Court of Appeal decision on “at the premises” wording

The Court of Appeal has handed down its judgment on whether non-damage business interruption cover responds to the COVID-19 pandemic where the insuring clause requires there to be disease “at the premises”¹. Although applying a different approach to the first instance judge, the Court of Appeal reached the same conclusion, holding that these clauses do in principle respond to the interruption caused by COVID-19 restrictions.

Background

The judgment concerns preliminary issues in a number of matters heard together. In each case the relevant business interruption policy wording was triggered by interruption or interference resulting from either an occurrence of a notifiable disease at the premises (ie a disease clause), or by order or advice of any local or governmental authority as a result of an outbreak or occurrence at the premises of notifiable disease (ie a hybrid clause)².

It was assumed for the purposes of the preliminary issues being considered that the insured would be able to prove a case of COVID-19 at the premises.

At first instance, it was held that the logic and rationale of the Supreme Court’s decision on causation in relation to radius clauses in FCA v Arch³ applied to at the premises wordings. The Supreme Court held that each case of COVID-19 within the radius was a concurrent cause of the government restrictions.

Appeal

Insurers criticised this approach. They said that, rather than simply applying the FCA Test Case approach, the court should have construed the clauses on their own terms. Insurers made two arguments: either that “but for” causation applied (i.e. it must be shown that the restrictions would not have been imposed “but for” a case at the insured premises), or that there was cover only where the occurrence of disease at the premises was a “distinct effective” cause of the closure. On either case, it would be necessary that a case at the premises had some direct causal effect on the action of the Government, as opposed to being one of many concurrent causes.

Insurers drew a distinction with radius clauses. They argued that radius clauses, some of which had radii of 25 miles, contemplated a wide-area effect by their nature. By contrast, a clause insuring the consequences of disease at the premises is focussed exclusively on the specific insured location. In one of the cases insurers argued that the authorities must have known about the disease on the insured’s premises for it to have made a contribution to the decision to impose the restrictions and therefore be causative.

Appeal judgment

The Court of Appeal agreed with insurers that the correct approach was to interpret the policies with regard to their language and context, and not to ask whether they differed materially from the radius clauses in FCA v Arch. With this in mind, the nature of the insured peril would inform the required test of causation between the peril and the loss that the parties had agreed to.

Nevertheless, the Court found in favour of the policyholders. The insured peril required the occurrence of a notifiable disease which was, by definition, capable of spreading widely and rapidly affecting a large area. Therefore, if they had turned their minds to it, the parties would have contemplated that restrictions would be likely to be imposed in response to an outbreak of notifiable disease as a whole, and for the clause to have meaning the parties must have intended cover in such circumstances. Therefore, it could not have been intended “but for” causation should apply. Instead, the parties must have intended that the causation requirement would be satisfied if the occurrence of disease at the premises was one of a number of causes of the closures.

It was not necessary for the authorities to know of the occurrence at the insured premises in making the restrictions, albeit that there must have been such a case as a matter of fact. The response of the authorities was to all cases of COVID-19 whether known or unknown. Therefore, in ordering the national lockdown the government was responding to disease at the premises in combination with all other cases of COVID-19.

The Court also found the following in the context of the specific wordings:

• “Public Authority” is not limited to local authorities and includes measures by the government or any public body; and ‘Medical Officer of Health’ includes the Chief Medical Officer, Deputy Chief Medical Officer and other medical officers advising such public bodies.
• It was not enough to trigger cover that someone was at the premises with COVID-19 at a time before it became a notifiable disease. The insured peril required an occurrence of a notifiable disease at the premises – and an occurrence is well-known to be something that happens at a particular time at a particular place in a particular way. That requirement is simply not fulfilled if a person does not have anotifiable disease when they are present. The insured’s appeal on this point was rejected.
• The word “suffered” in the phrase “suffered by any visitor or employee” meant occurred or sustained, and did not mean the same as manifested, in the sense of it being apparent.

Conclusion

It remains to be seen if this is the final word on the causation issues arising from these policies, or if there will be an appeal to the Supreme Court. However, an important issue remains as to how policyholders establish a case of Covid-19 at their premises and, in particular, whether they can do so by reference to statistical modelling.

Footnotes

1. The cases are LIEC v Allianz, Hairlab v Ageas, Mayfair v AXA, Kaizen Cuisine v HDI and Why Not Bar v West Bay [2024] EWCA Civ 1026
2. The precise wording of each clause being considered varied
3. [2021] UKSC 1