FCA v Arch Insurance (UK) Ltd [2021] UKSC 1

Category: Insurance case law · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~6 min read

How the case arose

In 2020 the Financial Conduct Authority brought a test case under the Financial Markets Test Case Scheme to resolve, quickly and for the market as a whole, whether business interruption wordings responded to losses connected with COVID-19 and the public health measures taken in response to it. Rather than leave thousands of individual policyholders to litigate one at a time, the regulator selected a sample of wordings and asked the court to construe them. Twenty-one lead policies and twenty-eight clauses were put before the court.

The Divisional Court (Flaux LJ and Butcher J) gave judgment on 15 September 2020, finding for policyholders on many issues and for insurers on others. Because the questions were of general importance, the case leapfrogged the Court of Appeal and went straight to the Supreme Court, which heard argument over four days from 16 to 19 November 2020. Appeals were brought both by the FCA and the Hiscox Action Group on some issues, and by six insurers on others. Judgment was handed down on 15 January 2021 as The Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2021] UKSC 1.

The three families of clause

The wordings before the court fell into three broad groups. Disease clauses responded to business interruption following an occurrence of a notifiable disease within a stated distance of the insured premises — commonly one mile or twenty-five miles. Prevention of access clauses responded to interruption caused by action or restrictions imposed by a public authority preventing or hindering access to, or use of, the premises. Hybrid clauses combined elements of both, typically requiring an inability to use the premises due to restrictions imposed following a notifiable disease.

The court also had to construe trends clauses — the machinery in the quantification provisions that adjusts the pre-loss trading figures to reflect what would have happened but for the damage or interruption, so that the settlement represents the loss actually caused.

What was held on the disease clauses

The Supreme Court held that a disease clause of this kind is not confined to the effects of the disease within the specified radius. Where the interruption was caused by the national response to a nationwide outbreak, every individual case of COVID-19 that had occurred by the date of a given government measure was an equally effective proximate cause of that measure and of the resulting interruption. It followed that a policyholder needed to show only that at least one case had occurred within the radius, not that cases inside the radius had made a difference to what the government did.

That reasoning departs from a strict “but for” test. The Court accepted that where a loss is brought about by a large number of separate but similar causes acting together, none of which would on its own have been sufficient, the requirement is that the insured peril was one of a number of equally effective causes, not that it passed a but-for test on its own.

What was held on prevention of access and hybrid clauses

The Court rejected the narrower construction adopted below on the meaning of “restrictions imposed” by a public authority. An instruction given by a public authority may amount to a restriction imposed where it carries the imminent threat of legal compulsion, or is expressed in mandatory terms indicating that compliance is required, even if it has not yet been put into statutory form.

The Court also read the surrounding language more generously than the Divisional Court had. Concepts such as inability to use premises, and interruption of the business, were held to be capable of applying to the loss of use of a discrete part of the premises, or to the inability to carry on a discrete part of the business activities, rather than requiring the complete cessation of everything the insured did.

Trends clauses and the counterfactual

The Supreme Court held that a trends clause must be construed consistently with the insuring clause it serves. Its function is to arrive at the results the business would have achieved but for the insured peril — not to strip out, at the quantification stage, the very consequences the insuring clause was written to cover.

The practical consequence is that adjustments for trends and circumstances should not take account of circumstances arising out of the same underlying or originating cause as the insured peril. Where the insured peril and the wider circumstances share a single originating cause, the counterfactual is constructed as if that cause and its effects had not occurred at all.

Orient-Express Hotels overruled

The Divisional Court had felt bound to grapple with Orient-Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm), an arbitration appeal in which a hotel damaged by hurricanes recovered little because the surrounding city had been devastated in any event. The Supreme Court concluded that Orient-Express was wrongly decided and should be overruled, holding that the tribunal and the court had applied the but-for test mechanically to concurrent causes and had allowed the trends clause to eliminate the cover the insuring clause had granted.

Overruling a first-instance decision is unusual and marks the significance the Court attached to the point. It is the reason the case is now cited well beyond pandemic disputes.

Why the case matters

For a commercial buyer the enduring significance of [2021] UKSC 1 is not any particular COVID-19 outcome but three points of general application. First, causation in insurance is a question of construction of the particular clause, and a but-for test is not always the right tool where causes act concurrently. Second, quantification machinery cannot be used to take away what the insuring clause has given. Third, the case is a demonstration of how much turns on a handful of words — the difference between wordings that responded and wordings that did not was often a matter of a single qualifying phrase.

The case is also a reminder of what a test case is and is not. It construed a sample of wordings for the market. It did not decide any individual claim, and it did not create a general entitlement to recover; each policy still had to be read against its own facts.

Frequently asked questions

What is FCA v Arch Insurance about?

It is the Supreme Court judgment in the FCA's business interruption test case, handed down on 15 January 2021 with the neutral citation [2021] UKSC 1. The regulator asked the court to construe a sample of twenty-eight clauses across twenty-one lead policies so that the market had authoritative answers rather than thousands of separate disputes.

Which court decided it and when?

The Divisional Court gave the first judgment on 15 September 2020. The case then leapfrogged the Court of Appeal and was heard by the Supreme Court from 16 to 19 November 2020, with judgment given on 15 January 2021.

What did the Supreme Court say about causation?

It held that where a loss results from many separate but similar causes acting together, the insured peril need only be one of a number of equally effective proximate causes. A strict but-for test is not the universal measure of causation in insurance, and the right question is always what the particular clause means.

Is Orient-Express Hotels still good law?

No. The Supreme Court concluded that Orient-Express Hotels Ltd v Assicurazioni Generali SpA was wrongly decided and should be overruled, rejecting its approach to concurrent causation and to the effect of trends clauses.

Related entries

• Proximate cause
• Business interruption insurance
• Contract certainty
• Reservation of rights
• Business interruption insurance UK

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

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.