracted the disease, whether or not it is symptomatic or diagnosed. Thirdly, there must be a causal connection between one of the specified perils and the interruption to the policyholder’s business.


The lower court first considered the policy wording of RSA 3. So did the appeal court. There were two central issues.

First, what is the scope of the peril insured? Secondly, what is the causal link, between the insured peril and the interruption to the business, so as to entitle the policyholder to be indemnified?

As a matter of plain language, the clause covers cases of illness resulting from COVID-19 that occur within the radius specified in the clause. That is, events that occur at a particular time and place.

The disease clause provides cover for business interruption caused by illness resulting from COVID-19 that occur within a specified radius of the premises from which the business is carried on. It does not provide cover for interruption caused by illness resulting from COVID- 19 that occur outside the specified radius.

An insurer submitted that the disease clause does not cover COVID-19. This was because, if the disease amounts to an epidemic, any loss caused by an occurrence of a notifiable disease is excluded. This was rejected by both the lower court and the appeal court:

“The reasonable reader would naturally assume that, if the intention had been to put a further substantive limit on the risk of business interruption specifically insured by the extension for infectious diseases in addition to the geographical and temporal limits stated in the extension itself, this would have been done transparently as part of the wording of the extension and not buried away in the middle of a general exclusion of contamination and pollution risks at the back of the policy.”

MSA 1 & MSA 2

The wording of the insured peril is described, and the definition of ‘Notifiable Human Disease’ is, in almost identical terms to RSA 3. There is no justification for interpreting these clauses differently.


This is an outlier.

Its subject is a disease. Not an occurrence of illness sustained by a person resulting from a disease. The wording is sufficiently clear, however, that the insured peril must be manifested by a person whilst in the premises, or within a specified radius of the premises.

QBE 2 & QBE 3

The lower court accepted the insurers’ interpretation. The FCA appealed. The appeal court allowed the appeal. There is no significant difference to the clauses considered above.


The lower court: a) correctly analysed QBE 2 and QBE 3; and b) erred by failing to interpret the other clauses in the same way. All clauses cover relevant effects of COVID-19 that occur at, or within a specified radius of, the insured premises. Not outside it.

Prevention of access & hybrid clauses

Each are structured in a similar way. They contain a series of elements that must be satisfied before the obligation to indemnify bites.

There are two common issues.

First, whether loss has been caused by an insured peril? Secondly, how the causal connections between the different elements of the clause interact with each other in determining what loss is covered?

Hybrid clauses are so called because an element of the peril is the occurrence of a notifiable disease. This, combined with other elements, narrow the consequences of disease that is indemnified.

Hiscox 4

The disease element is materially similar to many of the disease clauses. It must be similarly interpreted.

Hiscox 1-3
It does not impose any geographical limit on the occurrence of a notifiable disease.

Hiscox renewed the submission that was rejected by the lower court. The word “occurrence” means something limited, small-scale, local and specific to the policyholder, or its business premises. It does not apply to the COVID-19 pandemic.

The appeal court held that each case of disease is properly regarded as an “occurrence”. If the intention was to restrict the scope, so that the clause only applied to the occurrence of disease at or near the insured premises, it would have said so.

Further, if successful, Hiscox’ submission would render the application of the clause highly uncertain. How local, limited, or small-scale, must the outbreak of disease be, so as to require indemnity? No reasonable insurer would have a policy that fails to provide an answer.

Effects on the insured business of cases of a notifiable disease are covered. Irrespective of where they occur. Only losses which satisfy the further elements in the clause, however, are covered.

‘due to restrictions imposed’

Another element of Hiscox 1-3 and Hiscox 4 is whether the business interruption must be ‘due to restrictions imposed’ with the force of law. The lower court held that it did. Only those promulgated by statutory instruction were relevant. Not earlier instructions by the UK Government.

Similar issues arose elsewhere: a) RSA 1 with ‘closure or restrictions placed’; b) RSA 4 with ‘enforced closure’; c) MSA 1 and Zurich 1-2 with ‘action’ preventing access; and d) Hiscox 1, 2 and 4, and MSA 2, with denial or hindrance in access ‘imposed’.

The lower court gave two reasons for its finding. First, the natural meaning of the word ‘imposed’. Secondly, the context of a resulting inability to use premises.

Generally, the appeal court agreed. ‘Imposed’ connoted compulsion. Public authorities exercise compulsion through statutory, or other, legal powers.

