On Jan. 15, 2021, the U.K. Supreme Court issued a judgment in favor of the Financial Conduct Authority ruling that policyholders are entitled to coverage for business interruption loss incurred due to shutdowns caused by the COVID-19 pandemic in a test case interpreting the language of 21 different U.K. policy forms issued by eight insurers. While this is big news for U.K. policyholders, the judgment is unlikely to have a significant impact on the business interruption coverage disputes pending in the United States. First, the ruling is based on U.K. procedural and substantive law. But perhaps more important, the U.K. Supreme Court did not address the interpretation or application of the direct physical loss or damage requirement that is central to the disputed claims here in the United States. The Financial Conduct Authority v. Arch Insurance [2021] UKSC 1 (on appeal from [2020] EWHC 2448).

Physical Loss or Damage Requirement

Like most domestic insurance policies issued in the United States, the basic business interruption coverage provided by the U.K. policies insures loss due to business interruption caused by physical loss or damage to property. However, unlike most domestic policies, the U.K. policies addressed by the court also include a series of coverage extensions that insure loss due to business interruption even in the absence of physical loss or damage to property. Since the recent ruling focused on these coverage extensions, the U.K. Supreme Court did not discuss in what context the presence of COVID-19 on or near a given property would satisfy the physical loss or damage requirement.

Disease Clauses