Reed Smith Client Alerts

As an update to our article (available on reedsmith.com) on the next steps for policyholders following the High Court’s judgment in The Financial Conduct Authority v Arch and Others (the Judgment)1, on Friday, 2 October 2020, the court addressed consequential matters arising out of the Judgment.

The issues before the court were:

  1. the form and language of the declarations to be made by the court as to the effect of the Judgment;
  2. applications for ‘leapfrog’ certificates to allow applications directly to the Supreme Court (UKSC), rather than the Court of Appeal, for permission to appeal; and
  3. whether to allow an application to intervene made by QIC Europe Limited.

In this article, we provide further detail on the above points and discuss potential future appeals in this important test case.

Authors: Peter Hardy Margaret E. Campbell Mark Pring Laura-May Scott Catherine Lewis Emily McMahan

The Declarations

The court is due to make a series of declarations as to the effect of the Judgment (the Declarations). There were a number of disputes between the FCA, the Insurers and Hiscox Action Group and Hospitality Insurance Group Action (the Interveners) as to the language properly required to give effect to the findings in the Judgment. In particular, all parties were cognisant of the need for clarity and certainty as the Judgment would be relied upon by many, including other insurers, policyholders and fact-finding tribunals, who were not directly involved in these proceedings.

Prevalence

There was significant debate surrounding the court’s findings regarding prevalence and the evidence that a policyholder would need to produce to demonstrate an occurrence of COVID-19. This highlighted one of the limitations of the test case: evaluating the evidence regarding occurrences of COVID-19 as required by the terms of a specific policy will ultimately be a fact-specific exercise.

Insurers had sought to include language to the effect that such evidence was ‘reliable’. The court had not heard evidence on the issue of ‘reliability’ at the trial and accordingly, supported the FCA’s position that it would be inappropriate to include the word ‘reliable’ in the Declarations.

There were also submissions as to whether the Declarations could specify the types of evidence that would discharge the burden on a policyholder. The FCA preferred this approach as it would create certainty for policyholders, but Insurers strongly resisted the notion that specific types of evidence should be referenced in the Declarations.

Ultimately, there appeared to be significant caution on the part of the court as to whether the Declarations could go so far as to say that any piece of evidence ‘will’ discharge the burden of proof in circumstances where they had not considered the specific evidence on which to base that conclusion. The court found that the wording ‘may discharge’ would be more appropriate.