Legal Update: Covid 19 – FCA Insurance Test Case Decision

We have received a lot of enquiries from clients this week following the hand down on Monday of a High Court judgment which provides clarity for policyholders making business interruption claims related to Covid-19, following a test case brought by the Financial Conduct Authority (FCA).

The Covid-19 pandemic has caused significant disruption to businesses operating in sectors across the economy.  Businesses have suffered through the impact of the virus itself but more broadly through the imposition of restrictive measures imposed by the Government in attempts to reduce the virus’ transmission.

Covid-19 has impacted businesses of different sizes in different ways.  It has been particularly parlous for small and medium-sized enterprises (SMEs).  Whilst their smaller size can mean that they have been nimbler in adapting to challenging circumstances, they are less likely to have the cash-reserves available to larger enterprises and so more susceptible to cash-flow difficulties.

Many business interruption insurance policies focus on property damage, and so are non-responsive to the losses caused by the pandemic.  Some policies do purportedly include cover for losses caused by diseases and/or for public authority restrictions.  However, insurers have not been consistent across the market in their response to claims made under these policies.  This has left some businesses with cover and others in dispute with their insurer.

In that context, the FCA brought a test-case on behalf of policyholders with the aim of clarifying key issues of contractual uncertainty.  Sample policy wordings issued by eight insurers were selected and the case heard in the specialist Financial List of the High Court on an urgent basis.  370,000 policyholders have been identified as having polices which may be affected by the case’s outcome.

The judgment is available in full here: FCA v Arch and Others [2020] EWHC 2448 (Comm).  The Court’s judgment is broadly favourable to policyholders, although different conclusions were reached in relation to the different policy-wordings.  Accordingly, the case is unlikely to prove a complete answer to policyholders where insurers have sought to decline cover, but should significantly narrow the issues in dispute.  Policyholders can expect to hear from their insurers imminently.

We anticipate that the case is likely to be subject to appeal, which (given the broader context) may “leap-frog” the Court of Appeal and instead go directly to the Supreme Court.  That should not prevent policyholders from engaging with their insurer in the meantime.

We would recommend that policyholders seek legal advice on their position if they are unclear where they stand or if they are dissatisfied with the position being adopted by their insurer.  If you would like to discuss your case, please contact a member of Tyr Law’s Litigation Team.

Author: Nigel Brook

Tyr Law


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