Simon Cooper Consultant
Supreme Court checks out of Orient Express Hotel
The Financial Conduct Authority & others v. Arch Insurance (UK) Ltd & others  UKSC 1
On 15 January 2020, the Supreme Court handed down its judgment in this test case that was initiated by the Financial Conduct Authority (“”FCA”) in order to determine a number of common coverage issues pertaining to the correct response of non-damage business interruption policies to the Covid-19 pandemic. The Supreme Court’s decision is, however, of general significance to all classes of insurance and beyond.
One of the central issues in the case was that of causation. The Court found that the risk insured under the various policies that it had been asked to consider was the business interruption loss resulting from an outbreak of disease within a fixed radius of the insured premises or, in some cases, the denial or prevention of access to the insured premises as a result of action by the authorities following the outbreak of a ‘notifiable disease’ at or within a certain radius of the insured premises.
This analysis of the insured risk meant that the issue of causation became central – could it be said that a single occurrence of Covid-19 at or close to the insured business had caused the Government to impose the restrictions which in turn caused the interruption of the business?
In answering this question in the affirmative, the Supreme Court considered that it was realistic to analyse the situation as one in which “…all cases [of Covid 19] were equal causes of the imposition of the national measures.” While it obviously could not be said that the occurrence of a case of Covid-19 within the required radius of the insured premises was either necessary or sufficient to bring about the imposition of the Government restrictions, it was, nonetheless, one of many concurrent causes of those restrictions. Consequently, as long as none of the other concurrent causes was excluded by the policy, the necessary causal link between the happening of the insured peril and the insured’s loss could be established.
This result led the Supreme Court to conclude that policy holders were entitled to recover from their insurers if there had been a single case of the Covid-19 within the required radius and the business had suffered loss following the imposition of the Government restrictions.
Like the High Court below, the Supreme Court was reinforced in this conclusion by the fact that the policy expressly provided cover for losses resulting from infectious diseases of a kind which the parties must have expected would occur all over the country and not just within the specified radius of the insured premises. The Supreme Court also pointed to the fact that the policies under consideration did not stipulate that the outbreak of the infectious disease to which they responded should only occur within the defined area.
The Supreme Court then turned to consider the controversial decision in Orient Express Hotels v. Generali EWHC 1186. That case concerned a claim for business interruption loss by a hotel in New Orleans which had been devastated by hurricanes Katrina and Rita. The insurers successfully defended the claim on the basis that even if it had not itself suffered damage, the loss to the hotel would have been the same because of the devastation to the surrounding area of New Orleans. As a result, insurers argued, the damage to the hotel, which was the insured risk, could not be said to have ‘caused the loss’ to the hotel. The Court upheld this analysis, finding against the claimants. The insurers in FCA v. Arch placed much reliance on this decision to argue that because the loss to the insured businesses would have been caused by the Government’s national response to Covid-19 in any event, the fact that the loss might also have been caused by an outbreak of Covid-19 within the necessary radius of the premises was irrelevant.
It can be seen that this approach is unsustainable in the face of the Supreme Court’s analysis of the doctrine of concurrent causes – both damage to the hotel and the damage to the surrounding area were causes of the loss in that case. Accordingly, the Supreme Court held that Orient Express was wrongly decided and should be overturned. Interestingly, two of the Supreme Court judges who reached this conclusion had been involved in formulating the original decision in Orient Express – one as an arbitrator and the other as the appellate judge.
In summary, the Supreme Court decision was a resounding success for the FCA and the policy holders and an important reminder to everyone concerned with insurance that the doctrine of concurrent cause is very much alive and kicking. The Supreme Court has checked out of the Orient Express hotel.