The shadow of the Covid-19 pandemic continues to loom over businesses still rebuilding after the worldwide lockdown. The 2020 pandemic brought about a lockdown, during which the UK government implemented safety measures that affected all sectors of the economy. Businesses focused on hospitality and leisure were especially affected due to reliance on physical attendance at their premises. This raised the question for many businesses of whether the interruption to their business operations warranted loss coverage under their insurance policies. The ambiguous wording of the relevant causes left the fate of the policyholders’ claims for compensation at the mercy of insurers, who were quick to issue rejections.

The London International Exhibition Centre v RSA & Ors [2024] EWCA Civ 1026 followed the hearing of six expedited cases by the Court, which concerned policies providing cover for diseases occurring “at the premises” of policyholders. The hearing of these cases shed light on the potential for Covid-19 business interruption (“BI”) claims. His Honour Mr. Justice Jacobs handed down the judgement, addressing the availability of BI insurance coverage for the consequences of the Covid-19 pandemic on businesses. The policies under consideration included BI losses due to notifiable diseases (those that medical practitioners had to report to public health authorities) within a certain distance or radius of the insured property. The central legal question was whether the losses experienced could be causally linked to the occurrence of Covid-19 “at the premises” of the businesses, in conjunction with the broader outbreak that led to the government-mandated closures. Insurers claimed that the “at the premises” clauses should strictly limit coverage to losses directly caused by the presence of the disease at the insured premises only.

The Court of Appeal rejected the insurers’ arguments for a narrow interpretation of causation. The reasoning applied as follows: assuming that there were occurrences of Covid-19 at each of the policyholders’ premises, those occurrences together with all the other cases of Covid-19 in the country were the cause of the business closures. In ordering a national lockdown, therefore, the government was responding to the fact of disease having occurred at each of these premises. Thousands of policyholders with the relevant wording in their insurance policies are now entitled to claim for losses caused by Covid-19.

How does this ruling impact businesses with “at the premises” disease clauses in their policies?

In 2020, amidst the pandemic, the Financial Conduct Authority took the decision to resolve the lack of clarity surrounding the application of business interruption clauses. The FCA brought a claim on behalf of affected policyholders against numerous insurers. Their decision significantly assisted policyholders as these organisations no longer needed to fight independently for the resolution of the contractual uncertainty issues with insurers. The key finding from the Supreme Court’s decisions was the fact that disease clauses for business interruption due to the disease within the radius of the premises did in fact apply to Covid-19 losses. Businesses were able to claim for disruption even if the disease occurred outside the specific radius but had an impact within the premises. The clauses that covered losses due to public authority restrictions which prevented access to the premises could be triggered by the Covid-19 lockdowns. The Supreme Court rejected the insurers’ arguments that losses had to be tied to specific local outbreaks in the landmark 2021 decision in FCA v Arch.

The Supreme Court’s findings applied to “radius” disease clauses, but many policyholders were covered under ATP clauses instead, which addressed losses from diseases occurring specifically at the premises. ATP clauses were not specifically considered in the FCA Test Case, which triggered the London International Exhibition Center to initiate legal proceedings in the series of six test cases heard in June 2023. The ATP Test Case in 2023 (London International Exhibition Centre v RSA) was the natural extension of the Covid-19 BI test case by the FCA.

The Court of Appeal agreed with the insurers’ approach that the policies in the ATP clauses should be interpreted by focusing on their language and context rather than comparing them to the “radius” clauses from the FCA v Arch case. However, they dismissed the insurers’ appeals and maintained the first-instance decision. The Court aligned with the findings from the previous rulings, despite differences between ATP and radius clauses. Lords Justice Males and Popplewell and Lady Justice Andrews confirmed that businesses with an ATP disease clause in their policies are entitled to claim an indemnity for their loss of gross profit caused by the UK government’s response to the pandemic.

What are the key legal points, such as causation, knowledge, and the closure of premises due to government or medical officer advice?

In terms of causation, the ATP case confirmed that the approach to causation in ATP disease clauses mirrors the principles established in the FCA test case regarding “radius” clauses. It was established that each case of Covid-19 is a concurrent cause of government restrictions. The “but for” causation argument from insurers, which claimed that ATP clauses differ from radius clauses, was rejected, as the court maintained that all relevant occurrences should be considered part of the causation analysis, including ATP ones. Justice Jacobs rejected insurers’ arguments, holding there was no principled reason why different causation analyses should apply to radius and ATP clauses. The judgement on the closure of the premises emphasised that the restrictions imposed as a consequence of the pandemic were evaluated on a general situation basis instead of looking at isolated occurrences at individual premises.

Regarding the context of knowledge, policyholders were not expected by the court to be able to distinguish between the nuances of policy wording concerning the pandemic. The court focused on the ordinary policyholder’s understanding of the contract instead of a detailed legal analysis. The court considered the notion of equitable coverage by preventing different treatments of claims arising from the same event, with the only distinction being between the ATP or “radius” clauses that they subscribed to.

What are the broader implications for insurers and businesses, including the upcoming case Bath Racecourse & Ors v Liberty Mutual Insurance?

The broader implications of these cases lie in their influence on pending Covid-19 BI claims across the insurance industry. It will affect the necessity of setting precedents on policy interpretation, policy coverage, and the treatment of government aid like furlough payments (which cover employee wages when they are on temporary leave due to a pandemic). Insurers will be under increased pressure to clarify policy language, as the courts appear sympathetic to the challenges faced by businesses during the pandemic, upholding the idea that the average policyholder would be unaware of nuances in the clauses’ language.

The Bath Racecourse & Ors v Liberty Mutual Insurance case, due to be heard in 2025, will continue the trend of Covid-related claims in court. This case will determine whether insurers can deduct furlough from Covid business insurance payouts. It will likely set an important precedent, deciding whether policyholders are required to pass furlough payments to their insurers or if the benefit should rest with the businesses that received the relief.

©Whitestone Chambers.