In this case note, 4 New Square Chambers’ Diarmuid Laffan considers the judgment handed down on 16 June in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors  EWHC 1481 (Comm) and its significance for Covid-19 business interruption insurance litigation.
- On 16 June 2023, His Honour Mr Justice Jacobs handed down the latest judgment addressing the availability of business interruption (“BI”) insurance cover for the consequences of the Covid-19 pandemic. His judgment in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors  EWHC 1481 (Comm) addresses preliminary issues arising in six expedited test cases.
- In the FCA test case (FCA v Arch (UK) Insurance & Others  UKSC 1) the Supreme Court considered a sample of 21 policies. Some of these included clauses covering BI losses due to the occurrence of notifiable diseases within a certain distance of the insured property (referred to as “disease” or “radius” clauses). A notifiable disease is one that medical practitioners must report to public health authorities under the Health Protection (Notification) Regulations 2010. The Supreme Court concluded that each case of Covid-19 was an occurrence of a notifiable disease within the meaning of the policies, and a concurrent and equally effective cause of the national response to the pandemic and thus the interruption to the insureds’ businesses. As long as an insured could demonstrate a case of Covid-19 within the geographical limit specified by its policy, it would establish causation and recover because the losses were proximately caused both by an insured peril (a case or cases of Covid-19 within the relevant range) and uninsured, non-excepted perils (cases outside the range).
- The first and main preliminary issue in London International Exhibition Centre was whether the same approach to causation should be adopted in the context of clauses covering BI losses in consequence of the occurrence of notifiable disease “at the Premises”. The question, in essence, was whether clauses defining an insured peril with a closer physical nexus between cases of disease and the insured’s premises should be construed as requiring some more intensive causal relationship between those cases and the interruption of the insured’s business. Did the cases occurring at the Insured’s Premises have to be the ‘but for’ cause of the interruption? This was the position of some of the insurers before Jacobs J and such a test would not be satisfied in the context of national measures taken to combat all Covid-19 infections wherever occurring. Alternatively, as other insurers argued, could an intermediate test be articulated falling somewhere between the inclusive analysis applied in FCA v Arch and the restrictive “but for” standard?
- The court held that the Supreme Court’s approach should be read across into “at the Premises” policies. In summary:
- Central to the court’s conclusion was the fact that radius clauses include the insured premises within and at the centre of the specified territory (paras 175, 186-187). If it is accepted that radius clauses cover occurrences at the insured property then “at the Premises” clauses can be seen as radius clauses of narrow scope. In this light it becomes difficult to argue that a different approach to causation should apply to the former. Jacobs J went on to echo and adopt a number of points relied on by the Supreme Court in the FCA test case.
- A significant factor in favour of applying the Supreme Court’s approach both to radius and “at the Premises” clauses was the nature of the notifiable diseases covered by the policies (paras 195-199, 214). At the time of the policies’ inception around 2019, they included diseases such as SARS which can spread rapidly and widely. Diseases of this kind can be expected (such as occurred with Covid-19) to emerge both within and outside any premises or territory and, in combination, to prompt a national response and associated losses.
- The function of the territorial area specified by a radius or “at the Premises” clause is to define the territorial scope of the insured peril, not to determine the correct approach to causation (para 205).
- Neither the wordings in issue in the FCA test case nor “at the Premises” clauses restrict cover to situations where losses are caused solely by cases of disease within the territorial range. They require only that the insured cases are a proximate cause of loss. Contrary to this, the alternative approaches to causation suggested by the insurers sought to disapply coverage for occurrences within the relevant range by contrasting or setting these up in competition with cases occurring outside; specifically by arguing that the greater number of cases occurring outside the range were the effective cause of the losses (para 208).
- The court considered that the concurrent proximate cause approach had the further benefit that it was clear and straightforward to apply. As against this both the “but for” test and the alternative “distinct” causation test advocated by insurers – whereby a degree of concurrent causation was permissible as long as the occurrence at the insured premises was a “direct, distinct, palpable and discernible” cause of the losses – could lead to difficult problems of application (paras 210, 227).
- Of the further matters decided by the court, the second preliminary issue is likely to be of most general interest. An issue arose in four of the cases as to whether occurrences of Covid-19 prior to it becoming a notifiable disease on 6 March 2020 came within the scope of cover. Mr Justice Jacobs agreed with the insurers’ position that the relevant insuring clauses should be construed as covering only occurrences of notifiable diseases, and not of diseases which subsequently became notifiable (paras 267-269). In doing so he approved the analysis of the Court of Final Appeal in the Hong Kong case of New World Harbourview Hotel Co Ltd and others v Ace Insurance Ltd and others  HKCFA 21, which addressed occurrences of SARS both prior to and after its becoming a notifiable disease in that jurisdiction in March 2003.
- On the third preliminary issue the court concluded that the phrase “public authority” should be broadly interpreted so as to include central government, while the term “medical officer for health” (a defunct historical position) applied to the present-day Chief Medical Officer (paras 328, 335). The fourth preliminary issue concerned a discrete point of construction on one of the policy wordings which referred to a disease “suffered by any visitor or employee”. The court held that “suffering” in this context equated to an individual sustaining the disease or in other words its occurrence, as distinct from the visitor or employee exhibiting symptoms (para 358).
- The judgment may yet be subject to appeal. Regardless, the question as to whether the insureds can prove the occurrence of cases of Covid-19 “at the Premises” will remain in issue. In most cases concerning radius clauses it will be straightforward for insureds to demonstrate a covered occurrence of the illness on the basis of publicly available information and in particular the FCA’s “Covid-19 calculator” tool. This may prove harder for insureds with “at the Premises” cover.
Diarmuid Laffan is ranked as a leading junior in insurance and sports law by the Legal 500. His practice is focused on commercial litigation and arbitration with particular interests in insurance / reinsurance, professional liability, civil fraud, construction and sports law.