A restriction does not always have to have the force of law, however, before it can fall within this description. For example, a mandatory instruction given by a public authority, in anticipation of legally binding measures to follow shortly, or will follow shortly if compliance is not obtained.

On 20 March 2020, the Prime Minister’s statement that all named business must close was a clear, mandatory instruction, given on behalf of the UK Government. The named businesses, and the public, would reasonably understand that this had to be complied with. They would not inquire into the legal basis for compliance. This instruction is a ‘restriction imposed’. It does not matter whether or not it is legally capable of being enforced.

A reasonable policyholder would not understand ‘imposed’ as requiring the existence, or immediate prospect, of a valid legal basis for the restriction:

“In particular, we consider that an instruction given by a public authority may amount to a ‘restriction imposed’ if, from the terms and context of the instruction, compliance with it is required, and would reasonably be understood to be required, without the need for recourse to legal powers. This is likely to arise only in situations of emergency, as in the present case. Such an instruction would need not only to be in mandatory terms, but also in clear enough terms to enable the addressee to know with reasonable certainty what compliance requires.”

In principle, the same analysis applies to the following clauses: a) RSA 1 and RSA 4; b) Hiscox 1, 2 and 4; c) MSA 1; d) Zurich 1 and 2; and 4) MSA 2.

Where the appeal affected the outcome (therefore, excluding RSA 1 and RSA 4), the appeal on this issue was allowed. ‘Restrictions imposed’ need not have the force of law in the circumstances set out above.

‘Restriction imposed’

Was a regulation, prohibiting people from leaving their homes without reasonable excuse, capable of amounting to a ‘restriction imposed’ within the meaning of Hiscox 1-4?

The insurer submitted that ‘restriction imposed’ necessarily had to be directed to the policyholder, or its use of the insured premises. The lower court did not agree. Despite ‘cogent arguments’, the appeal court was also unpersuaded.

Take the following example. A police cordon represents an inability to use the premises. This does not result from a restriction directed at the premises, or their use by the policyholder. It results from a restriction which keeps the public out. Full context is instructive.

Inability to use

Hiscox 1-4 applies only where the interruption is caused by the policyholder’s ‘inability to use’ the business premises due to such restrictions. The lower court held that this phrase meant a complete inability, save for use that is de minimis.

The appeal court agreed. There must be an inability to use. Not a mere impairment, or hindrance. There does not have to be a complete inability, however, to use the premises for all purposes.

Different business purposes should be distinguished if they are capable of being conducted separately:

“We consider that the requirement is satisfied either if the policyholder is unable to use the premises for a discrete part of its business activities or if it is unable to use a discrete part of its premises for its business activities. In both those situations there is a complete inability of use. In the first situation, there is a complete inability to carry on a discrete business activity. In the second situation, there is a complete inability to use a discrete part of the business premises.”

All cases are fact dependent. Take the following, three examples.

First, a bookshop may be unable to use the premises for the discrete activity of selling books to walk in customers. It may be able to continue to use the premises, however, for selling books over the telephone.

Secondly, a department store closing all parts, except for its pharmacy, may satisfy the requirement to show an inability to use a discrete part of its business premises. Alternatively, a flood in the store may only affect a discrete part of it.

Thirdly, a golf course remains open. The clubhouse serving food and drink, however, is closed. This represents an inability to use a discrete part of the premises for a discrete, but important, part of its business.

There is only cover for that part of the business for which the premises cannot be used. Take the following two examples.

First, a restaurant with a takeaway service closes. It can only claim in relation to the restaurant part of the business.

Secondly, a travel agent’s sales: a) 50% walk-in; b) 25% internet; and c) 25% telephone. It can only claim for the loss of walk-in sales. Even though all parts of the business may have been depressed by COVID-19 and governmental regulation.

It is unlikely that the following businesses, which were allowed to remain open, will be able to demonstrate the inability to use premises: a) food retailers and pharmacies; and b) professional service firms, including accountants, lawyers, construction and manufacturing businesses.

In summary, ‘inability to use’ may include the whole, or part of, the activities of a business.

Prevention of access

Similar issues arise in relation to whether only the total closure qualifies as ‘prevention’ or ‘denial’ of access to premises. The issue arose from the wording in the following policies: a) Arch; b) Hiscox 1, 2 and 4; c) MSA 1 and 2; and d) Zurich 1 and 2.

