Key Takeaways
- FCA v Arch Insurance confirmed that many COVID-19 business interruption policies could cover losses, but your exact wording remains decisive.
- Disease clauses may respond where COVID-19 cases occurred within the policy radius and the government measures that interrupted your business responded to cases including those local ones.
- Mandatory government announcements could constitute restrictions, even before regulations gave those instructions formal legal force.
- Partial closure can trigger cover where you lost use of a distinct business activity or part of your premises.
- Insurers cannot use trends clauses to remove losses caused by the pandemic or restrictions that formed the insured peril.
- A previously declined claim may remain viable, but the limitation period is typically six years from the date of loss, and policy terms can shorten it.
- Our solicitors can assess your policy, trading evidence and insurer correspondence for coverage, valuation or broker advice disputes.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
What Did FCA v Arch Insurance Decide About COVID-19 Business Interruption Cover?
In Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1, the Supreme Court held that many standard business interruption policies responded to COVID-19 losses in principle. It dismissed the insurers’ appeals and allowed the FCA’s appeal, in some respects on a qualified basis.
Three points matter most for policyholders in England and Wales:
- Partial closure is not fatal. A restaurant that kept a takeaway service running could still have suffered an inability to use its dining area.
- Mandatory announcements could count. A clear government instruction could be a restriction even before regulations made it legally enforceable.
- The wider pandemic is no defence by itself. Insurers cannot argue that the loss would have happened anyway because of the national pandemic, and trends clauses cannot strip out its effects.
The judgment remains the reference point for declined and undervalued claims, and for disputes about new policy wordings, in 2026.
Our London-based commercial litigation solicitors can assess your policy, claim evidence and insurer correspondence, including potential broker advice disputes. If your claim was rejected or underpaid, call 0207 459 4037 or book a free consultation promptly.
Why Was the FCA Business Interruption Insurance Test Case Brought?
The FCA brought the test case because thousands of businesses lost income during the COVID-19 restrictions of March 2020, and insurers declined most of their claims. The insurers’ position was that non-damage business interruption policies did not respond to pandemic losses.
The government’s measures escalated quickly:
- On 20 March 2020, the Prime Minister instructed cafes, pubs, bars and restaurants to close, while allowing takeaway services to continue.
- On 21 March 2020, the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 made those closures legally enforceable.
- On 23 March 2020, the Prime Minister told the public “you must stay at home” and announced the closure of shops selling non-essential goods.
- On 26 March 2020, the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 replaced the earlier rules. Regulation 4 required the closure of further businesses. Regulation 5 restricted retail shops, holiday accommodation and places of worship.
The Financial Conduct Authority brought proceedings under the Financial Markets Test Case Scheme. That scheme allows the courts to decide issues of general market importance without waiting for individual disputes.
There were eight defendant insurers:
- Arch
- Argenta
- Ecclesiastical
- Hiscox
- MS Amlin
- QBE
- RSA
- Zurich
The parties agreed a representative sample of policy wordings and a set of assumed facts. The aim was maximum clarity for the maximum number of policyholders, consistent with speed and proportionality. Beyond the sample policies, an estimated 370,000 policyholders, over 60 insurers and some 700 policy types could be affected.
The Commercial Court found substantially in favour of policyholders in September 2020. The parties then appealed directly to the Supreme Court, which gave judgment in January 2021. Lord Hamblen and Lord Leggatt gave the main judgment, with which Lord Reed agreed. Lord Briggs gave a concurring judgment, with which Lord Hodge agreed.
The judgment decided cover in principle. It did not award compensation to any individual business. A successful claim still depends on:
- The complete policy wording, schedule and endorsements.
- The insured premises and business activities.
- Any relevant exclusion, limit or excess.
- The applicable government restriction or local disease occurrence.
- Evidence proving the financial loss.
Why Does the Full Policy Wording Matter?
A policy summary rarely provides enough information to assess cover. The decisive wording often sits in an extension, endorsement or definition elsewhere in the policy. The test case turned on small differences between clauses, so a business cannot assume its policy matches one of the sample wordings.
What Questions Did the Court Decide About COVID-19 Business Interruption Cover?
The appeal concerned four types of wording:
- Disease clauses, which cover interruption caused by a notifiable disease at or within a stated radius of the premises.
- Prevention-of-access clauses, which cover interruption caused by public authority action affecting access to or use of the premises.
- Hybrid clauses, which combine disease and access elements.
- Trends clauses, which quantify loss by reference to how the business would have performed without the insured peril.
What Is a Disease Clause, and Did a Local Case Have to Cause the Loss on Its Own?
The question was what a radius clause actually insured.
- The insurers’ argument: the clause covered only the consequences of cases inside the radius, and those cases could not have caused national restrictions that would have happened anyway.
- The FCA’s argument: once at least one case occurred within the radius, the clause covered the consequences of the disease wherever it occurred.
