London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481: Impact on Landlord and Tenants

London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors [2023] EWHC 1481

The recent decision of HHJ Jacobs in London International Exhibition Centre Plc v Royal & Sun Alliance Insurance Plc & Ors (“London International Exhibition Centre Plc”) threw further light upon the potential of Covid-19 business interruption claims (“BI”). The issue was whether non-damage extensions to BI policies that afford cover for losses arising as a result of notifiable disease occurring at the insured premises (so called “at the premises disease (ATP) clauses”) can respond to losses suffered by insureds, typically landlords and tenants, as a result of the Covid-19 pandemic.

The judgment considered whether the Supreme Court’s analysis in The FCA v Arch & Others [2021] UKSC 1 (the “FCA Test Case”) regarding concurrent causation in the ‘radius cases’ should also apply to ATP clauses. HHJ Jacob concluded that the Supreme Court’s approach would also apply to ATP clauses; therefore, in effect, any case of Covid-19 within the radius would mean that losses would be covered. 

This bulletin examines the key principles that can be drawn from London International Exhibition Centre Plc, particularly the potential far-reaching implications for landlords and tenants who faced an unprecedented impact on their businesses as a result of the Covid-19 pandemic. 

The Parties’ Position

In London International Exhibition Centre Plc, the claimant policyholders included the London International Exhibition Centre, the restaurant chain, Pizza Express, as well as a number of smaller businesses, including a hairdresser, two gyms, and various hospitality venues. They had all suffered significant BI losses as a result of the pandemic, and all had ATP cover BI insurance.  Applying the same approach to concurrent causation as adopted in the ‘radius cases’ by the Supreme Court in the FCA Test Case, they argued that their policies should respond to cover their losses.

In contrast, the defendant insurers argued that ATP clauses and radius clauses provided a “fundamentally and qualitatively different” nature of cover. The fact that they are engaged by incidents of disease at a precise location means either that a direct causal connection is required, alternatively, that ‘but for’ causation is required between the occurrence of disease at the premises, the action by the authorities and the consequent business interruption and loss. The insurers contended that, unlike radius clauses, ATP clauses were concerned only with things that happen at the premises and for a number of reasons this justified applying the “but for” causation test or, alternatively, a causation test (referred to by the Court as “the distinct causation test”) requiring (i) that the outbreak of disease was at the premises and (ii) was a distinct cause of its closure or other restriction.

This interpretation would mean that the businesses would have to show that their losses would not have occurred but for the singular occurrence or occurrences of Covid-19 and specifically at their own insured premises alone and not those outbreaks occurring elsewhere. This would effectively prevent any claim succeeding for losses resulting from the government’s general response to the pandemic.

The Decision 

The Court agreed with the claimants and, in doing so, rejected the insurers’ approach. Accordingly, the court held that the Supreme Court’s approach in the FCA Test Case to radius clauses should also apply to ATP policies.

Relevance for Landlord and Tenants 

Many businesses have been severely affected by the Covid-19 pandemic and many landlords and tenants suffered from the impact of closures and restrictions to their premises and disruption in supply chains. Many landlords and some tenants will have taken BI cover. Most commercial leases provide for rent payments to be suspended only if the property is physically damaged. Accordingly, for most tenants, rent and other payments under the lease will have remained payable even though tenants were unable to access or fully use their premises. Under those circumstances, the Court has generally taken the position that tenants cannot recover loss of rent claims. 

Regardless of whether the insurance policy in question is held by the landlord or the tenant, insurance policies will only cover losses which have been caused by certain triggering events. Therefore, whether a landlord or tenant has a valid insurance claim in respect of pandemic-related loss will depend on the specific policy wording. However, the decision makes clear that the principles from the FCA Test Case should be applied to ATP claims.

Each party was granted permission to appeal. However, the decision will likely be seen at the moment as a significant win for landlords and tenants policyholders. 

The key takeaway points from this decision are: 

1. Landlords and tenants that have the relevant cover in place are in an improved position than before. Insurers may have to review and revisit historic claims from landlords and tenants which have previously been rejected or determine outstanding BI insurance claims containing ATP clauses. 
2. Every policy is worded differently, and every business is different, so businesses should seek advice in light of the judgment, their specific circumstances and whether there is a basis for a claim.

We will keep you updated as to any appeals that arise from this decision.