The lower court held that only complete closure would qualify.

There is considerable overlap in the reasoning for the conclusions on ‘inability to use’ and the ‘prevention of access’ phrases.

There is no good reason to construe ‘the premises’ as referring only to the entire, as opposed to part of the, premises. ‘Prevention’ means stopping something from happening, or making an intended act impossible. This is different to a mere hindrance.

‘Prevention of access’ may include prevention of access to a discrete, as opposed to the whole, part of the premises for the purpose of carrying on (a discrete part of) the policyholder’s business activities. In principle, the same analysis applies to other prevention, or denial of access, clauses.


The lower court held that, in relation to the Hiscox wording, ‘interruption’ meant ‘business interruption generally’. It included interference or disruption, not just complete cessation of business.

Hiscox renewed its submission, which was rejected by the lower court, that ‘interruption’: a) naturally means stop or break; b) is different from ‘interference’; and c) alternatively, must involve a more demanding test than ‘interference’.

The appeal court did not agree. ‘Interruption’ encompasses interference or disruption which does not bring about a complete cessation of business. The reasoning of the lower court was correct.


These questions largely answered themselves.

If the insured peril is COVID-19, it follows that, from the date when a case occurs, the policy covers all effects of COVID-19 on the policyholder’s business. It is an agreed fact that all measures of the Government in response to the disease, and the consequent business interruption, were caused by COVID-19.

Questions of causation are crucial, however, to the disease clauses. What connection must be shown between cases of disease and the business interruption loss?

Proximate cause

A variety of phrases were used in the sample wordings: a) ‘following’ in RSA 3, MSA 1 and 2; b) ‘as a result of’ in Argenta; c) ‘arising from’ in QBE 1; and d) ‘in consequence of’ in QBE 2 and QBE 3.

The appeal court held that: “We do not think it profitable to search for shades of semantic difference between these phrases.” In any event, “it is rare for the test of causation to turn on such nuances.” The question does not depend, to any great extent, on matters of linguistic meaning, and how the words used would ordinarily be understood by the public.

The rebuttable presumption is that, unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against:

“The starting point for the inquiry is to identify, by interpreting the policy and considering the evidence, whether a peril covered by the policy had any causal involvement in the loss and, if so, whether a peril excluded or excepted from the scope of the cover also had any such involvement. The question whether the occurrence of such a peril was in either case the proximate (or ‘efficient’) cause of the loss involves making a judgment as to whether it made the loss inevitable – if not, which could seldom if ever be said, in all conceivable circumstances – then in the ordinary course of events. For this purpose, human actions are not generally regarded as negativing causal connection, provided at least that the actions taken were not wholly unreasonable or erratic.”

Having analysed historic and modern authority, the appeal court concluded that:

“Thus, in the present case it obviously could not be said that any individual case of illness resulting from COVID-19, on its own, caused the UK Government to introduce restrictions which led directly to business interruption. However, as the court below found, the Government measures were taken in response to information about all the cases of COVID-19 in the country as a whole. We agree with the court below that it is realistic to analyse this situation as one in which ‘all the cases were equal causes of the imposition of national measures’”.

‘But for’

The insurers resisted the above analysis.

They submitted that, it cannot be said that but for any individual case of illness resulting from COVID-19, the Government measures would not have been taken. It is necessary to show that the loss would not have been sustained but for the occurrence of the insured peril. X cannot be the cause of Y, if Y would in any event have occurred, irrespective of, but for, X.

The appeal court agreed that:

“in the vast majority of insurance cases, indeed in the vast majority of cases in any field of law or ordinary life, if event Y would still have occurred anyway irrespective of the occurrence of a prior event X, then X cannot be said to have caused Y. The most conspicuous weakness of the ‘but for’ test is not that it wrongly excludes cases in which there is a causal link, but that it fails to exclude a great many cases in which X would not be regarded as an effective or proximate cause of Y.”

It has “long been recognised” that “the ‘but for’ test is inadequate, not only because it is over- inclusive, but also because it excludes some cases where one event could or would be regarded as a cause of another event.” Complexity increases with multiple, concurrent causes:

“The question of causation becomes more difficult when the number of separate events that combine to bring about loss is multiplied many times over, so that, instead of there being two or 20 such events, there are, say, 200,000.”

