 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |
England and Wales High Court (Commercial Court) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Orient-Express Hotels Ltd v Assicurazioni General SA (UK Branch) (t/a Generali Global Risk) [2010] EWHC 1186 (Comm) (27 May 2010) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2010/1186.html Cite as: [2010] Lloyd's Rep IR 531, [2011] Bus LR D7, [2010] 1 CLC 847, [2010] EWHC 1186 (Comm) |
||
[New search]
[Context
]
[View without highlighting]
[Printable RTF version]
[Buy ICLR report: [2011] Bus LR D7]
[Help]
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
AND
IN THE MATTER OF THE ARBITRATION ACT 1996
AND
IN THE MATTER OF AN ARBITRATION
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
 ORIENT-EXPRESS HOTELS LIMITED |
Claimant |
|
| - and - |
||
| ASSICURAZIONI GENERAL S.p.A. (UK Branch) Trading as Generali Global Risk |
Defendant |
____________________
Mr Simon Picken QC & Miss Sushma Ananda (instructed by Steptoe & Johnson LLP) for the Defendant
Hearing dates: 17th May 2010
____________________
VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Hamblen :
Introduction
Generali"), as follows:
(1) Whether on its true construction, the Policy provides cover in respect of loss which was concurrently caused by: (i) physical damage to the property; and (ii) damage to or consequent loss of attraction of the surrounding area;
(2) Whether on the true construction of the Policy, the same event(s) which cause the damage to the insured property which gives rise to the business interruption loss are also capable of being or giving rise to 'special circumstances' for the purposes of allowing an adjustment of the same business interruption loss within the scope of the "Trends Clause."
The background to the appeal
hotelier and holiday operator and was the owner of the Windsor Court Hotel, 300 Gravier Street, New Orleans, a premier 23 storey hotel situated in the Central Business District, close to the historic French Quarter of New Orleans ("the Hotel").
Hotel suffered significant physical damage from wind and water. The Hotel was closed throughout September and October 2005. The Hotel re-opened on 1 November 2005, albeit not fully repaired and with its services and amenities not fully operational. OEH sustained significant business interruption losses.
Hotel.
Hotel and the wider area ("the vicinity") were damaged and where OEH contends that significant aspects of its business interruption loss were caused both by the damage to the Hotel and by damage to the vicinity (and the consequences of such damage to the vicinity, such as broader loss of attraction), both of which had themselves been caused by the same hurricanes.
Hotel was closed for the entirety of this month on account of the damage to the Hotel, save for use by a team of NBC reporters. OEH claims that it suffered business interruption losses of about US$2.15m for this month. However, the City of New Orleans was effectively 'closed' for the whole of September 2005. Thus, no one could visit the Hotel because it was damaged; but no one could visit the Hotel because New Orleans was effectively closed off. If the Hotel had been left undamaged but all other consequences of Katrina / Rita are assumed to have occurred ("an undamaged Hotel in an otherwise damaged City"), the business interruption loss for September 2005 would have been the same; on the other hand, if the Hotel had been damaged but the vicinity had not been damaged and closed off, paying customers would not have been able to stay in the damaged hotel either and the business interruption loss for September 2005 would also have been effectively the same.
Hotel, even if that business interruption loss was also (concurrently) caused by damage to the vicinity (or the consequences of such broader damage to the vicinity) resulting from the same hurricanes.
Generali contend, and the Tribunal held, that OEH can only recover in respect of loss which it can be shown would not have arisen had the damage to the Hotel not occurred – i.e. which satisfies the "but for" test of causation. The Tribunal held that this means putting OEH in the position of an owner of an 'undamaged hotel in an otherwise damaged City.' This means that, in relation to the September 2005 example, since an undamaged hotel would have suffered the same loss due to the vicinity damage and its consequences there is no indemnity under the primary insuring provisions of the Policy in respect of such loss.
Hotel). It contends that if the damage to the Hotel is a cause of the business interruption loss, it matters not that the same loss was also concurrently caused by vicinity damage (or the consequences of vicinity damage). In particular, there is no exclusion for loss caused or concurrently caused by vicinity damage and a reduced indemnity which seeks to put the claimant in the position of an undamaged Hotel in an otherwise damaged City does not properly compensate it for the business interruption losses caused by the damage to the Hotel.
The Policy
(1) The Policy's Insuring Clause:
"In consideration of the Insured... paying the premium.... the Insurers... agree... to indemnify the Insureda) under the Material Damage and Machinery Breakdown Sections against direct physical loss destruction or damage except as excluded here in to Property as defined herein such loss destruction or damage being hereafter termed Damage
b) under the Business Interruption Section against loss due to interruption or interference with the Business directly arising from Damage and as otherwise more specifically detailed herein."
