Mr Justice Jacobs has handed down judgment in the At the Premises Test Case [2023] EWHC 1481 (Comm) today, the latest in the long-running sequence of Covid-19 business interruption insurance litigation. Aaron Le Marquer and James Breese of Stewarts represented the London International Exhibition Centre Plc (the ExCeL), the claimant policyholder in the lead of “six expedited test cases”. The Commercial Court found emphatically for policyholders, in the process rejecting various alternative causation arguments pursued by the 13 insurers involved in these test cases.

These test cases form a natural extension of the test case that was brought by the Financial Conduct Authority (FCA) in 2020 (the FCA test case), which concluded with the Supreme Court’s judgment in January 2021. The Commercial Court has now ruled that the Supreme Court’s ruling on concurrent causation also applies to ‘At the Premises’ (ATP) disease clauses in the same way as the radius disease clauses considered in the test cases.

Stewarts acts for the ExCel in relation to its £16m claim for indemnity for business interruption (BI) losses.

Background – FCA test case

The FCA test case concerned issues of construction in relation to three categories of business interruption extensions:

1. ‘Radius’ disease wordings;
2. Hybrid wordings; and
3. Prevention of Access or Non-Damage Denial of Access wordings.

ATP disease wordings were not within the scope of the FCA test case.

In relation to radius and hybrid clauses, the Supreme Court found that individual cases of Covid-19 within the relevant radius of the insured premises were concurrent causes of the closures and restrictions, and consequent business interruption losses, along with all other cases of Covid-19 elsewhere in the UK. That finding was central to the basis on which the clauses responded to provide coverage for Covid-19 BI losses.

Policyholders have argued that the Supreme Court’s judgment on concurrent causation could also unlock cover under ATP wordings, and the FCA in fact encouraged insurers to consider whether that might be the case in light of the Supreme Court’s findings.

However, while some insurers have accepted cover under ATP wordings, the majority have not. This led to the need for further litigation, which the Commercial Court recognised by listing six expedited test cases for preliminary issue trials in May 2023 (the ATP test case).

The At the Premises test case

The central question for ExCeL was whether the terms of their ATP cover justified the same approach to proximate causation as the disease covers considered in the FCA test case. This was the common question for all of the test cases despite wording variations in each.

At paragraph 8 of his judgment, Mr Justice Jacobs acknowledged that “a large proportion of outstanding BI insurance claims from the pandemic may be concerned with ‘at the premises’ disease cover” and that “no previous case in England and Wales has directly addressed this issue”. Furthermore, Mr Justice Jacobs said that “a number of ‘at the premises’ claims brought by policyholders following the FCA test case have been settled by insurers”.

The Court’s recognition of the issues’ significance doubtless influenced the decision to list an expedited series of test cases, each concerning different variations of ATP wordings. The lead claimant ExCeL’s wording was hybrid insofar as it required “closure of the premises or part thereof on the order or advice of any local or governmental authority as a result of an outbreak of occurrence at the Premises of any human contagious or infectious disease…”

The competing cases

The policyholders’ case was simple: the Supreme Court’s finding on concurrent causation in the FCA test case (that each and every occurrence of Covid-19 in the country was an equal, effective, and so proximate cause of government action that led to loss) applied in the same way to ATP clauses as to radius clauses. The policyholders argued that there was no good basis to distinguish ATP clauses from radius clauses when determining the appropriate test of causation, and if a single occurrence of Covid-19 within one mile of the insured premises was a proximate cause of government action and therefore interruption, the same must be true for a single occurrence at the insured premises themselves.

In contrast, the thirteenth insurers adopted a common starting point that ATP clauses were qualitatively different from radius clauses – “chalk and cheese”, in insurer Axa’s words – as radius clauses provided coverage for events occurring externally to the insured premises, while ATP clauses concerned matters at (and only at) the premises themselves. It was therefore inappropriate, the insurers argued, to import the Supreme Court’s findings on radius clauses to ATP clauses as the causation question must be approached from first principles.

From there, the insurers diverged into two camps as to the appropriate test of causation to be applied to ATP clauses.