The appeal court opined that:

“Whether an event which is one of very many that combine to cause loss should be regarded as a cause of the loss is not a question to which any general answer can be given. It must always depend on the context in which the question is asked.”

The following conclusion was offered:

“For these reasons there is nothing in principle or in the concept of causation which precludes an insured peril that in combination with many other similar uninsured events brings about a loss with a sufficient degree of inevitability from being regarded as a cause – indeed as a proximate cause – of the loss, even if the occurrence of the insured peril is neither necessary nor sufficient to bring about the loss by itself. … Whether that causal connection is sufficient to trigger the insurer’s obligation to indemnify the policyholder depends on what has been agreed between them.”

Disease clauses

In general, the question is: ‘Did the insured peril cause the business interruption losses, sustained by the policyholder, within the meaning of the causal requirements specified in the policy’?

In respect of MSA 1, for example, the question takes the following form: ‘Did the interruption of business carried on by the policyholder at the insured premises occur “following” illness sustained by any person resulting from COVID-19 within a radius of 25 miles of the premises’?

Background knowledge is important. The following should be given weight.

First, parties may be assumed to have known that some infectious diseases can spread rapidly, widely and unpredictably. “It is obvious that an outbreak of an infectious disease may not be confined to a specific locality or to a circular area delineated by a radius of 25 miles around a policyholder’s premises.” It therefore follows that, the parties could not reasonably be supposed to have intended that, cases of disease outside the radius could be set up as a countervailing cause which displaces the causal impact of the disease inside the radius.

Secondly, the wordings do not confine cover to a situation where the interruption of the business has resulted only from cases of a notifiable disease within the radius, as opposed to other cases elsewhere. In a situation where cases of disease inside and outside the radius are concurrent causes of business interruption loss, the ‘but for’ test would give the insurer similar protection to that which it would have had if loss caused by any occurrence of a notifiable disease outside the specified radius had been expressly excluded. If this was intended, it should have been included in the terms of the policy.

The appeal court rejected the submission, that the occurrence of one or more cases of COVID- 19 within the specified radius cannot be a cause of business interruption loss if the loss would not have been suffered but for those cases, because the same interruption of the business would have occurred anyway as a result of other cases of COVID-19 elsewhere in the country.

Weighing approach

Is the correct approach “to aggregate all the cases of disease which fall within the scope of the policy, and asking whether those cases, taken together, had an equal or similar causal impact when compared with the aggregate impact of all the cases of disease not covered by the policy”?

In principle, perhaps. In practice, no:

“An approach which involves weighing the relative potency of insured and uninsured causes in such a way might be appropriate if it were feasible to apportion the financial loss sustained by a policyholder’s business between different cases or groups of cases of disease. However, that is not a realistic possibility. Where interruption of a business is caused by an outbreak of an infectious disease, the situation is not one of discrete concurrent causes each of which, acting on its own, would have caused part of the loss but not the whole of it. Although we do not think that it was strictly accurate for the court below to describe all the cases of COVID-19 in the country as indivisible, what plainly is indivisible is the effect of such cases, via the measures taken by the UK Government, on any insured business. As the loss is indivisible, the question whether it was caused by an insured peril is an all or nothing one.”

Individual cause analysis

There are four benefits to recognising that the causal requirement is satisfied where “each case of disease informs a decision to impose restrictions and treats each such case as a separate and equally effective cause of the restrictions irrespective of its geographical location and the locations of other such cases”.

First, it avoids irrational effects. Secondly, it is simple to apply. Thirdly, it accords with the presumed intentions of the parties to an insurance product sold principally to small and medium-sized enterprises with relatively low financial limits. Fourthly, it accords with the desire for certainty, manifested in the definition of cover, by reference to a specific radius of the insured premises.

In conclusion:

“in order to show that loss from interruption of the insured business was proximately caused by one or more occurrences of illness resulting from COVID-19, it is sufficient to prove that the interruption was a result of Government action taken in response to cases of disease which included at least one case of COVID-19 within the geographical area covered by the clause. The basis for this conclusion is the analysis … that each of the individual cases of illness resulting from COVID-19 which had occurred by the date of any Government action was a separate and equally effective cause of that action (and of the response of the public to it).”

