Business interruption insurance claims: important victory for leisure businesses

The leading case: FCA v Arch - ‘radius’ policy wording

The leading case on the interpretation of business interruption insurance wording on claims relating to closures of premises during the pandemic is FCA v Arch. The Financial Conduct Authority (FCA) brought this test case to provide clarity on whether various forms of business interruption insurance policy wording could be applied to losses caused by national Covid-19 restrictions. Among others, ‘radius’ clauses were considered, which are those covering interruption arising from outbreak of a notifiable disease in a set radius around the premises. The Supreme Court found that it was not necessary to prove ‘but for’ causation i.e. that restrictions would not have been imposed ‘but for’ the case of Covid-19 in the radius, as all cases of Covid-19 are to be taken together as a single proximate cause for the restrictions.

The Supreme Court found that where:

• there was at least one case of Covid-19 in the relevant radius before restrictions were imposed; and
• government restrictions were the result of Covid-19 occurrence, the causation element was fulfilled. In ExCel v Allianz, the Court of Appeal found that this approach also applies to polices with ‘at the premises’ wording, providing important additional clarity.

ExCel v Allianz - ‘at the Premises’ policy wording

The business interruption insurance policies under consideration in ExCel v Allianz contained wording requiring there to be cases of a notifiable disease ‘at the premises’ (rather than in a radius around the premises). The Court of Appeal found that, though they began their reasoning with the language of the clause rather than with the findings of FCA v Arch, they came to the same conclusion that ‘but for’ causation does not apply and cases of Covid-19 are a single proximate cause of restrictions being imposed.

The key findings are:

• The nature of the ‘insured peril’ informs the type of causation required by the wording in the relevant clause. In the case of a notifiable disease, this is informed by the specific nature of these diseases, which is that they spread quickly and through a wide area. It is not informed by the nature of the other perils stated by other clauses in business interruption insurance policies, such as vermin infestation or murder at the premises.
• Covid-19 was made a notifiable disease at 6.15pm on 5^th March 2020, and any occurrence of the disease on the premises before that time and date is not covered, because it is not an occurrence of a notifiable disease.
• All of the cases of notifiable Covid-19, including one or more at the premises, can be the proximate cause of restrictions being imposed on the business because, as the Court of Appeal put it: “Such occurrences come not single spies but in battalions”, and it is therefore a proximate cause.
• In this situation, the parties to the insurance policies must have contemplated the fact that an outbreak of a notifiable disease, which by its nature spreads quickly and over a wide area, requires restrictions to be imposed generally, and not specifically in response to cases at the insured premises.
• It is therefore not necessary to be able to prove that restrictions were imposed on the business as a direct result of cases of Covid-19 at their premises. In other words, the ‘but for’ test for causation does not apply and it is sufficient to show that there were cases of Covid-19, including one or more at the premises, and that restrictions were subsequently imposed.
• It is also not necessary for the public authority imposing the restriction to have had direct knowledge of cases at the specific premises in question, only that they would have known about an outbreak in the area containing the insured premises.

In their judgment, the Court of Appeal also clarified the approach to several other terms important to the interpretation of those insurers’ policies under consideration in the case. Perhaps most significant among these is the meaning of ‘Public Authority’ as the required imposer of the restrictions. The Court of Appeal found that “public authority is not limited to local authorities” and as result, clauses which name the public authority catch those restrictions imposed by the government or any other public body.

Conclusion

The approach taken by the Court of Appeal to causation in this context, and their interpretation of terms such as ‘Public Authority’, widens the interpretation of these policy clauses from that preferred by the insurers. Blake Morgan has advised several public sector bodies that losses caused by pandemic restrictions could be covered under business interruption insurance policies and is pleased that the Court of Appeal has now ratified this approach. Overall, ExCeL v Allianz provides some much-needed clarity to businesses and public sector bodies who suffered losses arising from the forced closures of their premises during the Covid-19 pandemic, and business interruption insurance insurers should now take a more liberal approach to their claims.