Court of Appeal delivers good news for "at the premises" policy holders in COVID-19 BII claims

This decision is more welcome news for insurance policyholders with "at the premises" business interruption policies.  It affirms the conclusion that the "but for" approach to causation (would the premises in question have been forced to close anyway, were it not for the case or cases of COVID-19 at the premises) was not the appropriate test, but rather, whether the occurrence of COVID-19 at the policyholder's premises was an effective and proximate cause of all premises and business having to close from March 2020 following Government restrictions.   

Background 

The appeals were from a Commercial Court decision which determined preliminary issues in six expedited test cases relating to business interruption losses suffered by policyholders during the COVID-19 pandemic.  

Despite their slightly different wordings, the policies covered losses from infectious illness or disease occurring (or in some cases manifesting itself or being suffered) "at the premises" of the policyholder. The appeals challenged Mr Justice Jacobs test for causation relating to "at the premises" clauses and raised other issues affecting only some of the policies. 

The central legal question was whether the losses experienced could be causally linked to the occurrence of COVID-19 "at the premises", in conjunction with the broader outbreak that led to government-mandated closures, or whether "at the premises" clauses should strictly limit coverage to losses directly caused by the presence of the disease at the insured premises only. 

Causation 

The insurers challenged Mr Justice Jacob's conclusion that the test for proximate causation set out by the Supreme Court in Financial Conduct Authority v Arch Insurance (UK) Ltd (2021) in relation to "radius" clauses also applies to "at the premises" clauses.  

That is, there is a causal link between a policyholder's business interruption loss and the local or government authority order or advice, if the order or advice was made in response to cases of COVID-19, including at least one case at the policyholder's premises. 

The insurers argued that the purpose of the "at the premises" wording was to provide cover for business interruption losses following outbreaks specifically at the policyholder's premises, and as such the test laid down in the FCA test case could be distinguished.  

However, the Court of Appeal rejected the insurers' argument for a narrow interpretation of causation and concluded that the 'but for' test should be applied in a broader context as 'there is no reason in principle why an insured peril which, in combination with many others, brings about a loss, should not be regarded as having caused that loss'. On the assumption that there were occurrences of COVID-19 at each of the policyholders’ premises, those occurrences together with all other cases of COVID-19 in the country were a cause of the closure of those premises. In ordering the national lockdown, therefore, the Government was responding to the fact of disease having occurred at each of these premises. The losses suffered by the policyholders were therefore caused by the COVID-19 pandemic, which included both the assumed occurrence of the virus "at the premises" and the subsequent government measures.  

The Court went on to reiterate that "at the premises" clauses were not fundamentally different in substance to the coverage for occurrences "within the radius". The judge considered that the features of a "within the radius" clause, namely that the relevant policy wording did not confine cover to a situation where the business interruption resulted only from cases of disease within the radius and the need for a test of causation was equally relevant and applicable in the context of an "at the premises" clause, giving weight in doing so to the Supreme Court's reasoning that 'the function of the radius (which might even be as short as 10 metres) in a radius clause was simply to define the geographical area in which the insureds peril must occur' .   

Medical Officer of Health 

Two policies required the closure or restriction to be placed on the premises "on the advice or with the approval of the Medical Officer of Health for the Public Authority". The insurers challenged Mr Justice Jacobs' conclusion that the Chief Medical Officer, Deputy Chief Medical Officer, and other medical officers advising the English & Welsh governments, fulfil the description of "Medical Officer of Health", submitting instead that the term only relates to a local authority officer.  

The Court of Appeal noted that the clause contained two separate terms: 1) a closure of, or restriction on the premises by 'the Public Authority'; and (2) that the closure or restriction is taken on the advice of, or with the approval of, the 'Medical Officer of Health' (a role which has not existed for 50 years). The Court considered that these terms should be construed as part of a whole and unitary exercise and that they were "most obviously" directed at those at national level including the Chief Medical Officer and Deputy Chief Medical Officers. Therefore, 'what constitutes a Medical Officer of Health will be coloured by what constitutes the Public Authority' (and vice versa).  

The Court accordingly dismissed the appeals on this issue and held that the term "Public Authority" was not limited to local authorities, but could include measures by the English and Welsh Governments. Consequently, the "Medical Officer of Health" included the Chief Medical Officer, Deputy Chief Medical Officer and other medical officers advising such public bodies. 

Other issues: 

The Court of Appeal also dismissed a cross appeal by two policyholders who argued that cover should extend to non-notifiable diseases if the disease subsequently became notifiable prior to the business interruption, and concluded that:  

• A disease "manifesting" or "occurring" at a premises did not require the Medical Officer of Health to have knowledge of the specific manifestation or occurrence at the premises.