Prevention of access & hybrid clauses

To show that business interruption loss is covered by hybrid clauses which contain, as one element, an occurrence of an infectious disease within a specified distance of the insurer premises:

“it will be sufficient to prove that the interruption was a result of closure or restrictions placed on the premises in response to cases of COVID-19 which included at least one case manifesting itself within a radius of 25 miles of the premises.”

These clauses: a) specify more than one condition in order to establish that business interruption loss has been caused by an insured peril; and b) require that the elements of the clause operate in causal sequence.

For example, Hiscox 1-3:

“(A) an occurrence of a notifiable disease, which causes (B) restrictions imposed by a public authority, which cause (C) an inability to use the insured premises, which causes (D) an interruption to the policyholder’s activities that is the sole and direct cause of financial loss. … the structure of the clause [is usefully represented] in a symbolic form as A→B→C→D, where each arrow represents a causal connection.”

How do the elements of the clause interact with each other in determining whether, or to what extent, the loss has been proximately caused by an insured peril?

The appeal court gave the following answer:

“the public authority clause in the Hiscox policies indemnifies the policyholder against the risk (and only against the risk) of all the elements of the insured peril acting in causal combination to cause business interruption loss; but it does so regardless of whether the loss was concurrently caused by other (uninsured but non-excluded) consequences of the COVID-19 pandemic which was the underlying or originating cause of the insured peril.”

There is an important exception, however:

“If it was found that, although all the elements of the insured peril were present, it could not be regarded as a proximate cause of loss and the sole proximate cause of the loss was the COVID-19 pandemic, then there would be no indemnity.”

Take the example of a travel agency. Almost all of its business is lost due to travel restrictions imposed as a result of the pandemic. Customer access to its premises may be impossible. If the sole proximate cause of the loss of walk-in customers is travel restrictions, and not the inability of customers to enter the premises, the loss is not covered.

Arch prevention of access clause

Under the Arch clause, the policyholder is only entitled to recover business interruption losses which are the product of the specified causal sequence:

“(i) prevention of access to the premises, which is caused by (ii) the actions or advice of a government or local authority, which in turn is caused by (iii) an emergency which is likely to endanger life (or property).”

Take the example of a restaurant. If the premises had not been forced to close, turnover may have been reduced in any event as a result of other effects of the emergency, including government actions and advice. If there had been no other effects of the emergency, or of these actions and advice, this turnover may still have been lost as a result of the premises being forced to close.

Here, there are concurrent causes of loss. Each is sufficient to cause loss without the other. They arose out of the same underlying or originating cause. The COVID-19 pandemic. Any such loss is covered.


In RSA 1, there are only two causally connected elements:

“(i) closure or restrictions placed on the premises as a result of (ii) a notifiable human disease manifesting itself at the premises or within a radius of 25 miles of the premises.”

This makes no difference to the analysis:

“the clause covers loss caused by the two elements of the insured peril operating in the required causal sequence, but does so regardless of whether any other (uninsured but non-excluded) consequences of the same underlying fortuity (the COVID-19 pandemic) were concurrent causes of the loss.”

Trends clauses

These are used to quantify the policyholder’s financial loss.

All insurers appealing did so on the issue of how these clauses apply in the present case. It was submitted that they apply, so that the insurers were not liable to indemnify policyholders for losses which would have arisen, regardless of the operation of the insured perils, due to the wider consequences of the pandemic.

Function & wording

Usually, an earlier period of trading is taken for comparison.

A ‘standard turnover’ or ‘standard revenue’ is derived, often from the last calendar year. This is compared to the actual turnover, or revenue, during the indemnity period. Results in the comparator period are used to derive a percentage of turnover representing gross profit. The rate of gross profit is applied to the reduction in turnover to calculate the recoverable loss.

Usually, increase in the cost of working during the indemnity period is also covered.

There may be specific reasons why a higher, or lower, figure, is expected. General business trends may mean that an increased, or decreased, turnover during the indemnity period is expected. Turnover during the previous year may also be depressed, or inflated.

This is the purpose of a ‘trends’ clause. The aim is to achieve an accurate figure. In any particular circumstance, it may be beneficial to the insurer, or policyholder. In any event, the aspiration is that it is in the interests of both parties.

All clauses refer to the aim to represent as near as possible the results, which would have been achieved, but for the damage. It was an agreed fact that ‘damage’ includes the insured peril.


The appeal court emphasised three points.

