In a welcome decision for policyholders who suffered loss due to business closure during the COVID-19 pandemic, in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481 (Comm) the Commercial Court has provided further clarity on the approach to business interruption (BI) insurance policies. By confirming that the test for proximate causation set out in the Supreme Court's landmark decision in Financial Conduct Authority v Arch Insurance (UK) Ltd (2021) (the FCA Test Case) is also applicable to "at the premises" cover, the Commercial Court has opened the doors to further claims.
Background
The decision was made following a hearing of preliminary issues in six expedited test cases concerning claims for losses suffered by various policyholders, including the Excel Centre in London and the Pizza Express restaurant group, all of which were required to close as part of the UK Government's response to COVID-19.
The policyholders each had a form of "at the premises" cover in their business interruption insurance policies which, although worded slightly differently, essentially provided an indemnity for loss arising from closure as a result of the outbreak or occurrence of a notifiable disease at the insured's premises.
Causation in the FCA Test Case
"At the premises" clauses were not specifically considered in FCA Test Case, which instead considered clauses which provided cover for business interruption (BI) loss in consequence of the outbreak or occurrence of a relevant disease within a specified radius of the insured's premises.
The Supreme Court essentially held that these "radius" clauses only provided cover in respect of BI loss caused by those cases of COVID-19 which occurred within the specified radius. However, it could not be said that any individual case of COVID-19 on its own caused the Government to introduce restrictions which led to BI loss. Instead, the Government measures were a response to all the cases of COVID-19 in the country as whole, and so each case of COVID-19 was a separate and equally effective cause of the Government restrictions. Provided a policyholder could demonstrate an occurrence of illness resulting from COVID-19 in the relevant radius, there would be cover.
In reaching this conclusion, the Supreme Court rejected a "but for" test of causation (that policyholders would have suffered loss even if there had been no occurrence of COVID-19 within the radius), or a "weighting approach" (that it was necessary to weigh the relative impact of occurrences within the radius by comparison with those outside).
The decision
In Excel, the policyholders argued that the Supreme Court's approach to proximate causation in the FCA Test Case should also apply to "at the premises" clauses. However, insurers contended that there was a fundamental difference between "radius" clauses and "at the premises" clauses, and so either a "but for" causation test should apply to "at the premises" clauses, or alternatively it was necessary to consider whether the outbreak of disease at the premises was a "distinct" cause of closure.
However, Mr Justice Jacobs ultimately rejected the insurers' arguments, holding there was no principled reason why different causation analyses should apply to "radius" and "at the premises" clauses.
In doing so he noted that:
- In reaching its decision in the FCA Test Case, the Supreme Court had relied upon the list of relevant diseases in the policies, many of which were highly contagious and infectious, and therefore had potential to be widespread and to call for a response not solely responsive to cases within the radius. This reasoning was equally applicable to "at the premises" clauses.
- There was ultimately no dispute that the breadth of the relevant radius clause would not change the applicability of the causation test in the FCA Test Case, which would apply whether the given radius was as broad as 25 miles or as narrow as 250 metres. Logically, the radius could be shrunk even further, to the premises itself, providing further support for the view that the same test should apply to "at the premises" clauses.
- The Supreme Court's decision had also been reinforced by the fact that the relevant radius clauses did not confine cover to a situation where BI loss resulted only from cases of disease within the radius. This "fundamental" point was equally applicable to "at the premises" clauses.
- The Supreme Court considered it was appropriate to have an approach that was clear and simple to apply, and a "but for" test gave rise to "intractable counterfactual questions". In Excel the insurers' arguments for a "distinct" cause were similarly nothing like as clear and simple as the concurrent cause approach adopted in the FCA Test Case.
Other issues
Mr Justice Jacobs went on to address a number of further issues in the six cases, concluding that:
- Cases of COVID-19 which occurred before it was made a "notifiable" disease (ie, when it was added to the list of diseases in the relevant regulations) were not capable of falling within the scope of the cover.
- Clauses which referred to the "Medical Officer of Health of the Public Authority" (a role which has not existed for over 50 years) included the Chief and/or Deputy Chief Medical Officers for England and Wales. Accordingly a requirement in the policies that any closures or restrictions be "on the advice or with the approval of the Medical Officer of Health for the Public Authority" included the various Regulations providing for business closures which were imposed in March 2020 on the advice of the Chief and/or Deputy Chief Medical Officer.
- A clause which covered loss arising from closures due to disease "suffered by any visitor or employee" merely required a visitor or employee to have been at the premises at a time when they had contracted COVID-19. "Suffered" did not require subjective experience of the disease in the sense of experiencing symptoms or discomfort.
Conclusion
The Commercial Court's decision in Excel provides further clarity on the interpretation of BI policies in light of the COVID-19 pandemic. Policyholders are strongly recommended to check their wording, to assess whether they may now wish to bring a claim.
If you know of policyholders affected by the judgment who are uncertain as to how they might demonstrate that there was a case of COVID-19 at their premises, we have produced a free guide to the subject. Please contact us for your copy.