Court of Appeal Upholds Landmark Ruling on Business Interruption Insurance: Policyholders Gain Clarity on ‘At the Premises’ Disease Clauses
More than four years on from the UK’s first national lockdown in March 2020, policyholders of business interruption insurance (“BII”) will be further reassured by the Court of Appeal’s recent decision in London International Exhibition Centre Plc v Allianz Insurance PLC & Ors [2024] EWCA, which was handed down earlier this month.
The decision upholds the Commercial Court’s June 2023 ruling, in which Mr Justice Jacobs held that the test for proximate causation, as determined by the Supreme Court in the case of The Financial Conduct Authority v Arch Insurance (UK) Ltd and Ors [2021] UKSC 1 (“the FCA Test Case”), also applied to “at the premises” disease clauses within the BII policies.
At the premises clauses, which provided cover for losses caused to businesses by the occurrence of notifiable diseases at a particular premises, were outside of the scope of the FCA Test Case in 2021. This led to the need for further Court clarification for policyholders who held BII policies containing clauses to this effect.
The FCA Test Case
In the context of non-damage policies which included clauses referring to the presence of a disease within a specified radius (e.g., 25 miles), the FCA Test Case confirmed that such clauses provided cover for losses relating to business interruption caused by the occurrence of a notifiable disease - in this case, COVID-19 - within a specified distance of the policyholder’s premises.
The Supreme Court did not apply a “but for” test of causation, finding that causation could be satisfied when the insured event, along with other linked events, all caused one inevitable result. As such, local cases of COVID-19, along with the wider pandemic and resulting government action, could be treated as one cause.
We discussed the impact of the FCA Test Case in September 2020, and again in November 2020 when the Supreme Court handed down judgment. There have been numerous additional cases and we most recently commented in January 2024 when further judgments relating to BII claims resulting from the COVID-19 pandemic were handed down.
Commercial Court
Each of the policyholders in the initial claim, which included the London International Exhibition Centre, held different BII policies. They did not include a radius clause, but all contained “at the premises” clauses in relation to disease cover.
In the Commercial Court, Mr Justice Jacobs dismissed arguments put forward by some of the insurers that a “but for” test of causation should be applied. These arguments were brought on the basis that the cover afforded by “at the premises” clauses were “fundamentally and qualitatively different from that provided by radius clauses” and that they envisaged “a direct, conventional, casual connection, requiring proof of “but for” causation, between occurrences of the disease at the premises, authority action, and business interruption and loss.” The alternative argument, that causation had to be direct, distinct, palpable and discernible, was also rejected.
The claimants were successful, with Mr Justice Jacobs ruling that the Supreme Court’s proximate cause test was applicable to the “at the premises” clauses.
Court of Appeal
In the Court of Appeal, the insurers challenged Mr Justice Jacob’s approach to causation, arguing that he should have considered the correct construction of each policy. The insurers had different approaches to causation, with some arguing for the “but for” test and others for a “distinct effective cause” test of causation. One of the insurers argued that the government had only been responding to reported cases of COVID-19 and not the presence of the disease in any particular premises.
The Court of Appeal rejected each and every one of the insurer’s arguments, opting to agree with Mr Justice Jacob’s ruling on the common causation issues holding:
“Accordingly, although we have preferred to base our conclusion on the language and context of the ‘at the premises’ clauses in issue and the presumed common intentions of the parties, rather than on how the Supreme Court interpreted the radius clauses, we agree with the conclusion and much of the reasoning of the judge on the common causation issues. Although there are differences between radius and ‘at the premises’ clauses, those differences do not materially affect the nature of the causal link which must be proved, save that in the case of ‘at the premises’ clauses the occurrence of disease must be at the premises themselves and not within a specified distance from them.”
Comment
Garon Anthony, Financial Services Partner, comments:
“Though the Court of Appeal’s decision will be welcome news to policyholders, it may not be over yet and we will see whether any of the insurers have the appetite for escalation to the Supreme Court.
“It would be no surprise if this judgment is being appealed given the likely sums of money at stake in this case and the wider implications in other cases where “at the premises” clauses are at also at issue.
“It therefore, for some months at least, remains a case of watch this space!”
