Supreme Court’s approach to causation in the FCA Test Case applies to “at the premises” clauses in business interruption insurance

The most recent of the Covid-19 business interruption insurance cases is London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc [2023] EWHC 1481 (Comm) which confirms that the same approach to causation developed by the Supreme Court in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1 (FCA Test Case) applies to “at the premises” clauses. This is to the benefit of policyholders with such policies.

BACKGROUND

This judgment concerned the determination of preliminary issues in six expedited test cases that were heard in succession. The claimants suffered loss as a result of the Covid-19 pandemic and sought to recover business interruption losses from insurers.

The common feature of each claim was that the policyholder was relying on an “at the premises” clause for cover. As the name suggests, “at the premises” clauses provide cover in respect of occurrences of a notifiable disease at a particular premises. These clauses were not considered by the Supreme Court in the FCA Test Case.

The FCA Test Case did consider “radius” clauses (commonly referred to as disease clauses in the FCA Test Case and subsequent decisions) which provide cover in respect of occurrences of a notifiable disease within a certain radius that starts at, and extends from, a particular premises.
The central issue in this case was whether the same approach to proximate causation applied by the Supreme Court to disease clauses in the FCA Test Case should also apply to “at the premises” clauses.

Other issues determined by the court were:

Whether there was cover for occurrences of Covid-19 before it was a notifiable disease;
Whether the phrase “Medical Officers for Health of the Public Authority” includes the Chief Medical Officer of England and the equivalent officers in the other nations of the United Kingdom; and
The effect of a policy wording that does not refer to an occurrence but instead refers to “notifiable infectious disease … suffered by any visitor or employee”.

SUPREME COURT DECISION IN THE FCA TEST CASE

Relevant to this case is the reasoning of the Supreme Court on disease clauses in the FCA Test Case and it is helpful to recap this briefly here.

On the construction of disease clauses, the Supreme Court held that it is only an occurrence of disease within the specified area or radius that is an insured peril and not anything that occurs outside that area. Further, each case of illness sustained by an individual is a separate occurrence. As a result, the Supreme Court found that a disease clause provides cover for business interruption caused by any cases of illness resulting from Covid-19 that occur within the relevant radius of the business premises.

However, and of critical importance to the scope of cover available to policyholders, the Supreme Court held that (i) the language of the disease clause does not confine cover to business interruption which results only from cases of a notifiable disease within the radius, as opposed to other cases elsewhere, and (ii) that in interpreting the policy wording significance should be attached to the potential for a notifiable disease to affect a wide area. These were important factors in the Supreme Court’s approach to causation.

The Supreme Court rejected a “but for” approach to causation for disease clauses and said it was not always the appropriate test to apply. The Supreme Court held that no reasonable person would suppose that, if an outbreak of an infectious disease occurred which included cases within the relevant radius in the disease clause and was sufficiently serious to interrupt the policyholder’s business, all the cases of disease would necessarily occur within the radius. For this reason, it considered it inappropriate to ask whether, “but for” the cases of disease within the radius, the loss would have been suffered. Instead, the Supreme Court concluded that, on the proper interpretation of the disease clauses, in order to show that loss from interruption of the insured business was proximately caused by one or more occurrences of illness resulting from Covid-19, it is sufficient to prove that the interruption was a result of Government action taken in response to cases of disease which included at least one case of Covid-19 within the geographical area covered by the clause. Each case was an approximately equal cause with all the other cases, and the public authority consequences inextricably linked for all the disease cases.

DECISION

On the key issue in this case, Jacobs J found that the Supreme Court’s approach to causation in relation to disease clauses in the FCA Test Case did apply to “at the premises” clauses.

Insurers had sought to distinguish “at the premises” clauses as being fundamentally different. They argued that “at the premises” clauses cover a specific premises and not a potentially wide geographical area. As such, their scope of cover was intended to be very different and they argued that the Supreme Court’s approach to causation therefore had no application. Some insurers argued that a “but for” test for causation should apply but most argued for the requirement that causation was “direct, distinct, palpable and discernible” – referred to by Jacobs J as the “distinct” causation test. This involved asking whether the outbreak of the disease at the premises had been an effective cause of the closure in the sense that it was the occurrence being at the premises that caused the authorities to order that closure.

Jacobs J rejected the insurers’ arguments and found that the same causal principles developed by the Supreme Court in the FCA Test Case applied to “at the premises” clauses. He relied on the following in coming to his conclusion:

The Supreme Court had relied on the nature of the notifiable diseases covered in determining its approach to causation. That is, that such diseases were unpredictable and capable of spreading rapidly and over a wide area and called for a response which is not solely responsive to cases within the radius or the premises;
The Supreme Court’s causation analysis applies whatever the size of the radius, i.e. whether the radius is 25 miles, 1 mile or the vicinity. Jacobs J said there was no reason why it could not be further shrunk from the vicinity of the premises to the premises itself. He agreed with the policyholders that “at the premises” is simply about the geographical or territorial scope of the coverage and where the parties have chosen to draw the line in that respect. It has no impact on the appropriate approach to causation;
The Supreme Court’s conclusion was reinforced by the fact that the relevant wordings in the FCA Test Case did not confine cover to a situation where the interruption of the business resulted only from cases of disease within the radius. This point was considered fundamental in the FCA Test Case and Jacobs J found it equally applicable to “at the premises” clauses. In contrast, he noted that the different approaches to causation proposed by insurers all involved pointing to other cases outside of the premises as a reason for disapplying cover; and
The Supreme Court considered it appropriate to have an approach to causation that was clear and simple to apply and Jacobs J felt that adopting the concurrent cause approach to “at the premises” clauses was also clear and simple.

On the other preliminary issues, Jacobs J found that:

There was no cover for occurrences of Covid-19 before it was a notifiable disease;
The definition of “Medical Officers for Health of the Public Authority” did include the Chief Medical Officer of England and the equivalent officers in the other nations of the United Kingdom; and
“Notifiable infectious disease … suffered by any visitor or employee” simply meant that the person had to have contracted Covid-19. The person did not need to have displayed symptoms.

COMMENT

“At the premises” clauses were not tested in the FCA Test Case (as not all clauses/issues could be) and so this judgment will be welcomed by policyholders who have suffered losses as a result of the Covid-19 pandemic who have this wording. It could potentially impact a large number of policyholders, who will no doubt want to check their policies to see if they are now able to bring a claim under “at the premises” clauses.

Given that Jacobs J did not consider that “at the premises” clauses were fundamentally different to “radius” clauses, it is perhaps not surprising that he reached the conclusion that the same approach to causation should apply to both. This is also consistent with a number of decisions of the Financial Ombudsman Service post the FCA Test Case which have considered the same point and found in favour of the policyholder. However, we will have to wait and see if insurers appeal this decision in which case this might not be the end of the story.