(2) The insuring clause at the head of the Business Interruption section of the Policy:
"If any property owned used or otherwise the responsibility of the Insured for the purpose of or in the course of the Business suffers Damage as defined or there occurs an event or circumstances as described elsewhere in this Section of the Policy and the Business be in consequence thereof interrupted or interfered with the Insurers will pay to the Insured the amount of the loss resulting from such Interruption in accordance with the provisions contained therein".(3)The Trends Clause:
"In respect of definitions under 3, 4, 5 and 6 above for Gross Revenue and Standard Revenue adjustments shall be made as may be necessary to provide for the trend of the Business and for
"This policy is extended to include reduction in Revenue incurred by the Insured:
a) arising out of Property in the
"This Policy extends to indemnify the Insured in respect of a reduction in Revenue resulting directly from loss destruction or damage to property or land in the vicinity of any premises owned and/or managed by the Insured and insured under this Policy."
The Award
"THE CONSTRUCTION ISSUE15. The issue arising on the construction of the policy is of fundamental importance to the approach to the Business Interruption claim and has had a major effect on the nature and quality of the evidence adduced, particularly by OEH.
16. The relevant provisions of the Policy are set out in Schedule A. They are the Insuring Clause and the definition of "Damage" contained in it, the first provision of the Business Interruption Section set out, the Loss of Revenue and Trends Clauses and the Prevention of Access and Loss of Attraction extensions to the Policy.
17. The Insuring Clause defines "Damage" as (in effect) "direct physical loss destruction or damage" to the
18. Mr Fletcher QC submitted on behalf of OEH that the Policy provisions require the Tribunal to ask first whether there was "Damage" to the
19. It is the third question on which the parties part company. On behalf of
20. Mr Fletcher did not, in the
21. Mr Fletcher sought to draw support for his arguments from
BUSINESS INTERRUPTION LOSS
22. The consequence of our decision on the Construction Issue is that it is necessary to assess the Business Interruption loss on the hypothesis that the
Hotel was undamaged but the City of New Orleans was devastated as in fact it was" [22]. Its subsequent detailed assessment of recoverable BI loss proceeds on this scenario of "an undamaged Hotel in the otherwise damaged City."
Question 1: Whether on its true construction, the Policy provides cover in respect of loss which was concurrently caused by: (i) physical damage to the property; and (ii) damage to or consequent loss of attraction of the surrounding area;
Generali point out that the answer to the question of law raised is moot. The Tribunal has not excluded recovery of losses concurrently caused by Damage to the Hotel and damage to the vicinity or consequent loss of attraction. It has only excluded losses which would have been suffered in any event but for the Damage to the Hotel. Such losses are not to be regarded as caused in fact by the Damage. At the hearing it became apparent that the crucial issue of law dividing the parties was the appropriateness of applying the "but for" causation test in this case.
2-07 The first step in establishing causation is to eliminate irrelevant causes, and this is the purpose of the "but for" test. The courts are concerned, not to identify all of the possible causes of a particular incident, but with the effective cause of the resulting damage in order to assign responsibility for that damage. The "but for" test asks: would the damage of which the claimant complains have occurred "but for" the negligence (or other wrongdoing) of the defendant?.... the "but for" test functions as an exclusionary test, i.e. its purpose is to exclude from consideration irrelevant causes. The fact that the defendant's conduct is found to be a cause, applying the "but for" test, is not conclusive as to whether he should be held responsible in law since the function of the causal enquiry in law is to determine which causes have significance for the purpose of attributing legal responsibility. It is sometimes said that the law seeks the causa causans (effective factor) rather than the causa sine qua non (factor(s) without which damage could not have occurred."
"(1) Cause in fact
6-006 For the determination of whether a defendant's wrongful conduct is a cause in fact of the damage to a claimant the test, which has almost universal acceptance, is the so-called "but for" test. The defendant's wrongful conduct is a cause of the claimant's harm if such harm would not have occurred without it; "but for" it. This is the threshold which claimants must cross if their claim for damages is going to get anywhere. Satisfying the cause in fact test is in the
6-007 The importance of the cause in fact test lies not in its everyday observance but in its
….
