Success for Policyholders with “at the premises” Covid-19 Business Interruption wordings

On 16 June 2023 Mr Justice Jacobs handed down judgment in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481 (Comm). The judgment was the latest in the ongoing Covid-19 Business Interruption litigation, with the court finding resoundingly in favour of policyholders.

Background

The central issue before the court was whether the decision of the Supreme Court on causation in the FCA Test Case (Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC) applied to “at the premises” wordings in the same way as it did to “radius” wordings (the “Causation Issue”).

By way of reminder, the FCA Test Case considered policy wordings which provided cover in respect of occurrences of Covid-19 which were not confined to the premises of the policyholder but which extended to a radius around the premises or to events in the vicinity of the premises.

In relation to the “radius” wordings, the Supreme Court concluded that, as a matter of construction, cases of Covid-19 occurring within the relevant radius were a concurrent cause of the closures and restrictions, and the consequent Business Interruption losses, together with all of the other cases of Covid-19 elsewhere in the UK. Accordingly, as long as a policyholder could establish a case of Covid-19 within the radius specified by its policy wording, it could establish causation and recover its losses.

The Causation Issue

On the Causation Issue, the policyholders submitted that the causation reasoning of the Supreme Court in the FCA Test Case was equally applicable to the “at the premises” wordings in the present case, and there was, therefore, no basis for distinguishing between the two.

Insurers, on the other hand, were not wholly united in their approach. Whilst some insurers submitted that the “but for” test of causation should be applied, others submitted that an alternative test – that of direct, distinct, palpable and discernible causation – was applicable. The reason for this, insurers submitted, was because the scope and nature of the “radius” wording was inherently different to the “at the premises” wording and there was a distinction between those wide areas (which were the subject of Covid-19 surveillance) and individual business premises (which were not).

Having considered the arguments of both sides, Mr Justice Jacobs agreed with the policyholders that the Supreme Court’s approach to causation in the FCA Test Case was equally applicable to the “at the premises” wordings as it was to the “radius” wordings. In reaching this conclusion, the court noted the following:

• Cover which is confined to occurrences “at the premises” are not fundamentally different to cover which extends to a occurrences within a given radius. Both wordings related to an infectious disease which could spread rapidly, widely and unpredictably.
• The answer to the causation question cannot depend upon the size of the radius and it was not an omission in the Supreme Court’s reasoning in the FCA Test Case that there was no substantial discussion as to why the same causation analysis applied whatever the size of the radius, whether that be 25 miles, 1 mile, 250 metres or “in the vicinity”. Logically, therefore, it must follow that the radius can be shrunk to something close to vanishing point.
• Where the parties decided to draw the line in relation to the geographical or territorial scope of cover should not have an impact on the appropriate approach to causation. This was reinforced by the fact that the relevant policy wordings did not confine cover to a situation where the interruption of the business resulted only from cases of disease within the radius / at the premises.
• A significant number of insurers declined to support the “but for” test and did, therefore, recognise that the “but for” argument could not be sustained in these circumstances.
• The guidance of the FCA following Corbin & King Ltd and Others v AXA Insurance UK plc[2022] EWHC 409 (Comm) expresses the view that the Supreme Court’s causation approach in the FCA Test Case could be particularly relevant to “disease at the premises” clauses.
• Any other conclusion would give rise to anomalies which it would be difficult to rationally explain to a reasonable SME policyholder who read the policy.

Other Issues

As well as the Causation Issue, Mr Justice Jacobs was asked to consider a number of additional issues. In relation to these issues, Mr Justice Jacobs held the following:

• The disease must be notifiable at the time of occurrence or outbreak at the premises. Accordingly, only cases of Covid-19 which occurred after it was made a notifiable disease (i.e. after 6.15pm on 5 March 2020) could trigger cover.
• The phrase “Medical Officer for Health of/for the Public Authority” should not be given a restrictive interpretation and, instead, extended to include the Chief Medical Offer or Deputy Chief Medical Officer.
• The words “suffered by any visitor or employee” made no material difference to cover and could be equated with occur, sustain or manifested, all of which were subject to the Supreme Court’s causation analysis.
• To establish a relevant occurrence of a notifiable human disease at the premises, it is sufficient to prove that a person was present at the relevant premises who could have been diagnosed with Covid-19 at the time of the visit, whether or not the infection was ever, in fact, verified by a medical professional or by medical testing, and whether or not the infection was symptomatic at the time of the visit.

Commentary

The judgment in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481 (Comm) is the latest in the ongoing Covid-19 Business Interruption litigation and provides clarity on the wider applicability of the Supreme Court’s FCA Test Case analysis on causation. The judgment will come as welcome news to policyholders who have similar “at the premises” clauses in their policy wordings.

If you have a claim which you think should be pursued as a result of this decision, please contact Roger Franklin or Lauren Murphy of our Insurance Litigation team and we can advise on your available options.

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