However, Supreme Court judges also suggest a public policy stance around pre-trigger losses

The “most important” issue that the Supreme Court will have to decide on concerning the business interruption (BI) test case appeal will be settling causation, said Aaron Le Marquer, partner at Fenchurch Law.

Speaking at a webinar titled FCA test case: the appeal on 20 November, Le Marquer earmarked causation as the primary problem to be tackled by the Supreme Court, which sat virtually between 16 and 19 November to hear the test case appeal.

Here, the judges will need to weigh up whether to support insurers’ stance around the use of ‘but for’ methodology, or whether to agree with the FCA’s view that ‘but for’ testing does not need to be satisfied for the type of non-damage BI claims being studied – instead proximate causation should be applied.

This dictates that policyholders need to demonstrate that the insured peril is a proximate cause of loss, rather than the sole cause of loss – this thinking implies that there can be more than one cause of loss, agreeing with the High Court’s introduction of the ‘composite peril’.

In the High Court judgment, the judges decreed that by establishing the insured peril, this –  in turn will solve the causation conundrum, including elements such as coverage triggers, counterfactuals and pre-trigger losses.

A large part of the causation debate, however, surrounds the historic Orient Express v Generali case, where a hotel claimed for BI losses following Hurricane Katrina. The ‘but for’ methodology that succeeded in this case formed the basis of many of the insurers’ arguments during the High Court proceedings.

Mr Justice Butcher and Lord Justice Flaux, who led the High Court proceedings, disagreed with the Orient Express ruling and did not feel it was applicable to the test case action.

The Supreme Court, however, has suggested that it may sympathise with this decision.

Le Marquer explained: “Lord Leggatt, when he was George Leggatt QC, was sat on the original arbitral tribunal that reached the original Orient Express decision, so certainly [he] should understand it better than anyone, made an interesting comment that perhaps in the original Orient Express case, it wasn’t a case of the court reaching the wrong decision; could it be possible that both of the parties had argued the wrong case in the original arbitration in their proposed comparison of how the loss should be measured? The correct answer is, in fact, something else?

“He’s left the door open there to making a finding that Orient Express should not be followed here, or should be overruled, without necessarily saying it was wrongly decided.

“Lord Leggatt has opened the possibility here that there could have been other arguments raised in Orient Express that were not raised. I think it’s fair to say they have been raised now.”

Public policy consideration

Another of the Supreme Court judges, Lord Reed, has also suggested a public policy stance in relation to pre-trigger losses. This concerns the dates that acted as policy triggers and distinguishing between government guidance and mandated regulations.

Le Marquer said: “An interesting comment that Lord Reed raised in relation to this Orient Express trends clause argument was the public policy argument.

“Going back to the FCA’s challenge on the pre-trigger losses of [a] business that has been told to close by the prime minster and the government and that the regulations will be coming into effect and [the business therefore] closes – insurers say that you’re not covered until those regulations come into effect and because the regulations came into effect later, your claim could be adjusted down to zero because you had already closed. Your turnover prior to the coverage being triggered was zero anyway.

“Lord Reed said in relation to that argument, if you read trends clauses to allow cover for businesses only who ignored government instructions to close and wait for legislation to take effect, the effect of that is to encourage companies to ignore government advice, contrary to public safety, and it would be extraordinary if a policyholder is required to continue to trade having been told to close.

“He certainly seemed to be on board with the idea that there was a public policy argument against that finding in relation to pre-trigger losses.”

Core issues

For Le Marquer, there are four “core issues” the Supreme Court will need to settle, these are:

  • Radius issues within disease clauses.
  • Whether government statements were restrictions/mandatory closures or advice, in relation to hybrid or prevention of access clauses.
  • Causation.
  • Trends clauses and Orient Express.

Beneath these are two “underlying questions”:

  • Is coverage provided under the sample policies for the wider effects of the Covid-19 pandemic?
  • What are the correct principles of causation and measurement of loss to BI claims more broadly and was Orient Express decided correctly?

In his presentation, Le Marquer highlighted the six insurers that are appealing to the Supreme Court, listing the grounds on which they are appealing – while most insurers where appealing on three grounds, Argenta had six grounds and Hiscox had seven.

“Hiscox, of course, seven different grounds. Hiscox obviously making a decision to roll back its stated intention [of] wanting to be seen as reasonable,” Le Marquer added.


Le Marquer further raised one more red flag for the Supreme Court, noting an inconsistency within the High Court judgment.

He explained: “The court found that where prevention of access or hybrid clause was triggered, and where the performance of the business had been affected negatively prior to that trigger occurring because of Covid, so classic example is a pub that from 16 March suffered a catastrophic loss in income because the public had been told to stay at home, but then had coverage kicking in on 21 March when it was actually forced to close.

“The court said well actually you can take into account that downturn in business between 16 and 21 March, which appears to me to be directly contradictory to what it said in relation to the general counter-factual that you should strip out the effects not just of the government action, but the underlying effects of the disease.

“The judgment and the declaration suggested that the underlying effects of the disease should be left in. So, that was inconsistent.”

The FCA appealed this point.