The first group argued for a traditional ‘but for’ test: that in order to establish coverage, the policyholders would need to show that the interruption to their business would not have been suffered in the absence of an occurrence of Covid-19 at the insured premises. If correct, this would effectively preclude all coverage of BI losses arising from the UK government’s general response to the pandemic.

The second group of insurers, led by the Following Market in the ExCel case, argued for a more nuanced and somewhat novel causation test described as “direct, distinct, palpable or discernible” causation. This approach recognised that the absolute ‘but for’ test was inappropriate and that a limited degree of concurrent causation may be sufficient. However, the policyholder would need to show first that the specific occurrence of Covid-19 at the premises was known to the public authority restricting the premises, and taken into account in the decision to impose restrictions. They would secondly need to show that the restrictions had been targeted to some degree at the insured premises. If correct, this approach would also preclude coverage for Covid-19 BI losses in the vast majority of cases.

The decision

Rejecting each of the insurers’ competing cases on causation, Mr Justice Jacobs agreed with the policyholders on the central causation issue. The Supreme Court finding on concurrent causation applied equally to ATP as to radius clauses.

The judge disagreed with the insurers’ starting point that radius and ATP clauses were ‘chalk and cheese’. Noting that some clauses incorporated both radius and ATP elements, he did not find that a reasonable small to medium sized enterprise (SME) policyholder would view ATP clauses in a different light from radius clauses.

Finding that the Supreme Court’s reasoning on causation in the test case was equally applicable to the ATP clauses, Mr Justice Jacobs was persuaded by the following:

• The nature of notifiable diseases covered by radius and disease clauses was the same, and in both cases included highly contagious and infectious diseases that could be expected to spread across wide areas [195-199].
• The Supreme Court did not distinguish between 25 miles, one mile and “the vicinity” when considering the causal test to be applied, and there was no reason why this should not scale down further to ‘the premises’ [203].
• The Supreme Court found it important that radius clauses not confine cover to interruption resulting ‘only’ from cases of disease within the radius. The same was true of ATP clauses. [207-208].
• Similarly, the Supreme Court attached importance to absence of any exclusion in respect of occurrences outside the insured radius. The same was true of ATP clauses [209].
• The Supreme Court considered it appropriate that the causation test was clear and simple to apply. Insurers’ proposed tests gave rise to anomalies, were not as simple and clear as concurrent cause approach, and would according to the ruling “give rise to anomalies which it would be difficult rationally to explain to a reasonable SME policyholder who read the policy.”

Accordingly, Mr Justice Jacobs considered “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.”

Other issues

The causation issue was central to each of the claims forming part of the test case, and was decided uniformly in favour of the policyholders. Other issues decided which were to some extent unique to certain policyholders included the following:

• Occurrences of Covid-19 at the premises prior to Covid-19 being designated a notifiable disease on 5 March 2020 in England and 22 February in Scotland were not, in the absence of a deeming provision such as in the RSA4 wording in the FCA test case, capable of triggering coverage.
• Wordings referring to the “Medical Officer for Health of the Public Authority” could be triggered by actions of the UK government.
• Wordings referring to disease being “suffered by” any individual at the premises were not distinguishable from those requiring an “occurrence” at the premises.

Comment

In addition to its close link to the FCA test case, this is also the latest in a string of judgments relating to Covid-19 business interruption insurance disputes and decisions on the application of causation principles to insurance disputes more widely.

The judgment provides some further finality, subject to any appeals, for issues left unresolved by the FCA test case and is therefore a helpful development for the insurance market and businesses across the UK. The judgment could potentially affect hundreds of thousands of policyholders based on previous FCA estimates as to the extent to which ATP cover was purchased, and policyholders whose BI losses remain uncompensated should now revisit their policy documents to consider whether they may now have a valid claim to pursue.

Our thanks to Adam Kramer KC and William Day of 3 Verulam Buildings, instructed on this case by the Stewarts team.

This judment has been covered in Financial Times, Reuters, Insurance Post, The Lawyer and The Insurer.

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