First, their purpose is to quantify the loss; not delineate the scope of indemnity. Secondly, if possible, trends clauses should be construed consistently with the insuring clauses of the policies. Thirdly, if possible, they should not be construed so as to take away the cover provided by the insuring clause.

The appeal court held that:

“In our view, the simplest and most straightforward way in which the trends clauses can and should be so construed is, absent clear wording to the contrary, by recognising that the aim of such clauses is to arrive at the results that would have been achieved but for the insured peril and circumstances arising out of the same underlying or originating cause. Accordingly, the trends or circumstances referred to in the clause for which adjustments are to be made should generally be construed as meaning trends or circumstances unrelated in that way to the insured peril.”

Three reasons were given in support.

First, it is consistent with the historical evolution of such clauses which focus on trends, or circumstances, unconnected with the insured peril. Secondly, it is consistent with the approach of the US courts. Thirdly:

“in calculating the amount which the insurer is liable to pay, the calculation must be confined to those activities of the business which were interrupted by the operation of the insured peril. Where a discrete part of the business was not interrupted by the insured peril, the relevant comparison is therefore between the actual turnover and the adjusted standard turnover only of the interrupted activities.”


The appeal court held that:

“the trends clauses in issue on these appeals should be construed so that the standard turnover or gross profit derived from previous trading is adjusted only to reflect circumstances which are unconnected with the insured peril and not circumstances which are inextricably linked with the insured peril in the sense that they have the same underlying or originating cause. … the trends clauses do not require losses to be adjusted on the basis that, if the insured peril had not occurred, the results of the business would still have been affected by other consequences of the COVID-19 pandemic.”

Pre-trigger losses

Should there be a downward adjustment to reflect the effects on the business of the pandemic before cover was triggered?


“to reduce the indemnity to reflect a downturn caused by other effects of the pandemic, whenever they began, would be to refuse to indemnify the policyholder for loss proximately caused by the insured peril on the basis that the loss was also proximately caused by uninsured (but non-excluded) perils with the same originating cause. … that is not permissible.”

Therefore, “in calculating loss, the assumption should be made that pre-trigger losses caused by the pandemic would not have continued during the operation of the insured peril.”


In Orient-Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm), [2010] Lloyd’s Rep IR 531 (“Orient-Express”), business interruption loss to a hotel, arising from damage as a result of Hurricane Katrina and Hurricane Rita, was considered.

The trends clause was similar to those in the present case.

‘Damage’ was defined to mean ‘direct physical loss destruction or damage’. Business was affected by physical damage by the hurricanes. It was also affected by the general impact of the hurricanes. A central issue was whether there may be recovery, not only for resulting physical damage, but also from wider damage to the city.

The appeal court made three “general observations”.

First, the instant appeal had the benefit of more detailed, and wide-ranging, argument, than the arbitration hearing, and one-day arbitration appeal in 2010. Secondly, the scope of the appeal in Orient-Express was limited by section 69 of the Arbitration Act 1996 to questions of law ‘arising out of an award’. Thirdly, permission to appeal was given to the Court of Appeal because it raised a point of law of general importance on causation, but the appeal settled before it was heard.

The appeal court held that “on mature and considered reflection we also consider that it was wrongly decided and conclude that it should be overruled.” The “main error” was succinctly summarised in the following terms:

“In such a case when both the insured peril and the uninsured peril which operates concurrently with it arise from the same underlying fortuity (the hurricanes), then provided that damage proximately caused by the uninsured peril (ie in the Orient- Express case, damage to the rest of the city) is not excluded, loss resulting from both causes operating concurrently is covered. In the Orient-Express case the tribunal and the court were therefore wrong to hold that the business interruption loss was not covered by the insuring clause to the extent that it did not satisfy the ‘but for’ test.”


None of the submissions on behalf of the insurers that were accepted affected the outcome. Their appeals were dismissed. The FCA had grounds of appeal that were allowed, however, and that did affect the outcome. Interveners also had grounds of appeal that were allowed.

Lords Hamblen and Leggatt gave judgment for the majority. Lord Reed agreed.

Lord Briggs, with whom Lord Hodge agreed, concurred with the conclusions of the majority:

“The practical effect of their analysis is that all of the insuring clauses which are in issue on the appeal to this court (not including those clauses where the issues appealed by the FCA are academic) will provide cover for business interruption caused by the COVID-19 pandemic, and that the trends clauses will not cut it down in the calculation of the amounts payable.”


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