(1) The exceptions
6-016 The exceptions that have appeared to the rule that the "but for" test must be satisfied concentrate upon the tort of negligence. Only the tort of conversion has also fallen for consideration. However, in principle the exceptions are applicable, whatever the tort or breach of contract…
6-017 (a) Negligence. The typical situation where an extension of liability may prove necessary in the interests of fairness and reasonableness, with a consequent departure from the "but for" test, is where two or more acts or events or agencies are involved and the wronged claimant is unable to prove which act, event or agency has caused the harm."
very occasional" cases where "fairness and reasonableness" require a relaxation in the standard. In this connection OEH referred to Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2002] 2 AC 883 and Lord Nicholls judgment at [73] and [74]:
"73 This threshold "but for" test is based on the presence or absence of one particular type of causal connection: whether the wrongful conduct was a necessary condition of the occurrence of the harm or loss…. In
74 This may occur where more than one wrongdoer is involved. The classic example is where two persons independently search for the source of a gas leak with the aid of lighted candles. According to the simple "but for" test, neither would be liable for damage caused by the resultant explosion. In this type of case, involving multiple wrongdoers, the court may treat wrongful conduct as having sufficient causal connection with the loss for the purpose of attracting responsibility even though the simple "but for" test is not satisfied. In so deciding the court is primarily making a
"(a) Successive Sufficient causes
Where there are two simultaneous, independent events, each of which would have been sufficient to cause the damage, the "but for" test produces the patently absurd conclusion that neither was the cause. The only sensible solution here is to say that both caused the damage.."
"We have already touched on one
….
…Two sufficient causes of an event of a given kind are present and, however fine-grained or precise we make our description of the event, we can find nothing which shows that it was the outcome of the causal process initiated by the one rather than the other. It is perfectly intelligible that in these circumstances a legal system should treat each as the cause rather than neither, as the sine qua non test would require (p124).
….
In this section we deal with additional causes, i.e. with cases in which there are present on a given occasion two or more factors each sufficient with normal conditions to bring about certain harm. The two factors must be independent in the sense that neither is a necessary condition of the occurrence of the other.
In our
vicinity damage or its consequences) nor under the POA or LOA (because "but for" the prevention of access and/or loss of attraction the loss would still have occurred due to the Damage to the Hotel).
Ltd v Silversea Cruises Ltd [2004] Ll. R.I.R. 217. That case concerned a claim under a business interruption policy for loss of income suffered by a cruise line following the 9/11 New York attacks. The policy covered loss of income "resulting from a State Department Advisory or similar warning regarding ... terrorist activities, whether actual or threatened…". One of the insurers' arguments was that any loss of income was attributable to the attacks themselves rather than any SDA warning. Tomlinson J rejected this argument on the facts and held that "it is impossible to divorce the effect of the warnings from the effect of the events which they so swiftly followed". However, he also observed as follows at para. 69:
"I also note in passing that since, as I find, and as was common ground between the two experts, the events of 11 September and the warnings were concurrent causes of the downturn in bookings, including cancellations thereof, and since the consequences of the events of September 11 are not for the purposes of section Aii excluded from the ambit of the cover, as opposed to being simply not covered, a claim under the policy must lie — see Wayne Tank and Pump Company
Ltd v Silversea Cruises Ltd [2004] Ll. R.I.R. 697.
Generali that no great assistance can be derived from this case, which largely turned on the court's factual conclusions. In particular it does not address the specific issue of two concurrent independent causes, nor the applicability of the "but for" causation test in such a case. Further, there is an important difference between a case involving two concurrent interdependent causes and one involving two concurrent independent causes. In the former case the "but for" test will be satisfied; in the latter it will not.
very difficult to see how the Tribunal could be said to have erred in law in adopting the causal approach laid down in the Policy itself. On any view it is highly relevant to what "fairness and reasonableness" requires.
very much a matter for the tribunal of fact, rather than for this court on an appeal limited to questions of law.
Hotel causation test as the basis of assessing the recoverable losses. If such a test is not adopted what is the alternative? One possibility would be "but for the damage to the Hotel and the City" – i.e. an "undamaged Hotel in an undamaged City" scenario. However, that would measure the gross operating profit which would have been made by OEH if the hurricanes had not struck at all and would therefore compensate OEH for all business interruption losses howsoever caused, even where those losses were not in any way caused by Damage (and as such are not recoverable under the main Insuring Clause of the Policy). Another possibility would be a "damaged Hotel in an undamaged City" scenario. However, that would measure the gross operating profit which would have been made by OEH if the hurricanes had only struck the Hotel, leaving New Orleans intact. A comparison between such a gross operating profit and the actual profits obtained would result in a recovery by OEH of all losses caused by damage to the City rather than Damage to the Hotel – the opposite of what the Policy permits OEH to recover. The only other possibility is a "damaged Hotel in a damaged City" scenario. However, that would mean comparing the Hotel's actual performance with what actually happened and would, therefore, lead to a nil recovery by OEH. None of these alternatives would appear to be more fair and reasonable than the "but for" test adopted by the Tribunal, still less so clearly so as to require the discarding of that test.
