Covid-19 Business Interruption – At the Premises disease clauses

It is now over two years since the Supreme Court’s judgment in the FCA Test Case on non-damage business interruption (BI) cover for losses arising from the Covid-19 pandemic and English Courts are still active in determining coverage disputes arising from issues that were not directly addressed in the Test Case.

The recent decision in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors involved a dispute as to whether non-damage extensions to BI policies that afford cover for losses arising as a result of notifiable disease occurring at the insured premises (so called “at the premises disease (ATP) clauses”) can respond to losses suffered by insureds as a result of the Covid-19 pandemic.

The Court found that the Supreme Court’s approach to causation applies equally to ATP clauses with the result that they can afford cover in principle, subject to the specific requirements of the clause being met.

The Court also found that:

• ATP clauses could not be engaged by proof of Covid-19 at the premises before the date on which it was made a notifiable disease.
• UK government action satisfied a requirement that closure or restrictions be placed on premises “with the approval of the Medical Officer of Health for the Public Authority”.
• “Suffer” should be given the same meaning as “occur” and “sustain”.

Background

Following uncertainty as to how a number of different BI wordings responded to losses suffered by SMEs as a result of the Covid-19 pandemic, the FCA announced on 1 May 2020 that it intended to obtain a court declaration to determine the meaning and effect of sample BI wordings. Proceedings were issued under the Financial Market Test Case Scheme and the English Court was asked to consider 21 sample policy wordings. For further background please see our previous Law-Now.

At the time, ATP clauses were specifically “out of scope” of the Test Case with the result that there has been uncertainty as to whether the judgment of the Supreme Court (in particular in relation to causation issues) should apply to them.

In London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors the Court determined a number of preliminary issues arising in six separate sets of proceedings concerning coverage for Covid-19 BI losses under ATP clauses.

Decision

The causation issue

The key issue in dispute was whether the causation test articulated by the Supreme Court in the FCA Test case applied to ATP clauses or whether a different test of causation applied. The Supreme Court had held, in the context of other clauses that as long as there was one case of Covid-19 within the relevant radius stipulated by those clauses then they responded to losses arising as a result of government action taken in response to the Covid-19 pandemic as that case was (along with other cases of Covid-19) a concurrent cause of closures and restrictions (and resulting BI loss).

If the Supreme Court’s approach was followed then ATP clauses could (subject to the specific requirements of each clause) afford cover on the same basis.

Insurers contended that this approach to causation should not be followed because of the conceptual differences between the radius clauses considered in the FCA Test Case (including by the Supreme Court) and ATP clauses which were not. Insurers maintained that, unlike radius clauses, ATP clauses were concerned only with things that happen at the premises and for a number of reasons this justified applying the “but for” causation test or, alternatively, a causation test (referred to by the Court as “the distinct causation test”) requiring that the outbreak of disease at the premises was an effective cause of closure or other restriction.

The Court found that the only difference between ATP clauses and radius clauses is the geographical or territorial scope of the coverage and that this should have no impact on the appropriate approach to causation nor require a different approach to that set out by the Supreme Court. In making this determination, the Court followed the approach of the Financial Ombudsman Service who, for some time, has applied the Supreme Court’s causation test to complaints involving ATP clauses.

No occurrence before the date on which Covid-19 became notifiable

An issue in four of the six sets of proceedings was whether cases of Covid-19 at the premises before the date on which it became a notifiable disease (in Scotland on 22 February 2020, England on 5 March 2020 and in Wales on 6 March 2020) sufficed for the purposes of establishing that the ATP clause provided cover.

The Court determined that they did not. Prior to the relevant dates Covid-19 was not a notifiable disease and so any cases could not satisfy the requirement of the ATP clauses that there was a case of notifiable disease at the premises.

Is the UK Government the “Medical Officer of Health of/for the Public Authority”?

In two of the proceedings the relevant ATP clause was triggered by the advice or approval of the Medical Officer of Health of/for the Public Authority.

The post of Medical Officer of Health was abolished in 1974 but, at the time, was “a role to which a legally qualified medical practitioner or member of the medical profession was to be appointed by local rather than national authorities”.  Insurers asserted that, amongst other things, the “local nature” of this former post suggested that the reference to “public authority” must mean local authority and it followed that the ATP clause could not be engaged as policyholders relied on acts of the UK government.

The Court found, applying the relevant principles of construction summarised in the FCA Test Case, that “public authority” has a broad meaning which includes national governments and the reference to the Medical Officer of Health includes senior national government medical advisers on health matters, including Professor Chris Whitty, the Chief Medical Officer.  In making this determination the Court again followed the approach of the Financial Ombudsman Service in determining complaints under policies that have used similar language.

The meaning of “suffered by”

The final issue the Court had to consider was the meaning of “suffered by” in one of the sets of proceedings where the relevant ATP clause required “notifiable infectious disease…suffered by any visitor or employee”. 

Insurers maintained that “suffered by” required that the visitor or employee was experiencing the symptoms of Covid-19 whilst at the premises. However, the Court preferred the policyholder’s arguments on this issue  which was that “suffer” is the same as “occur” and “sustain” and so included all people who had Covid-19 whether or not they were diagnosed or were symptomatic.

Comment

Subject to any appeal (permission to appeal has been granted by the trial judge), this case confirms that the Supreme Court’s approach to causation is (absent clear language in the policy to the contrary) likely to be applied for the purposes of assessing the application of non-damage BI extensions which were not specifically considered in the FCA Test Case. However, it remains to be seen whether this case will have a significant impact on Insurers whose policies have ATP clauses as many are likely to have been following the approach of the Financial Ombudsman Service on these clauses in any event. 

The Court’s decision on the meaning of “Medical Officer of Health of/for the Public Authority” and “suffer” is consistent with the Supreme Court’s approach of asking how the words of insurance policies would be understood by a reasonable person, as opposed to by reference to a technical analysis of all the policy and the genesis of the post of Medical Officer of Health.

Given that the onus will always be on policyholders to prove there was a case of Covid-19 at the premises, the determination that this requirement can only be satisfied once Covid-19 became a notifiable disease may, depending on the evidence available, make this harder to establish.

Further reading: London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481 (Comm) (16 June 2023)