Hiscox raised a separate point on its wordings, which had no radius. It argued that an “occurrence” must mean something local, small-scale and specific to the policyholder.
Did Government Announcements Count as Restrictions?
Many policies required “restrictions imposed” by a public authority.
- The insurers’ argument: “imposed” meant compulsory measures made under legal powers, so only the regulations counted.
- The FCA’s argument: clear mandatory instructions, such as the announcements of 16, 20 and 23 March 2020, qualified even without legal force.
Hiscox also argued that a restriction had to be directed at the policyholder or its premises.
Did Partial Closure Amount to Inability to Use or Prevention of Access?
This was the question for every business that kept some trade going.
- The insurers’ argument: Hiscox said the policyholder had to be completely unable to use the premises. Arch said there was no prevention of access if the premises stayed accessible for part of the business.
- The FCA’s argument: losing a discrete business activity, or a discrete part of the premises, was enough.
A related dispute was whether “interruption” meant a complete stop or included interference with normal trading.
Could Insurers Rely on the Wider Pandemic to Reduce or Defeat Claims?
The insurers’ central argument was that policyholders would have suffered the same or similar losses even without the insured peril. On that view, the national pandemic was the real cause. Trends clauses should also reduce any payment for losses the pandemic would have caused anyway, including downturns before cover began.
The insurers relied heavily on Orient-Express Hotels Ltd v Assicurazioni Generali SpA (trading as Generali Global Risk) [2010] EWHC 1186 (Comm). In that case, a hotel damaged by hurricanes could not recover losses caused by wider damage to the surrounding city of New Orleans.
What Did the Court Decide About Disease Clauses, Prevention of Access and Causation?
The insurers’ appeals were dismissed. The Court accepted some of their arguments, but none changed the outcome of any appeal. The FCA’s appeal was allowed on two grounds outright and on two further grounds in qualified terms.
How Did the Court Interpret Disease Clauses?
Radius-based disease clauses cover only the effects of COVID-19 cases within the stated area. The Court rejected the FCA’s wider reading:
“No reasonable reader of the policy would understand the words ‘any … occurrence of a Notifiable Disease within a radius of 25 miles …’ to include any occurrence of a Notifiable Disease outside a radius of 25 miles.”
Each case of illness was a separate occurrence. Cases outside the radius did not stop a local case from causing the loss. This applied to the RSA, Argenta, MS Amlin and QBE disease wordings.
The Hiscox wordings had no radius. The Court refused to imply a local or small-scale limit, so each case was an occurrence wherever it happened. Cover still depended on the clause’s other requirements.
RSA also argued that a general exclusion for “epidemic and disease” removed cover. The exclusion appeared on page 93 of a 93-page policy, while the infectious disease cover appeared on page 38. The Court held that a reasonable small business policyholder would not read the exclusion as removing cover that the policy expressly granted.
When Can a Government Instruction Qualify as a Restriction?
A restriction usually means a mandatory measure made under legal powers, but legal force is not always essential. The test is:
“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.”
The instruction must be clear enough for the recipient to know what compliance requires. On that basis, mandatory announcements such as the Prime Minister’s 20 and 23 March 2020 instructions to close certain businesses could be restrictions. They could qualify before the 21 and 26 March Regulations gave legal force to those closures. The Court identified the 20 March instruction, requiring named businesses to close that night, as capable of qualifying even though it was not yet enforceable.
Restrictions did not have to be directed specifically at the policyholder or its premises. However, advice, exhortations, social distancing and stay-at-home instructions did not amount to an “enforced closure” under RSA’s wording.
Can a Business Claim If It Continued Trading Through Other Channels?
Yes, potentially. Inability to use the premises requires real inability, not mere hindrance. However, it does not require loss of every part of the premises for every purpose:
“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.”
The Court gave examples:
- A bookshop unable to serve walk-in customers but able to take telephone orders.
- A department store required to close everything except its pharmacy.
- A restaurant unable to serve diners but able to offer takeaway.
Prevention of access works the same way. Access must be stopped, not merely hindered. However, prevention of access to a dining area, or for dine-in service, can qualify.
Interruption does not require total cessation. Interference with normal business can be enough, provided it has a material effect on financial performance.
Cover is limited to the affected activity. A restaurant claims only for lost dine-in trade. A travel agent claims only for lost walk-in business, not for unaffected internet or telephone sales.
How Did the Court Apply Causation?
The Court rejected the insurers’ argument that policyholders would have suffered the same losses anyway because of the national pandemic. It held that the “but for” test is not an invariable minimum requirement. That test can give false answers where many causes combine.
Each case of COVID-19 that informed the government’s response was a separate and equally effective cause of the national measures. A policyholder with a disease clause therefore needs to prove that the government action causing the interruption responded to cases including at least one case within the radius. It does not need to prove that the local case was necessary or sufficient on its own. The wording of the causal link, such as “following” or “arising from”, made no difference.
