QC accuses FCA of failure to show causal connection between government action and the disturbance to the insured businesses


Insurers argued the Financial Conduct Authority is “unable to demonstrate” any meaningful connection between the action taken by the UK government on a national basis in response to Covid-19 pandemic and the locality of firms’ premises, as the court heard submissions from Zurich, QBE and Argenta yesterday.

Craig Orr QC, representing Zurich, continued his arguments from the day before. He argued that the vicinity requirement is the local focus of the clause and that any civil authority action that triggers the cause must follow danger or disturbance occurring locally.

He said: “The term clearly requires causal connection between the danger or disturbance occurring in the locality of the premises and the civil authority action, which prevents access to the premises”.

He said that in considering whether the causal connection is satisfied “one must focus on the local danger or disturbance” and its connection to the relevant civil authority action.

He added: “The focus is not on the civil authority action and any danger or disturbance outside of the vicinity.”

Orr explained that the intended meaning of the term vicinity is best defined as “in the immediate locality”.

He highlighted the FCA’s argument that the vicinity in the context of the extension is an open ended term “that applied not only to the area around the insured premises but extends to any such area that might affect insureds business in relation to particular danger or disturbance”.

He added: “The FCA goes as far as to as to say the vicinity could extend to the entire country. That in our submission is absurd. The FCA’s interpretation disregards the important limitations placed on insured risks by that word.”

He continued that the FCA is also wrong to argue on an alternative basis that the term “will always encompass at least the same city, town or village in which the danger or disturbance occurs and that we submit is simply incorrect”.

He stated: “Zurich submits that the term ‘following’ requires that the civil authority action must come later in time to a danger or disturbance in the vicinity of the premises, and must have resulted from that danger or disturbance.”

He went on to accuse FCA of trying to “hammer a square peg in a round hole” because they are “struggling to find the basis for saying that there is a causal connection between the government measures taken on a national basis and any danger or disturbance that might be said to have occurred or been presence in an insureds vicinity”.

Orr said that the causal connection on the agreed facts is a question of facts and a burden of proof “lies on the FCA standing in the shoes of policyholders and it is for them to establish that the causal connection is satisfied”.

He added that the FCA has not demonstrated and is unable to demonstrate any meaningful causal connection between the action taken by the UK government on a national basis in response to Covid-19 pandemic and the occurrence of any such danger or disturbance that might be said to be present in the vicinity of any insureds premises.


Mark Howard QC, representing QBE, started his submissions by stating that “occurrence of notifiable infectious disease, wherever it occurs, can potentially affect the business in a number of ways” for example, employees can fall ill and not be able to work or require a quarantine, suppliers might not be able to supply and customers might be worried about visiting the business, while the government might be putting restrictions on the businesses.

He said: “In this case, the FCA arguments are focused because of what happened on the specifics of recent events, however, arguments should be suited to all the different circumstances that might arise not just the specifics.”

He pointed out that FCA is trying to argue that the clauses in the policies are “wide enough” to cover the disease of pandemic proportion even if they were not designed to do so.

He said that according to FCA “the government response to the pandemic has interrupted or disrupted the insured business”.

“However, it has not said that the government’s response to the disease was in response to the outbreak of the pandemic but that measures were imposed in all areas in the UK in anticipation of the pandemic and not in local areas affected by the pandemic.

“The government actions were not in response to the pandemic in the vicinity of the businesses,” he said.

Howard quoted from the FCA’s skeleton argument: “The government responded to the fear/risk/danger/emergency/prevalence of Covid-19 all around the country and the incidence of the disease.

“Had there been no such fear/risk/danger/emergency/prevalence anywhere, it would not have acted. But had there been such fear etc in the entire country other than any one 25-mile radius (2,000 square mile) area, it would probably still have acted.”

He said that in this extract, the FCA recognised that any particular insured business is not affected by what would have happened.

Howard went on to say that BI cover insures a business against a notifiable human disease provided there is at least one occurrence of the disease within the relevant policy area.

He said: “The FCA recognises that even if it could prove that the case of Covid-19 occurred within the relevant policy area it cannot prove the necessary causative effect of such occurrence.

“A suggestion that there is no need to show any causative effect of the occurrence of the disease in the relevant policy area is astonishing.”

In relation to the proximate cause, Howard argued that QBE is not concerned about the proximate cause ‘but for’ test.

Howard said: “We submit that the causation issue is very simple and completely orthodox which one starts by identifying insured peril and then asking whether this insured peril caused loss.”

He said: “’But for’ the insured peril – in this case the presence of the person with Covid-19 at the premises - would the business still suffer the same BI loss?”

“If the insured cannot pass the ‘but for’ test then that is the end of it.”


Representing Argenta, Simon Salzedo QC, then argued that the common ground between the FCA and Argenta, would in any ordinary case, be sufficient to demonstrate that any particular Argenta policyholder facing BI arising from government advise or restriction in relation to Covid-19 would not have cover under Argenta 1 because those matters are not proximately caused by the occurrences in their particular 25-mile radius circle.

He said that the only basis for different result “appears to be the [FCA’s] jigsaw argument”.

He accused the FCA of attempting to rewrite the Argenta clauses.

Salzado also argued that there are six conditions of the pandemic.

One of the conditions he said, which the FCA “avoided mentioning” include the action taken by foreign governments in response to the pandemic”, he added saying that the actions of the foreign government can alter the behaviour of customers from outside of the UK.

Salzedo added that only one of the six conditions of the pandemic is an insured peril, while the others are not.

He said that if the pandemic causes all six conditions to emerge “however, only five of them would cause the loss to the business but are not insured peril, adding the condition that is an insured peril but does not cause loss, it does not change the analysis on any orthodox version”.

He said that it would be different if the condition which was the insured peril did cause the loss, however the other conditions would remain irrelevant to policyholder claims.

He added that therefore the “vast majority of claims under Argenta 1 will fail to establish causation because the loss was not caused by occurance of the disease within 25 mile radius”.

The trial in the BI test case began on 20 July and is planned to conclude today with final statements from the FCA. It is overseen by two judges: Commercial Court judge Mr Justice Butcher and Court of Appeal judge Lord Justice Flaux.

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