English High Court Rules for Policyholders in FCA's COVID-19 Test Case

In a significant victory for policyholders, the English High Court handed down judgment in the UK FCA's COVID-19 Business Interruption Test Case ("Test Case"). Brought on behalf of thousands of policyholders, the FCA's Test Case asked the English Court in June 2020 to provide an urgent declaratory judgment to address "significant uncertainty" on the scope of common business interruption insurance policy wordings in the UK market and whether they apply to COVID-19-related losses. 

While there are ongoing disputes between policyholders and insurers regarding whether COVID-19 causes physical loss or damage (for policies containing such cover), the FCA's Test Case focused on addressing a number of sample policy wordings that are not triggered by physical loss or damage to property, specifically: those offering coverage against "disease," those concerned with "prevention of access" and "hybrid clauses" concerning both.

Addressing these sample policy wordings, the English High Court issued a judgment broadly favourable to policyholders. In particular:  

• With respect to "disease" coverage, the court determined that there was no requirement in the relevant wordings for the disease to occur only within the notifiable area, concluding that it was sufficient that there be some instance of COVID-19 within the notifiable area. Once coverage is established and when assessing the quantum of loss suffered, the court held that the insured's business position as it is in fact should be compared with the position the business would have been in had COVID-19 not occurred and there had been no national lockdown. In that regard, the court dismissed the insurers' argument that the national lockdown outside of the notifiable area must be taken into account as "contrary to principle." 
• With respect to "denial of access" wordings, the court determined that whether such coverage was triggered would continue to depend upon specific policy language and the particular facts of each claim, including whether such provisions expressly required a complete denial of access of the insured premises. 
• With respect to the COVID-19 pandemic itself, the court determined that the "initial outbreak" of COVID-19 was on 31 December 2019, when the first cases in Wuhan were reported to the World Health Organization. Notably, the court also determined that COVID-19 "manifests" itself via both symptomatic individuals and asymptomatic individuals who test positive for COVID-19. 

The FCA has confirmed that the consequentials hearing in the Test Case will take place on 2 October, at which time the court will hear submissions from the parties on the appropriate declarations to be made by the court in light of the judgment and on any applications for permission to appeal.

While the overall litigation landscape for COVID-19-related insurance coverage disputes is still in its early stages, the English High Court's judgment in the FCA's Test Case is an important confirmation of the potential availability of insurance coverage for COVID-19-related losses. A copy of the judgment can be found here and should be reviewed carefully to ascertain its potential impact on and relevance to specific policies.