The difference between pandemic BI coverage and pushing a bus off a cliff

Commercial clients who bought insurance covering a disease outbreak within 25 miles of their premises did not buy coverage for business interruption from a pandemic on a national scale, insurance company lawyers are telling the United Kingdom Supreme Court.

Worldwide, many insurers took an off-coverage position after businesses who suffered revenue loss due to the COVID-19 pandemic made claims for business interruption.

In Britain, the Financial Conduct Authority (FCA) took eight insurers to court in 2020 in a dispute involving more than 20 policy wordings. An eight-day trial was held in July. In a ruling released  Sept. 15, the High Court of England and Wales ruled against the insurers on some of the policy wordings and in favour of the insurers on others.

Both sides are appealing to the U.K. Supreme Court, which has yet to issue a ruling.

In the arguments before the court, the issue has come up about whether business closures arising from the pandemic could have multiple causes, and, if so, if all of those causes are insured. Those causes could include both cases of COVID-19 near the business premises and the worldwide pandemic in general. Lawyers for the insurers have drawn a distinction between losses that have concurrent interdependent causes and concurrent independent causes.

The insurers’ position drew a question from one of the judges, who drew an analogy between determining whether or not the multiple occurrences of COVID-19 nationally or locally are responsible for causing a local business interruption (and are therefore insured), and whether individuals or a collective group of individuals are responsible for pushing a bus off a cliff.

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Lord Hamblen of Kersey is one of the U.K. Supreme Court judges who heard the appeal. He asked QBE lawyer Michael Crane the following question: If each local occurrence of COVID-19 in Britain was one cause of the emergency measures taken by the national government, then why is coverage not available under QBE’s policy wording providing BI coverage if there is an “occurrence of a notifiable disease” within a radius of 25 miles of the premises?

“Each case of illness is a separate occurrence,” replied Crane. “We’re not talking about interdependent causes here. We’re talking about independent separate causes. What has to be demonstrated on that hypothesis is that the independent cases of illness manifested or occurring within a given radius led to or caused the business interruption in question.”

One of the QBE wordings was ruled by the lower court to provide pandemic coverage. That wording is coverage for “interruption of or interference” with the business, “arising from or caused by … any human infectious or human contagious disease … an outbreak of which the local authority has stipulated shall be notified to them manifested by any person whilst in the premises or within a twenty five (25) mile radius of it.”

During the U.K. Supreme Court hearing, Crane described how a court should decide whether BI is covered where a notifiable disease spreads both in and outside the 25-mile radius of the premises.

“In such a case, a judgment has to be made as to whether the appearance or manifestation of a disease within the perimeter was the efficient or dominant cause of loss. This is a question of fact in each case. If, for example, there is a cluster of cases within the radius but relatively few outside, the inference might well be drawn that measures taken in response were in response to disease within the insured area,” said Crane.

Also appearing before the U.K. Supreme Court was Simon Salzedo, a lawyer for Lloyd’s insurer Argenta Syndicate Management Ltd. In September 2020, the High Court of England and Wales ruled in the FCA test case that an Argenta policy covering BI for “any occurrence of a notifiable human disease within a radius of 25 miles of the premises” covers the circumstances of COVID-19 in Britain.

During the November 2020 hearing, Salzedo was asked by a U.K. Supreme Court judge to comment on a hypothetical scenario in which 20 people are pushing a bus over a cliff.

“We can suppose that any one individual wouldn’t nearly be strong enough on their own to push the bus over the cliff,” said U.K. Supreme Court Justice Lord Leggatt. “Indeed, it would have taken 15 or 16 of them to do it. That also means that if you ask, in relation to any one particular individual, [if] that person hadn’t taken part, would the bus still have been destroyed? The answer is, ‘Yes.’ But might we not want to say in that example that each person’s contribution was an equally effective cause of the loss?”

Salzedo replied that the question before the court about multiple causes of a loss is not a question of physics.

“As a question of physics, you’ve then got 20 exactly equal causes, and it may be that a physicist would say that they are all 20 equally the cause, if that’s the case,” said Salzedo.

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But when the question is one of legal causation, a court needs to look for “seriously effective causes and then choose your proximate cause or causes from among them,” he added.

Lord Leggatt brought up the same hypothetical example of a bus being pushed off a cliff when Kealey was presenting arguments for MS Amlin. Lord Leggatt asked Kealey the following rhetorical question: Did none of the 20 people pushing the bus cause the bus to go over the cliff?

Kealey replied that the court is asking the wrong question.

“If you are, say, a scientist, and you’re asking the question, ‘What caused the bus to go over the cliff?’ You would say it was the joint efforts of all 20. But that’s not the right question. The scientist is not an insurance contract lawyer and is not looking at the right question.”

The right question, said Kealey, is this: If one of the people pushing the bus off the cliff is insured, did he or she cause the bus to go over the cliff ?

“Now, the answer to that is no, because, but for that one person’s effort, the bus would still have gone over the cliff,” said Kealey. “What caused business interruption losses at everybody’s restaurant, say, in England? Well, it’s the national lockdown or the public disinclination to go to restaurants because they don’t want to die of COVID-19 or whatever it is.”

One of the insurer defendants in the FCA test case is MS Amlin, which has three different policy wordings. The FCA is arguing before court that these wordings should provide pandemic coverage. In its Sept. 15 ruling, the High court of England and Wales said two of MS Amlin’s policy wordings (named by the court as “MS Amlin 1” and “MS Amlin 3”) potentially do provide cover, while the third (MS Amlin 3) does not.

The MS Amlin wordings are among the wordings in the FCA test case that provide coverage for BI in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises. With that type of wording, the insurers in the FCA tests case are arguing that coverage would not apply to the circumstances of COVID-19 in Britain. This, the insurers said, is because national restrictions across Britain mean that the client’s business would have been interrupted even if no COVID-19 cases had occurred within the radius specified in the policy.

“This is not a case of the insured being covered for business interruption at the premises resulting from notifiable disease everywhere in the country, provided that someone at the premises at some stage can be proved to have sustained disease there,” argued Gavin Kealey, a lawyer for MS Amlin, during the UK Supreme Court hearings in November 2020.

One of the MS Amlin wordings found by the lower court to cover pandemic is business interruption for “consequential loss as a result of interruption of or interference with the business carried on by you at the premises following …. any notifiable disease within a radius of twenty five miles of the premises.”

The fact that the wording does not refer to an “occurrence” led the lower court to conclude that BI is covered if there is at least one case of a notifiable disease within a 25-mile radius of the client’s premises, and if coverage is not limited to the specific effects the instances of the disease within that radius.

“The insuring agreement did not extend to any national or global epidemic or pandemic,” Kealey countered in his argument to the U.K. Supreme Court. “That might be the cause of individual cases of illness within 25 miles, but it’s not insured. It didn’t extend to any national, global pandemic or epidemic, provided just one case of COVID-19 could be proved, perhaps years after the event, to have existed within the 25-mile radius.”

In addition to MS Amlin, QBE also had multiple policies at issue in the FCA test case.

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