Business Interruption Insurance: Key Points on Causation from the ‘At The Premises’ Case [2023] EWHC 1481
Mr Justice Jacobs has handed down the latest decision on business interruption insurance arising out of the COVID-19 pandemic (the ‘ATP Case’). The core issue in each of ATP Case was whether ‘at the premises’ or ‘ATP’ disease cover entails the same approach to proximate causation as the disease clauses considered by the Supreme Court in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, [2021] AC 649 (the ‘FCA Test Case’). Put even more shortly – does the decision of the Supreme Court on causation in the FCA Test Case apply to ‘at the premises’ or ATP disease cover? As set out below, the answer to this question was an emphatic yes.
The Decision on Causation
In the FCA Test Case, the Supreme Court held, in relation to disease clauses, that each case of COVID-19 was a concurrent cause of the government restrictions and, therefore, even if there was only one case of Covid-19 in the relevant 25-mile radius before the restrictions were introduced, there was cover (see [176], [212], [213] and [250] of the FCA Test Case). The ATP Case contains a useful summary of that FCA Test Case reasoning at paragraphs [130] – [154].
Insurers in the ATP Case made two principal submissions on causation: (1) that ‘but for’ causation applied: ATP clauses were different in scope and nature from radius clauses such as those in the FCA Test Case and thus the exceptional principle of concurrent causation which was applied in the FCA test case was inapplicable to ATP clauses; (2) that there was an appropriate middle way – a requirement for direct, distinct, palpable and discernible causation sitting somewhere between the FCA Test Case analysis and full-blooded ‘but for’ causation.
Both those arguments were rejected, for the following reasons:
- The important question was the approach to causation in circumstances where the impact on the policyholder’s business is the result of the combination of a large number of individual events, one of which is the occurrence at the premises which is (assuming that it can be proved) in principle a covered occurrence. A focus on the ‘at the premises’ language was a misnomer; insurers needed to show that cover which is confined to occurrences “at the premises” is something fundamentally different to cover which extends to occurrences within a given radius, however small that radius might be.
- There was a clear geographical link between a radius clause and an ATP clause. The radius of the former starts at the centre of the premises, and extends out to a fixed distance (say 25-miles). The latter also starts at the centre of the premises, but stops at their perimeter. Mr Justice Jacobs concluded (as insurers had largely accepted) that it wouldn’t matter, on the FCA Test Case analysis, how big the radius was under a radius clause. An occurrence within a radius was a concurrent cause, no matter if the radius was 25 miles, one mile or 250 meters. Why should it be different if the radius is reduced to vanishing point entirely? Although it would be unusual to describe it as such, an at the premises clause is essentially a radius clause where the radius extends form the centre of the premises to the perimeter of the premises.
- It was important to have a clear approach to causation. Any kind of ‘distinct’ causation test would be difficult to apply and cause artificial distinctions. The Supreme Court’s test in the FCA Test case was simple and applied equally to ATP clauses.
Interestingly, Jacobs J took comfort in this result being explicable to a reasonable SME policyholder:
- … In the course of argument, I gave the example of two restaurants, next door to each other: an Italian restaurant owned by Mario, who has an ATP policy, and a Greek restaurant owned by Costas who has radius wording (say 1 mile or “vicinity”). If Mario had contracted Covid-19 in the period before lockdown, there is no dispute that Costas would be able to rely upon Mario’s illness in order to claim for the business interruption loss flowing from the closure of his restaurant. This is because, applying the Supreme Court’s reasoning, Mario’s illness would be a concurrent cause (with many other causes) of the closure of Costas’s restaurant and therefore of his loss. However, on the insurers’ case, a completely different analysis would apply when Mario sought to claim for the closure of his own restaurant and the consequent losses. For although Mario’s illness would be treated as one of many concurrent causes of the closure of Costas’s restaurant, it would not be treated as a concurrent cause of the closure of his own restaurant. I find it difficult to see how the reasonable SME reader of Costas’s policy would (on the Supreme Court’s analysis) reach the conclusion that Mario’s illness was a concurrent cause of Costas’s loss, but that the reasonable reader of Mario’s policy would reach a completely different conclusion in relation to Mario’s loss.
In many respects, the Mario–Costa Argument is an unsatisfactory post-script on an otherwise careful judgement. As Jacobs J referred to, the question the question of construction is not to be undertaken as ‘a pedantic lawyer who will subject the entire policy wording to a minute textual analysis. It is an ordinary policyholder who, on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting’. The question is not whether an insured, following a devastating collapse in their business following a global pandemic, would take comfort in the legal niceties of a distinction between radius and ATP clauses. The answer to that is always going to be a resounding and obvious no.
But if Mario and Costa had been asked at the proper juncture – ‘on entering into the contract’ – they would have understood the explanation that ‘you have different policies written on different terms, and for which you pay different premiums. Thus even if you’re affected by the same event, you may not be treated the same by your respective insurers’. Had Jacobs J concluded that ATP clauses were conceptually distinct from radius clauses, it is difficult to see why – other than a broad appeal to the ‘injustice’ of being denied cover – SME enterprises considering their policies would find that explanation so unsatisfactory.
Conclusion
There were other issues which arose on specific policy wordings. The only real win for insurers was the decision that under the policies the Disease had to be notifiable at the time of occurrence or outbreak and occurrences of Covid-19 before it was made a notifiable disease (in England on 5 March 2020) were usually not covered. For those keeping score, in addition the clear win for policyholders on causation, they were also successful on ‘Medical Officer Issue’ i.e. the Chief Medical Officer comes within the meaning of the expression “Medical Officer for Health of the Public Authority” and the particular issues of construction arising on the ‘Mayfair policy’ which does not refer to an occurrence but rather to “notifiable infectious disease … suffered by any visitor or employee”.
If the Stonegate decisions offered some comfort to insurers that the judicial tide was turning in insurers favour (at least in part), the ATP Test Case reasserts and underscores the difficulties insurers face on COVID-19 BI decisions, both as a result of the Supreme Court analysis in the FCA Test Case and a result of judicial and public sympathy for SME’s seeking to recover following the pandemic. It is not yet clear whether insurers will appeal, but for now Mario and Costa will breathe a sigh of relief.
