From: Sandy Steel <sandy.steel@wadham.ox.ac.uk>
Sent: 18 January 2021 10:16
To: Adam Kramer <akramer@3vb.com>; Neil Foster <neil.foster@newcastle.edu.au>; obligations@uwo.ca
Subject: [Spam?] Re: COVID, insurance and causation

Thanks Neil.

I was one of the FCA’s successful counsel team, so have lived this for nine months.

The Supreme Court was persuaded that as a matter of proper construction of the policies, which are expressly triggered by notifiable diseases which is a small set of the more dangerous or infectious human diseases including SARS, they must have contemplated diseases going outside the relevant area and that the main route to interruption would be via public authority intervention responding to the disease.

That being the case, the proximate cause test the parties would have intended to be required to be satisfied was satisfied by the link between the local occurrences and the national reaction (which Matt Hancock at one pojnt helpfully confirmed was a response to the cases all over the country), even if the but for test was not satisfied. I.e. the parties would not have intended the but for test to be applied to the local occurrences but only the larger set of which they comprise a part. Analogies were legal defence costs insurance (responds to cover legal expenses incurred for covered disputes even if also jointly incurred for uninsured disputes and so would have been incurred even but for the insured peril; SC jment 186-8), and the The Silversea C of A case (coverage for public actions responding to 9/11 attacks does not require that the disruption is but for caused by the public actions where it was co-caused by the attacks themselves; SC jment 241).

So yes, the result was a form of NESS I think—the ‘set’ was drawn by the policy, which must have contemplate that the insured peril (disease within the radius; or, in other clauses, public authority response to the disease) not compete with other consequences of the underlying fortuity (COVID-19 itself), meaning that they must be treated as a single set (terminology not used in the case).

Also of interest is the overturning of Orient-Express (damage-related BI cover: but for the hurricane damage to the property, Hamblen J had found that the loss would still have been suffered due to the hurricane damage to the rest of New Orleans). Hamblen J was the judge in Orient-Express, Leggatt QC was arbitrator in Orient-Express, they both appeared in the Supreme Court in this case and graciously overruled themselves (SC jment 297-311), citing US judge Jackson:

“Precedent, however, is not lacking for ways by which a judge may recede from a prior opinion that has proven untenable and perhaps misled others. See Chief Justice Taney, License Cases, 5 How 504, recanting views he had pressed upon the Court as Attorney General of Maryland in Brown v Maryland, 12 Wheat 419. Baron Bramwell extricated himself from a somewhat similar embarrassment by saying, ‘The matter does not appear to me now as it appears to have appeared to me then.’ Andrew v Styrap, 26 LTR (NS) 704, 706. And Mr Justice Story, accounting for his contradiction of his own former opinion, quite properly put the matter: ‘My own error, however, can furnish no ground for its being adopted by this Court. ...’ United States v Gooding, 12 Wheat 460, 25 US 478. Perhaps Dr Johnson really went to the heart of the matter when he explained a blunder in his dictionary - ‘Ignorance, sir, ignorance.’ But an escape less self-depreciating was taken by Lord Westbury, who, it is said, rebuffed a barrister’s reliance upon an earlier opinion of his Lordship: ‘I can only say that I am amazed that a man of my intelligence should have been guilty of giving such an opinion.’ If there are other ways of gracefully and good naturedly surrendering former views to a better considered position, I invoke them all.”

Best,

Adam Kramer

Dear Colleagues;

I have been holding off posting about the decision of the UK Supreme Court in The Financial Conduct Authority & Ors v Arch Insurance (UK) Ltd & Ors [2021] UKSC 1 (15 January 2021) http://www.bailii.org/uk/cases/UKSC/2021/1.html in the hope that someone else would dive into the shark-infested waters first! But since I see no takers let me venture in.

The case is something of an “advisory opinion” being provided at the request of a government regulator and a number of insurance companies relating to the issues around whether “business interruption” insurance policies respond to the costs incurred by having to close down businesses due to the lockdown requirements imposed by the UK government. There is a lot here relating to insurance principles that I will not be commenting on. But I couldn’t ignore the detailed discussion of causation that the majority (LORD HAMBLEN AND LORD LEGGATT, with whom Lord Reed agrees) enters into.

Now I want to acknowledge up front that the case does not directly concern causation as an element of the law of negligence. It is about “causation for insurance purposes”. The majority note that for insurance purposes the accepted approach is to ask whether there is “proximate causation” between the event and the policy (see eg [163]). But the comments on causation seem at least likely to be influential when a court has to come to explore liability issues in tort.

The main issue seems to be this: the majority read the common form of business interruption clause in relation to “disease” as having the meaning that the clause will only respond to “the effects of cases of COVID-19 occurring within the specified radius of the insured premises” (at [161]), usually within a radius of 25 miles. The complaint is about the government shut-down rules, which of course affected the whole country. But when considering any one case of COVID-19, can it really be said this case was a cause of the shut-down rules? In other words, no individual example of the disease can be said to be a “but-for” cause of the government shut-down rules. As they say at [179]:

“if - as the insurers submit - the relevant test in considering the Government measures taken in March 2020 is to ask whether the Government would have acted in the same way on the counterfactual assumption that there were no cases of COVID-19 within 25 miles of the policyholder’s premises but all the other cases elsewhere in the country had occurred as they in fact did, the answer must, in relation to any particular policy, be that it probably would have acted in the same way.”

Hence the question was whether the specific instances covered by the clause, “caused” the damage.

Again, keeping in mind that this was an insurance question not a liability question, the majority end up approaching the case through the lens of the various approaches that have been put forward dealing with “over-determined” causation- the classic example “one house hit by 2 fires each of which would have caused the harm”, or “one hunter hit by two bullets at the same time each of which would have killed him”- see [182] ff. They cite Professor Stapleton and Professor Wright- see [183]-[185], and [189].

In the end I think the analysis they apply is in effect an example of the NESS approach, or the approach suggested by Prof Stapleton, if those two approaches are different. The example at [184] is I think instructive:

“184. A hypothetical case adapted from an example given by Professor Stapleton, which was discussed in oral argument on these appeals, postulates 20 individuals who all combine to push a bus over a cliff. Assume it is shown that only, say, 13 or 14 people would have been needed to bring about that result. It could not then be said that the participation of any given individual was either necessary or sufficient to cause the destruction of the bus. Yet it seems appropriate to describe each person’s involvement as a cause of the loss. Treating the “but for” test as a minimum threshold which must always be crossed if X is to be regarded as a cause of Y would again lead to the absurd conclusion that no one’s actions caused the bus to be destroyed.” 

I think this is helpful because at one point it is accepted that the whole of Great Britain could be covered by about 20 circles of 25 mile radius. Let’s suppose business X in one of those circles, Y. Let’s further suppose that the government would not have introduced lockdown if only one circle had COVID-19, but it would do so if, say, 13 circles did. Then to show that the  COVID in circle Y was a cause of the lockdown, under the NESS approach, all one need to do would be to show that circle Y was a necessary element of a sufficient set (12 other circles and circle Y) which led to the lockdown.

I think this works, though of course in a list which includes the relevant experts I am open to being corrected!

Interested to hear other views, if any.

Regards

Neil

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