In June 2023, the first instance decision in the ‘At the Premises’ Test Case found that thousands of policyholders with relevant wordings in their insurance policies are entitled to claim for losses caused by the Covid-19 pandemic.

The Court of Appeal has now upheld Mr Justice Jacobs’ landmark decision in London International Exhibition Centre v RSA (the ‘ATP Test Case’), and has dismissed all of the insurers’ appeals. Partners Aaron Le Marquer and James Breese, who acted for the lead policyholder in this test case, review the appeal judgment in this article.

Background

The ATP Test Case arose as a natural extension of the original Covid-19 business interruption test case brought by the Financial Conduct Authority (FCA) in 2020, culminating in the Supreme Court’s landmark 2021 decision in FCA v Arch.

At the heart of the Supreme Court’s decision in FCA v Arch was its detailed analysis of the causation issue in the context of non-damage business interruption cover, which led to a conclusion that each and every occurrence of Covid-19 in the UK was a concurrent proximate cause of government action, and therefore business interruption loss.

The Supreme Court’s conclusions were clear and unequivocal in relation to the ‘radius’ disease clauses under consideration in that case. But many policyholders found that they were covered under a different variant of disease clause, which responded to loss caused not by an occurrence of notifiable disease within a specified radius of the insured premises, but instead by an occurrence of disease ‘at’ the insured premises.

Insurers by and large argued that the Supreme Court’s reasoning and findings on concurrent causation did not extend to these ‘at the premises’ (ATP) disease clauses, and refused to indemnify ATP policyholders for their Covid lockdown losses in the same way as radius clause policyholders.

One such policyholder, the LIEC (operator of London’s ExCeL exhibition centre) commenced proceedings with a view to testing the point as a preliminary issue. LIEC was selected as the lead claimant in a series of six linked test cases, heard together in June 2023.

First instance decision and grounds of appeals

At first instance, Mr Justice Jacobs found in favour of the policyholders, concluding that “the Supreme Court analysis applies on the causation argument, and that none of the insurers’ arguments in support of the contrary conclusion are persuasive.” Our detailed analysis of the decision can be read here.

The lead insurer in LIEC’s case (RSA) elected to accept Mr Justice Jacobs’ decision, and settled its share of LIEC’s claim. The remaining insurers chose to appeal and in all cases focused primarily on the causation issue. Additional grounds of appeal were pursued in relation to secondary issues including:

• the meaning of ‘Medical Officer of Health for the Public Authority’,
• occurrences of Covid-19 before it was designated as a notifiable disease, and
• the meaning of ‘suffered’.

The insurers’ cases

All of the insurers argued that Mr Justice Jacobs had approached the question from the wrong angle. Instead of starting with the Supreme Court’s decision and asking whether the reasoning in relation to radius clauses could be applied to ATP clauses, they argued that the judge should have started with the policy wording and applied a normal iterative approach to construction.

Between them, the nine insurers mounted an array of alternative cases as to the correct answer to the causation question, which such an approach would have produced. In summary:

• Allianz, Aviva, Zurich, Chubb and HDI argued for a ‘distinct effective cause’ approach to causation, which allowed for multiple concurrent causes but required the occurrence at the premises to have been known to the public authority, and specifically targeted in its response. On this basis, the vast majority of occurrences of Covid-19 at insured premises would not be regarded as proximate causes of covered loss.
• Ageas, Zenith and QIC argued for a more stringent ‘but for’ causation test. In the context of the pandemic, an occurrence of Covid-19 at any given premises would never be regarded as a proximate cause of loss.
• Finally, Axa accepted that the clauses allowed for multiple concurrent proximate causes, but focused specifically on government knowledge in considering whether a given case of Covid was itself a proximate cause. Axa’s case hinged on the argument that the government was only responding to the small number of reported cases of Covid when it imposed the first national lockdown, and not to the much larger number of unreported (but suspected) cases.

Court of Appeal decision

The Court of Appeal dismissed all of the insurers’ appeals.

As a starting point, the Court of Appeal agreed with the insurers that the correct approach to the exercise was to begin with the interpretation of the policies in issue, having regard to their language and context, rather than asking whether those clauses differ materially from the radius clauses considered in FCA v Arch. However, the Court of Appeal’s agreement with insurers ended there, as this approach ultimately led to the same conclusion as in the first instance decision.

Key aspects of the reasoning were:

• The nature of the insured peril in question is key to establishing the applicable causation test, and other perils mentioned in different limbs of the insuring clause (eg vermin infestation, drains, murder) are irrelevant.
• The insured peril in this case consisted of (or included) notifiable diseases capable of spreading rapidly and widely and which are generally unlikely to be confined to occurrences at a single premises: “Such occurrences come not single spies but in battalions.”
• Consequently, the parties cannot have contemplated that closure or restrictions would likely be imposed in response only to an occurrence of disease at the premises. Rather, they would be imposed in response to a local or national outbreak.
• A ‘but for’ approach to causation cannot therefore have been intended. Instead, the parties must have intended that the causation requirement would be satisfied if the occurrence at the premises was one of a number of causes of closure, whether the number of other causes was large or small.
• It was unrealistic to think that, when imposing restrictions, an authority would apply its mind to identifying particular premises at which there had been occurrences.
• It was more realistic to regard the restriction in question as a response by the public authority to all cases of the disease, whether known or unknown. This reflected a finding of fact by both the Divisional Court and the Supreme Court in FCA v Arch, that the government was responding to each and every case of Covid-19 in the UK (reported or unreported) when imposing the first national lockdown in March 2020.

The Court of Appeal preferred to base its conclusion on the language and context of the ‘at the premises’ clauses in issue, and the parties presumed common intentions, rather than on how the Supreme Court interpreted the radius clauses. Nonetheless, the Court of Appeal agreed with the conclusion of Mr Justice Jacobs and much of his reasoning on the common causation issue. Although there were differences between radius and ATP clauses, those differences did not materially affect the nature of the causal link to be proved.

Comment

This is the latest in a line of Covid-19 BI judgments that has now extended for over four years, since the first lockdowns were imposed in March 2020. This latest judgment has consolidated policyholders’ success in establishing coverage.

It remains to be seen whether any of the insurers will seek permission to appeal further to the Supreme Court. However, it might be considered that given the comprehensive panoply of arguments marshalled by the nine insurers in support of their appeals, all of which were rejected by the Court of Appeal, room for further argument may be limited.

As it stands, the Court of Appeal’s decision represents a resounding endorsement and independent application of the Supreme Court’s concurrent causation reasoning first set out in 2021 in FCA v Arch, and demonstrates that the court will be reluctant to disapply or row back from those principles.

Looking forward, the decision may give some indication of the Court of Appeal’s potential approach when considering the related causation issue in the context of Prevention of Access clauses, the issue to be considered in the Liberty Mutual appeals in January 2025 in which Stewarts also acts for the lead policyholder.

Likely to be the final major causation decision in the Covid BI context, the appeal in Bath Racecourse v Liberty Mutual will also finally decide the contentious issue of whether policyholders are required to pass on the benefit of taxpayer funds (ie furlough payments) to their insurers, or whether the benefit should rest with the businesses who were the intended recipient of the relief at the time.