Shearman And Sterling

London, COVID-19 business interruption

January 19, 2021

UK Supreme Court Confirms Scope of Insurance Coverage for COVID-19 Business Interruption Losses


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In a significant test case brought by the U.K.’s Financial Conduct Authority, the Supreme Court confirms business interruption insurance coverage for losses arising from COVID-19.

The Supreme Court has now issued its judgment in Financial Conduct Authority (Appellant) v Arch Insurance (U.K.) Ltd and others [2021] UKSC 1, the much-anticipated appeal in FCA test case proceedings brought against eight insurance companies (the “Insurers”) under the Financial Markets Test Case Scheme. The proceedings concerned the extent to which 21 sample insurance policy wordings covered business interruption losses arising in the context of the COVID-19 pandemic. You can find our overview of the first instance decision (amongst other important and high profile cases from last year) in our 2020 Litigation Review.

The appeal (brought in respect of different issues by both the FCA and the Insurers) proceeded directly from the High Court to the Supreme Court under the special “leapfrog” procedure used in important and urgent cases. It covered the following key issues:

  • The interpretation of “Disease Clauses,” which concern losses arising from the occurrence of a “notifiable disease” within a particular distance of the business premises (“Specified Radius”);
  • The interpretation of “Prevention of Access Clauses,” which concern losses arising from acts by public authorities which prevent access to or the use of business premises. This includes “Hybrid Clauses,” which contain elements of both Disease Clauses and Prevention of Access Clauses;
  • The causal link which must be shown between the claimed losses and the notifiable disease (or other insured event); and
  • The effect of “Trends Clauses,” setting out the method for quantifying loss by comparing the performance of a business to earlier periods of trading, as well as the significance of any impact from the pandemic arising prior to cover being triggered (“Pre-Trigger Losses”).

The Court substantially allowed the FCA’s appeal and dismissed the Insurers’ appeals.

Disease Clauses

The Supreme Court, accepting arguments put forward by the Insurers, held that when interpreting disease clauses in the context of COVID-19, (i) each case of illness arising from COVID-19 constitutes a separate occurrence of a notifiable disease, and (ii) such clauses only cover losses resulting from cases occurring within the specified radius. Though this was a departure from the High Court’s decision on the issue (which had held that the clauses also covered the effects of cases outside the specified radius), the Supreme Court’s findings on causation (see below) nonetheless lead to substantially similar conclusions as to the scope of such cover.

Prevention of Access and Hybrid Clauses

These clauses operate by setting out a series of requirements, all of which must be met in order to trigger liability under the policy. In particular, such clauses typically require that losses arise from “restrictions imposed” by a public authority, following the occurrence of a notifiable disease or other insured event. The Supreme Court held that the requirement would be satisfied not only where an instruction carried the imminent threat of legal compulsion, but also where it was made in mandatory and clear terms, indicating that compliance would be required, regardless of whether it was legally capable of being enforced.

Where policy wording required that losses arise from a policyholder’s inability to use (or the prevention of access to) the insured premises, the Supreme Court agreed with the High Court that a mere hindrance did not satisfy that requirement. However, taking a broader view than that of the High Court, the Supreme Court held that the wording also did not require that a policyholder lose complete use of its premises for all purposes—an inability to use its premise for a discrete part of its business activities, or complete loss of a discrete part of the premises, was sufficient to satisfy this requirement.


In determining whether losses were caused by cases of COVID-19 identified within the specified radius of the insured premises, the Supreme Court (upholding the decision of the High Court) held that the relevant measures taken by public authorities in response to COVID-19 were taken in respect of all cases in the country as a whole. As such, all individual cases of COVID-19 which had occurred by the date of any Government measure were equally effective “proximate” causes of that measure. Policyholders therefore need only show that at the time of any Government measure there was at least one case of COVID-19 within the specified radius.

The Supreme Court rejected arguments by the Insurers that the approach above was wrong, for falling foul of the ‘but for’ test. It held that, in cases such as this, where a series of events of “approximately equal efficacy” cumulatively bring about a result which they would be unable to bring about individually, the but for test is not appropriate. Each event may itself be regarded as a proximate cause of such loss.

The Court also rejected the proposition that cases ought to be viewed in aggregate, such that the overwhelmingly dominant cause of any Government measure would almost always be cases falling outside the specified radius.

In the case of prevention of access clauses and hybrid clauses specifically, the Supreme Court found that causation would be satisfied only if losses resulted from all necessary elements under the relevant clause occurring in the required causal sequence. However, the existence of additional concurrent (and uninsured) causes for such loss did not itself prevent this requirement from being satisfied.

Trends Clauses and Pre-Trigger Losses

In considering what adjustments were permitted under applicable trends clauses, the Supreme Court held that, in order to interpret such clauses in a manner consistent with the insuring provisions, they should not be construed as removing cover otherwise provided under the policy. Specifically, such adjustments ought not be made in respect of circumstances which are inextricably linked with the insured event (i.e. which have the same underlying or originating cause). For example, in the present case, adjustments to business interruption losses could not be made on the basis that COVID-19 would have otherwise affected the business, even in circumstances where the policy did not provide coverage.

In light of its reasoning in respect of trends clauses, the court further held that adjustments for pre-trigger losses could likewise only be made in respect of circumstances unconnected with COVID-19.


The Supreme Court’s decision largely upholds the decision of the court at first instance, and in some instances takes a more expansive view of the Insurers’ scope of liability. It will therefore be a welcome judgment for many U.K. businesses with business interruption policies that are affected by the decision, many of whom will now be able to demand payment of their claims.

Authors and Contributors

Jonathan Swil



+44 20 7655 5725

+44 20 7655 5725


Chris Collins



+44 20 7655 5688

+44 20 7655 5688