FCA Test Case Set For Monday Supreme Court Showdown

By Martin Croucher
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Law360, London (November 13, 2020, 1:22 PM GMT) -- Britain's highest court will hear on Monday a landmark case brought by the Financial Conduct Authority that will determine whether 370,000 businesses forced to close during the first COVID-19 lockdown will be able to claim on their insurance.

It is hoped that the four-day Supreme Court hearing will determine whether the six insurance companies that are still in the case will be obliged to pay out on business interruption claims.

The test case was brought by the FCA, which wants to establish whether a representative sample of eight insurers with 21 policy wordings would have to pay out on claims to thousands of businesses forced to close during the country's first COVID-19 lockdown, which started in March.

Judges ruled mostly in favor of policyholders at the High Court in September. But the City regulator said in its written case, published on Wednesday, that there are inconsistencies in the judgment that meant insurers could effectively reduce any claims payout "almost to zero."

The FCA, six insurers and a group of policyholders were granted permission by the High Court on Oct. 2. to appeal the judgment directly to the Supreme Court, bypassing the Court of Appeal. 

The legal challenge will focus on so-called disease clauses and prevention of access clauses in the wording of business interruption policies that are being considered in the case. Justices will also look at "hybrid" wording that includes elements of both clauses.

The court will also examine whether the High Court was right in its analysis of the precedent set down in the controversial case of Orient-Express Hotels Ltd. v. Assicurazioni Generali SpA. That case has had huge ramifications for causation arguments in insurance litigation in recent years.

In that case, New Orleans-based Orient Express was seeking to claim against its business interruption policy after storm damage arising from Hurricane Katrina meant its hotel was closed for two months in 2005.

Both the High Court and the Court of Appeal found that the hotel would have suffered business losses even if it had not been damaged, because New Orleans was effectively forced to shut down after the hurricane. Rather than the $2.15 million it was seeking from insurers, the hotel was therefore allowed to claim only a limited amount on its policy — as if it had been an undamaged hotel in a damaged city.

Judges Christopher Butcher and Julian Flaux said in September's ruling that Orient Express had no relevance to the test case. But they would have ruled that it was "wrongly decided" even if they had been forced to consider it, the judgment said.

Five justices will hear the case in the Supreme Court: Robert Reed, Patrick Hodge, David Kitchin, Nicholas Hamblen and George Leggatt.

In an unusual twist, Leggatt was one of the arbitrators in the Orient Express case, and Hamblen was the High Court judge who ruled in favor of insurer Generali in the appeal.

The FCA is represented by Colin Edelman QC of Devereux Chambers, Peter Ratcliffe and Adam Kramer of 3 Verulam Buildings, and Max Evans of Fountain Court Chambers, instructed by Herbert Smith Freehills LLP.

Arch Insurance UK is represented by John Lockey QC and Jeremy Brier of Essex Court Chambers, instructed by Clyde and Co LLP.

Argenta Syndicate Management Ltd. is represented by Simon Salzedo QC and Michael Bolding of Brick Court Chambers, instructed by Simmons & Simmons LLP.

Hiscox is represented by Jonathan Gaisman QC, Adam Fenton QC and Douglas Grant of 7 King's Bench Walk, and Miles Harris of 4 New Square, instructed by Allen & Overy LLP.

MS Amlin Underwriting Ltd. is represented by Gavin Kealey QC, Andrew Wales QC, Sushma Ananda and Henry Moore of 7 King's Bench Walk, instructed by DAC Beachcroft LLP.

QBE UK Ltd. is represented by Mark Howard QC and Sarah Bousfield of Brick Court Chambers and Rachel Ansell QC and Martyn Naylor of 4 Pump Court, instructed by Clyde and Co LLP.

RSA is represented by David Turner QC, Shail Patel, Anthony Jones and Clare Dixon of 4 New Square, instructed by DWF Law LLP.

Zurich Insurance PLC is represented by Andrew Rigney QC and Caroline McColgan of Crown Office Chambers and Craig Orr QC and Michelle Menashy of One Essex Court, instructed by Clyde and Co LLP.

The Hiscox Action Group is represented by Ben Lynch QC, Simon Paul and Nathalie Koh of Fountain Court Chambers, instructed by Mishcon de Reya LLP.

The lead case is Financial Conduct Authority (Appellant) v. Arch Insurance (UK) Ltd. and others (Respondents), case number UKSC 2020/0177, in the Supreme Court of the United Kingdom.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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