The Court also rejected QBE’s attempt to weigh cases inside the radius against the far larger number outside it. Because the loss was indivisible, causation was all or nothing.
Prevention-of-access and hybrid clauses require each element to occur in sequence. For Hiscox, that sequence was disease, restrictions, inability to use and interruption causing loss. Where that insured sequence and other non-excluded consequences of the pandemic were concurrent causes, the policy responded. The position differs only where the insured peril was not a cause at all. An example would be a travel agent whose loss came solely from travel restrictions.
The Supreme Court overruled Orient-Express Hotels. The hotel damage and the city damage were concurrent causes arising from the same hurricanes, and the wider damage was not excluded.
How Should Trends Clauses Affect Loss Calculation?
Trends clauses are machinery for calculating loss. They cannot remove cover that the insuring clause grants. The Court held:
“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 same applies to a downturn before cover was triggered. A fall in takings caused by COVID-19 before lockdown cannot be carried forward to reduce the indemnity.
How Does the Decision Affect Policyholders, Insurers and Brokers?
FCA v Arch Insurance meant that many declined claims became covered in principle. The FCA reported that by mid-2021 insurers had paid or committed to pay over £1.2 billion in COVID-19 business interruption claims as a result of the test case.
What Should Businesses With Declined or Underpaid Claims Do?
Businesses with disease, prevention-of-access or hybrid clauses in standard-form policies could revisit rejected claims. That includes businesses that accepted a denial or settled for a reduced amount.
Hospitality, retail and leisure businesses should build claims activity by activity, for example dine-in versus takeaway, or walk-in versus online. Insolvency practitioners, creditors and lenders should check whether a business or estate holds an unresolved claim under similar wording, because that claim may be a valuable asset.
What Changed for Insurers?
Insurers faced significantly higher claims costs and had to revisit many declined claims. Some faced regulatory scrutiny and customer complaints where they had been slow to pay or had applied overly narrow interpretations.
Insurers can still reject losses where the insured peril was not a cause at all, or where a claimed activity was never interrupted. If insurers want outside-radius cases or pandemics to exclude cover, they need clear wording.
When Could a Broker Negligence Claim Arise?
A broker dispute is separate from a coverage dispute. It may arise where a broker:
- Advised that pandemic losses would not be covered.
- Failed to explain an important exclusion or limitation.
- Placed cover that did not respond to the business’s known needs.
- Failed to advise on a suitable extension or endorsement.
The questions are what the broker was asked to arrange, what advice it gave, what it placed, and whether that caused financial loss. You may find our guide on professional negligence claims against insurance brokers useful.
What Does the Judgment Mean for Future Insurance Policies?
The judgment remains the leading authority on business interruption cover, causation and trends clauses. Its reasoning is relevant to other widespread perils, such as cyber-attacks, supply-chain disruption, future pandemics and climate-related losses.
It does not override clear exclusionary wording. Many insurers introduced explicit pandemic exclusions or sub-limits in policies renewed from 2021 onwards.
How Can You Review a COVID-19 Business Interruption Claim in 2026?
A structured review shows whether your dispute concerns cover, causation, valuation or broker advice.
What Documents Should You Gather?
Obtain:
- The complete policy, schedule and endorsements.
- Renewal documents and broker correspondence.
- The original claim and the insurer’s decision.
- Loss-adjuster correspondence.
- Management accounts, VAT returns and payroll records.
- Sales data by channel, such as dine-in, takeaway, delivery, online and telephone sales.
- Booking records, cancellation data and till reports.
- Staffing records, premises plans and evidence of when activities stopped or restarted.
How Should You Compare the Claim With FCA v Arch?
Identify the relevant clause and ask:
- Was there a disease occurrence within the required area?
- Was there a qualifying public authority restriction?
- Was a distinct business activity or part of the premises unavailable?
- Did the insured peril cause the interruption?
- Has the insurer wrongly adjusted for pandemic effects, including a pre-lockdown downturn?
- Does an exclusion, limit or settlement agreement affect the claim?
What Are the Time Risks?
Delay can make a claim time-barred and weaken the evidence. The limitation period is typically six years from the date of loss, but policy terms may impose a shorter period.
Many COVID-19 losses began in March 2020, so for some businesses a six-year period may expire during 2026. Any unresolved or previously declined claim should be reviewed urgently.
Frequently Asked Questions About FCA v Arch Insurance
Get Expert Help With Your COVID-19 Business Interruption Claim
Cover after FCA v Arch is never automatic. It turns on your wording, the activities you lost and how well your financial evidence separates affected trade from trade that continued. With limitation deadlines approaching for many March 2020 losses, delay could prevent recovery altogether.
Our solicitors can review declined or underpaid claims, challenge trends clause deductions and advise on claims against insurers or brokers where appropriate. Call us on 0207 459 4037 or book a free consultation to discuss your policy.
