The FCA business interruption test case: what it settled

Category: Business interruption · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~6 min read

What the case was

In 2020 the Financial Conduct Authority brought proceedings under the Financial Markets Test Case Scheme seeking declarations on the meaning and effect of a sample of business interruption wordings, so that the point did not have to be litigated policyholder by policyholder. The Divisional Court gave judgment in September 2020. The case then went directly to the Supreme Court, which gave judgment on 15 January 2021 as Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1. A separate case note covers the decision itself; this entry deals with what the litigation settled for reading a business interruption wording.

Why non-damage extensions were the issue

The core of a business interruption section responds to interruption following damage insured under the property section. Many commercial policies add non-damage extensions: cover for interruption caused by a notifiable disease occurring within a stated radius, by action of a public authority preventing or restricting access to the premises, or by a combination of the two. Those extensions had rarely been tested at scale. The test case was about them, not about the damage-triggered core.

Disease clauses

The insured peril in a disease clause is conventionally the occurrence of a notifiable disease within a specified distance of the premises. The Supreme Court’s approach was to treat the clause as covering business interruption caused by the disease where cases occurred within the radius, rather than only interruption caused by those particular local cases considered in isolation. On causation, individual occurrences of the disease were treated as concurrent causes each of which was an effective cause of the interruption, so an insured did not have to show that cases inside the radius were the sole or dominant cause. The practical reading point is that the radius identifies the trigger, and does not by itself confine the loss recoverable to what the local cases alone would have produced.

Prevention of access and public authority clauses

These clauses were construed more narrowly and much more closely on their own words, and the differences between wordings mattered. Two points had general application. Closure or restriction need not have been imposed by a legally binding instrument to count as action of a public authority under some wordings; instructions given with the force of law behind them could suffice. And a partial closure could engage a clause depending on how the clause was framed, so that a business forced to shut part of its operation was not automatically outside cover. The corollary is that words such as “prevention”, “hindrance”, “restriction”, “inability to use” and “closure” are not interchangeable, and the exact term used decides the answer.

Hybrid clauses

Hybrid clauses combine disease and access language, requiring for example an inability to use the premises due to restrictions imposed following an occurrence of a notifiable disease. The Supreme Court read the disease element of these clauses consistently with its approach to pure disease clauses, while the access element continued to be governed by its own words. Hybrid wordings therefore have to be broken into their component conditions and tested one at a time.

Trends clauses and the counterfactual

This is the part with the widest application beyond the pandemic. A trends or adjustment clause is machinery for calculating what the business would have earned had the insured peril not occurred. The Supreme Court held that such a clause cannot be used to strip out the very effects of the insured peril: the counterfactual assumes away the insured peril and its underlying cause, not the wider circumstances of which the insured peril forms part. So valid claims were not to be reduced on the basis that the loss would have happened anyway because of the pandemic generally.

Orient-Express and wide-area damage

Consistently with that, the Supreme Court held that Orient-Express Hotels Ltd v Assicurazioni Generali SpA, the 2010 decision that had allowed insurers to argue that a hotel would have lost trade anyway because the surrounding city was devastated, was wrongly decided. That has consequences well outside disease cover. In any wide-area event — storm, flood, earthquake, civil disturbance — the argument that a damaged business would have suffered the same loss because its neighbourhood was affected anyway no longer holds in the form it previously took.

How to read a business interruption wording after the case

Six checks follow. Identify whether the extension is disease, prevention of access, hybrid or something else, because the construction differs. Read the trigger precisely: the radius, the notifiability requirement, whether an occurrence must be at the premises or within an area. Read the operative words of any access clause literally. Check the trends or adjustment clause and how it defines the counterfactual. Check the limits and how they apply — per premises, per occurrence, or in the aggregate — because on non-damage extensions the sub-limit is frequently the binding constraint. And check the indemnity period, which on non-damage extensions is often much shorter than on the main section.

What followed

The FCA issued guidance for firms on the handling of these claims, including on the evidential question of proving the presence of the disease within a policy radius, and wrote to insurer chief executives about settling affected claims promptly. Insurers also revised non-damage extensions in subsequent policy years, in many cases narrowing or removing them. That is itself a reading point: the fact that a wording was held to respond in 2021 says nothing about the wording offered at the next renewal.

Why it matters

The test case is the reference point for how English courts construe non-damage business interruption cover and how they treat causation in a wide-area event. For a commercial buyer, the practical inheritance is a checklist — trigger, operative words, trends clause, sub-limit, indemnity period — that should be run over any policy relied on for interruption not caused by damage.

Frequently asked questions

What did the Supreme Court actually decide in the business interruption test case?

In its judgment of 15 January 2021 the Supreme Court construed sample disease, prevention of access and hybrid wordings, held that trends clauses cannot be used to strip out the effects of the insured peril, and held that Orient-Express Hotels Ltd v Assicurazioni Generali SpA was wrongly decided. The result was that a number of sample wordings responded to pandemic-related interruption.

Does the case mean all business interruption policies cover pandemics?

No. It decided the meaning of sample wordings. Whether any particular policy responds depends on its own terms, and many non-damage extensions were narrowed or withdrawn in policy years after 2021. The case supplies the method of construction, not a universal answer.

Why does the case matter to losses that have nothing to do with disease?

Because of the trends clause and Orient-Express findings. In any wide-area event, an insurer can no longer reduce a claim on the basis that the business would have suffered the same loss anyway because the surrounding area was affected. That reasoning applies to storm, flood and similar events as much as to disease.

Related entries

• Business interruption insurance
• Business interruption insurance UK
• PI business interruption extension
• Proximate cause
• Declaratory judgment

This entry is part of the Apex Insurance Wiki. Last reviewed 2026-08-22. Next review: 2027-02-22. It is insurance information, not legal advice, and it states the position as at August 2026.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.