The pro-policyholder verdict handed down by the UK’s Supreme Court on disputed business interruption claims (BI) raises questions about the reinsurance implications of Covid-19 but does not govern the reinsurance response to losses, according to Guy Carpenter.


In a note, reinsurance intermediary Guy Carpenter noted that the UK Supreme Court’s January decision in the Financial Conduct Authority’s (FCA) test case cannot be invoked outside of its primary insurance context and any attempt to do so would be “inconsistent” with the Court’s ruling.

“Because the test case addressed fundamentally different coverage questions, its findings do not govern the reinsurance response to Covid losses,” Guy Carpenter explained.

It added: “The Court was deciding whether insurers were liable under a primary BI disease extension – nothing more.”

While the Court ruled that some forms of BI insurance cover Covid losses, the broker said that the Court adopted a “narrow definition” of what constitutes an occurrence of Covid-19 that has raised questions about the meaning of the word “occurrence” in other contexts.  

This narrow definition of “occurrence” in the test case could not also apply in the reinsurance context, GC added – specifically in the context of “Loss Occurrence” clauses or “aggregation provisions” within catastrophic excess of loss treaties.

“The test case does not interpret words or terms in the context of a reinsurance contract. On the contrary, the Court was interpreting a primary property BI policy and was clearly influenced by numerous features of such a policy,” it said.

The broker noted a similar issue with the Supreme Court’s interpretation of “event”.

UK commercial insurers participating in the FCA test case…

In a complex judgment extending to 112 pages, the UK’s highest court sided with the High Court’s September ruling which found considerably in favour of the UK’s FCA and, in turn, hundreds of thousands of SME policyholders in the BI test case.

GC’s comments came after The Insurer reported last week, UK commercial insurers and the FCA are once again disagreeing over Covid-19 losses, this time over some aspects of last month’s landmark Supreme Court judgment.

The disagreement stems from a series of draft declarations – published by the FCA on 15 February –that the parties are asking the Supreme Court to make following its recent ruling.

These declarations are intended to capture the recent decisions of the Commercial Court and Supreme Court, and provide clarity around specific examples of potential liability.