Business Interruption Claims – Implications of the Supreme Court’s judgment
February 4, 2021
By Jonathan Lowe
My last article (please see here) summarised the background to, and findings of, the High Court in the test case brought by the Financial Conduct Authority in an effort to provide guidance on the application of business insurance policies in the wake of the pandemic.
The High Court’s decision was, in large part, helpful to policyholders, but the assistance afforded to policyholders was limited where policies provided cover only in circumstances where access to a place of business had been denied.
Supreme Court Judgment
As has been widely reported in the national press, in a judgment handed down on 15th January 2021 ([2021] UKSC 1) the Supreme Court has allowed much of the FCA’s appeal thus further extending the assistance afforded to policyholders.
Interestingly the Supreme Court reached different conclusions as to the interpretation of what were referred to throughout the case as the “disease clauses”, but because of the way in which the court dealt with causation such findings did not ultimately affect the conclusions that the clauses generally provide cover in the circumstances of the pandemic.
In relation to prevention of access clauses, and any therefore hybrid of disease/prevention of access clauses, the Supreme Court gave greater assistance to policyholders and found that cover will be provided without the need for actual legislation ordering closure, and cover may also be engaged where there is a loss of access for only part of the business or part of the premises.
This is welcome news indeed for many policyholders who will now be able to pursue claims, and hopefully either have previously rejected claims met, or otherwise will have claims that have been on hold now dealt with expeditiously by insurers to allow a modicum of good news and hope for struggling businesses.
The FCA has recently published a useful policy checker on its website, and I suspect that it will be producing other similarly helpful material for policyholders and their advisers in the coming weeks, including guidance on proving the presence of coronavirus for the purpose of claims. It will be worthwhile keeping an eye on the very helpful FCA website and its pages dedicated to business interruption claims.
The position remains that whereas there should now be a larger number of successful business interruption claims made in light of the judgment, each claim will need to be dealt with on its own merits, and specialist advice will be required from time to time.
It is to be hoped that processes will now be put in place with the assistance of the FCA to allow policyholders and brokers to process claims and liaise effectively with insurers. However, there will be cases where the decision of the insurer needs to be challenged and at that stage input from legal advisers will be likely required. Unfortunately for policyholders, whereas some insurers are engaging properly with claims following the judgment I am aware of anecdotal evidence that large numbers are not and therefore input from legal advisers may be needed.
The Supreme Court judgment itself gives examples of scenarios which may or may not result in cover being provided dependant on the facts and the wording of the policy, and there will be no summary that can be produced which will cover all scenarios.
Wider Implications of the Judgment
Aside from the headlines, the judgment of the Supreme Court is interesting for a number of wider reasons beyond the good news afforded to policyholders.
Contract Interpretation
The starting point for the judgment is to address issues arising out of the interpretation of contracts, and the observations made reinforce the approach to be taken in such cases as set out in a number of well-known House of Lords and Supreme Court decisions over the last 2 decades. The judgment re-emphasises the need not to force upon the words of a contract a meaning that they cannot fairly bear.
It is also noteworthy that the court was very clear that when interpreting the policies from the perspective of the reasonable person, that reasonable person is an ordinary policyholder who, on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting. That test was used to dispose of an argument by RSA that there was not cover because of a general exclusion clause on page 93 of the policy which excluded from cover loss or damage due to epidemic and disease, the business interruption cover being addressed on page 38 of the policy. It seems to me that this is an analysis which may gain some traction in future cases.
Causation
Possibly the most enlightening part of the judgment addresses causation.
Whereas because of the way in which the High Court interpreted the disease clauses there was little need for it to consider causation in detail (it’s conclusion being that a local occurrence was part of the wider pandemic for which the vicinity was England and Wales), the Supreme Court’s interpretation (concentrating on individual occurrences within the radius specified in the policy being the trigger for cover, and therefore, if cover were to be effective such minor occurrence would need to act in conjunction with the effect of the wider pandemic as a cause) meant that the Supreme Court needed to address causation in far greater detail.
The Supreme Court needed to address the arguments raised on behalf of insurers relying on a strict application of the “but for” test, and in particular their reliance on the judgment of the High Court in Orient Express Hotels Limited v Assicurazioni General SpA [2010] EWHC 1186 (Comm).
The judgment undertakes a review of previous decisions and addresses the difficult issues that have always arisen from consideration of what does or does not constitute a proximate cause of a loss. It, of course, remains the case that each claim must be considered on its own facts and the specific terms of the relevant policy, but the Supreme Court’s conclusions are highly interesting, particularly the following extract from paragraph 191 “there is nothing in principle or in the concept of causation which precludes an insured peril that in combination with many other similar uninsured events brings about a loss with a sufficient degree of inevitability from being regarded as a cause – indeed as a proximate cause – of the loss, even if the occurrence of the insured peril is neither necessary nor sufficient to bring about the loss by itself.”
In reaching these conclusions the Supreme Court did not reject the “but for” test, and indeed it remains the appropriate test in most cases, but it will not be the appropriate test if its application will result in a failure of or narrowing of cover in circumstances where the policy when read as a whole did not intend that to happen.
The Supreme Court expressly over-ruled Orient Express, and in so doing explained that where there are 2 concurrent causes of loss, one which is covered and one which is not, and each of which was by itself sufficient to cause the loss, but neither of which satisfied the “but for” test because of the existence of the other, cover was provided in the event that one of the causes was not expressly excluded. In so ruling, Lords Hamblen and Leggatt, in delivering the leading speech in the Supreme Court, overruled the decision in which they were both involved as a member of the original arbitration tribunal and then the judge on appeal.
Before transferring to the Bar in 2008 Jonathan Lowe was Head of Commercial Insurance at Keoghs. He has a broad commercial practice but in particular has over 25 years’ experience in insurance law.
If you would like any advice or assistance in pursuing claims for business interruption, please do not hesitate to contact Jonathan or his clerk, Joe Mawson.
