In this article, we consider the English High Court’s recent decision in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481 (Comm), which rejected “but for” causation for the purposes of determining whether cover was available under “at the premises” (ATP) clauses in Business Interruption (BI) policies.
This decision concerned six test cases, each involving policyholders who had made BI claims following the closure of their businesses as part of the response to the COVID-19 pandemic. It is an interesting and important follow-on from the UK Supreme Court’s landmark decision in the BI “test case” of Financial Conduct Authority v Arch Insurance (UK) Ltd & Ors. The FCA test case dealt with similar causation issues in the context of “radius” or “disease” clauses, also rejecting “but for” causation in many cases of loss with concurrent causes. We considered that decision and its implications in Issue 22 of Cover to Cover, which can be found here.
The facts
All of the claimants, most of which were small or medium-sized businesses, were required to close due to the UK Government’s response to the COVID-19 pandemic. They all had a form of ATP cover in their BI insurance policies which provided cover for losses from business closures arising as a result of the outbreak or occurrence of a notifiable disease at the insured’s premises.
Their insurers declined cover for losses arising from these business closures on the basis that a “but for” causation test applied. The insurers said that ATP clauses envisage a “direct, conventional, causal connection … between occurrences of the disease at the premises, authority action, and business interruption and loss”. They argued that ATP clauses did not provide cover for losses caused by general and non-specific government action taken in response to spread of a disease across a wider area. Alternatively, the insurers said that it was necessary to consider whether the outbreak of disease at the premises was a ‘distinct’ or ‘effective’ cause of closure, such that occurrence at the premises (not more broadly) caused authorities to order the closure.
The decision
The Court rejected the insurers’ arguments, holding there was no principled reason why “but for” causation should apply to ATP clauses but not “radius” or “disease” clauses. Accordingly, the High Court applied the Supreme Court’s approach in the FCA test case to ATP clauses.
Relying heavily on the Supreme Court’s reasoning in the judgment, Justice Jacobs held that:
- The ATP clauses before the High Court were very similar to those considered by the Supreme Court. ATP clauses can be viewed as simply a narrower form of radius clause. Both apply to occurrences of notifiable disease within the specified radius – whether that is within the narrower radius limited only to the insured premises (and therefore “at the premises”) or within a wider radius specified by the policy. Naturally, this would necessitate the same approach to causation to be adopted and applied to both clauses.
- The nature of the notifiable diseases covered by both the ATP policies before the High Court and the policies considered by the Supreme Court favoured the application of the Supreme Court’s approach. The policies covered the same diseases, many of which are highly contagious and capable of widespread dissemination. The Supreme Court’s findings – that the nature of the diseases covered had potential to call for a response that is not solely responsive to cases within the specified area and that one would expect cases of the disease to combine and cause loss – were equally applicable to ATP clauses.
- "At the premises” is simply a way to limit the geographical or territorial scope of the coverage provided. It does not impact the approach to causation.
- There was nothing in the wording of the clauses in this case and before the Supreme Court that restricted cover to situations where losses were caused solely by the occurrence of the disease within the specified area. They only required that the occurrence is a proximate cause of loss. Additionally, the policies did not exclude cover in respect of occurrences outside the specified area.
- The Supreme Court’s approach had the added benefit of being clear and simple to apply. The approaches suggested by the insurers were unclear and would be difficult to apply in practice.
What does this mean for insurers?
The Court’s rejection of the “but for” causation test proposed by the insurers clarifies that the courts will not take a strict approach to causation in cases such as this. It will have ramifications for insurers’ responses to BI claims generally, not only in relation to COVID-19 issues. The decision indicates that insurers cannot apply a simple “but for” test to reject claims on the basis that the insured would have suffered loss regardless of the insured peril.
