And I felt the earth move under…. the law of causation (with apologies to Carole King!)
If you’re an aspiring lawyer you cannot afford to ignore last month’s decision of the Supreme Court in Financial Conduct Authority v Arch Insurance. If you’re looking to be a commercial lawyer don’t try to go into an interview without a clear understanding of this case – for everyone else the law on causation has shifted. That’s all round a pretty big deal!
So what was the case about? It was brought by the Financial Conduct Authority (“FCA”) against eight insurers as a test case. These insurers had issued business interruption insurance. May of their insured had sought to bring claims under those clauses when the Covid 19 pandemic hit. The insurers had sought to avoid liability. It was a big issue and needed to be clarified. Step forward the FCA (using its powers under the Financial Markets Test Case Scheme for the first time). The case was heard first in the High Court and then remitted directly to the Supreme Court on Appeal. (This process is known as a leapfrog appeal and is allowed only in exceptional circumstances and under the provisions of ss. 12-16 Administration of Justice Act 1969). In essence the case was always going to have to be determined by the Supreme Court and there was some urgency – leapfrog was the pragmatic and sensible solution.
The case was complicated and turned on a large number of points. If you’re planning to be an insurance lawyer you might think about reading it in its entirety on the Supreme Court website. This is a potted version to get you going!
The insurance policies allowed trigger in the event of prevention of access to the premises “as a result of restrictions imposed by a public authority (or similar)”. An important decision on this point was that the restrictions did not necessarily have to have the force of law, a “non-binding instruction issued by a public authority” could be sufficient. Accordingly the issue of government guidelines restricting access was enough for the insured. The court helped the insured further by deciding that the closure did not necessarily have to be the total closure or prevention of access to the premises, it was enough if part of the premises could not be used for part of the business activity of the insured. (This was hugely important as business owners were allowed into their premises – they just weren’t allowed to be open serving customers).
The court considered the question of causation in great detail. We are all familiar with the “but for” test. The goal posts moved here. Lords Hamblen and Leggatt noted that the main problem with the “but for” test was:
“Not that it returns false negatives but that it returns a countless number of false positives. That explains why it is often…described as a minimum threshold test of causation.”
They then went on to note that sometimes the “but for” test excludes some cases where two separate events cause a problem but where it is impossible to determine which was responsible. Their lordships referred to a Canadian case Cook v Lewis [1951] where two hunters simultaneously shot a hiker and the evidence was that either bullet would have killed the hiker instantly. Under the “but for” test neither hunter caused the death – plainly a ridiculous outcome! These cases are causually “over-subscribed.
Their lordships then explained a further class of event where:
“a series of events combine to produce a particular result but where none of he individual events was either necessary or sufficient to bring about the result by itself”.
They cited an example given by Prefessor Jane Stapleton in “Unnecessary Causes” (2013) 129 LQR 39. Twenty people push a bus over a cliff, evidence shows that thirteen people could have done this. Therefore the participation of no one individual was necessary for the event. The “but for” test would produce the result that nobody was responsible. Again, plainly ridiculous.
The court followed this logic through to conclude:
“For these reasons there is nothing in principle or in the concept of causation which precludes an insured peril that in combination with many other similar uninsured events brings about a loss with a sufficient degree of inevitability from being regarded as a cause - indeed as a proximate cause - of the loss, even if the occurrence of the insured peril is neither necessary nor sufficient to bring about the loss by itself…”
Having reached this really important conclusion the court looked back at the precise trigger clauses in the insurance policies.
- There was a disease clause which could be triggered in the event of one case of illness in the area.
- The losses arising under the prevention of access clauses were recoverable even if the losses would have occurred in any event because of other effects of the pandemic.