Generali asserts that the loss has not been caused by the Damage to the Hotel because it would in any event have resulted from the damage to the vicinity or its consequences, it has to accept the causal effect of that damage for the POA or LOA, as indeed it has done. It cannot have it both ways. The "but for" test does not therefore have the consequence that there is no cause and no recoverable loss, but rather a different (albeit, on the facts, more limited) recoverable loss.
Question 2: Whether on the true construction of the Policy, the same event(s) which cause the damage to the insured property which gives rise to the business interruption loss are also capable of being or giving rise to 'special circumstances' for the purposes of allowing an adjustment of the same business interruption loss within the scope of the "Trends Clause."
very same insured peril which caused the insured damage which gave rise to the business interruption and relevant business interruption loss.
variations or special circumstances' which either did affect the business or which would have affected the business, had the Damage not occurred. It is dealing with the implications of actual events, not imaginary or hypothetical ones. The only permitted counterfactual is to assume that there was no insured damage and to ask what consequences these actual trends, variations or circumstances would have had. A hypothetical Rita or Katrina (i.e.one which is assumed not to have caused damage to the Hotel but which otherwise operated to its full extent), is not a 'special circumstance' which would have affected the business had there been no damage but an entirely fictional event. However, the clause requires a single assumption to be made (that there was no Damage), and for the actual facts to be considered on the basis of that assumption. That is what the Tribunal have done.
variations in or special circumstances affecting the Business either before or after the Damage' and that these words are looking at trends, variations or circumstances independent of the (insured) Damage. However, the trends, variations and circumstances considered by the Tribunal were independent of the insured Damage, albeit not independent of the cause of that Damage.
very odd results. It would mean that an insured whose property is damaged by a natural peril which had struck a wider area could argue thus: 'had the damage not occurred, but the peril giving rise to the damage is nonetheless assumed in all other respects, I would have been better off because all my rival hoteliers would have been disabled and I would have been able to monopolise what was left of the trade?' OEH submits that this is counter-intuitive; the insured would be relying on the peril insured and the consequences on his own property and business to set up his business interruption claim in the first place and simultaneously pretending that the same insured event had not caused his property any damage in order to enhance his claim.
v Colleton Enterprises 976 F.2d 727. However, the US cases turn on the wording of the particular policies in issue, as the Tribunal pointed out [20]. Further, I agree with the Tribunal that the reasoning of the dissenting judge in the Colleton case relied upon by OEH, is the more persuasive. That reasoning focused on the fact that the clause required consideration of the position "had no loss occurred"; not "had no hurricane occurred". As the dissenting judge stated:
"The majority persists in framing the issue as what the motel's situation would have been had the hurricane not occurred at all. However, the contract states that "due consideration" be given to pre-damage earnings and the "probable earnings thereafter, had loss not occurred" (emphasis added). "Had no loss occurred" does not refer to the overall loss in the surrounding area; rather, it clearly refers only to the loss incurred by the insured…
The majority acknowledges that proof of an imminent general economic up-turn, or of a lost profit opportunity thwarted by the loss causing event, can justify recovery under a lost-earnings provision. I assume, then, that had the motel been destroyed by an isolated fire the day before Hugo hit it, the majority would rule that lost profits would have been recoverable because the cause of the property loss (the fire) was not the same as the cause of the profit opportunity (the storm). Similarly, if gold were discovered the day after Hugo and the entire region filled with gold seekers (as well as relief workers), I assume that lost profits would be covered. Colleton had a lost profit opportunity (the dimensions of which the parties stipulated). Although Hugo caused both the property loss and created the profit opportunity, it does not strike me as an "intuitively-sensed logical flaw" to permit recovery under these circumstances."
Generali's argument has the remarkable result that the more widespread the impact of a natural peril, the less cover is afforded by the business interruption policy for the consequences of damage to the insured property. So, if the tsunami or hurricane or fire only affects the insured property, this will give rise to a full, unadjusted recovery for all business interruption loss caused by the damage to the insured property; yet, should the tsunami, hurricane or fire cause additional devastation to a whole swathe of properties in the same area, the claimant is somehow to be worse off because it is to be treated as if its insured property had (hypothetically) escaped damage but as if its business would still have suffered a loss of income due to the damage (or resulting loss of attraction) in the wider area. However, under this Policy the amount recoverable under the main Insuring Clause will always depend on the extent to which the business interruption losses claimed are caused by Damage. That is what the main Insuring Clause requires as a matter of causation. It has nothing to do with whatever other devastation the hurricanes may have caused elsewhere than at the insured property.
Generali's approach subverts first principles in that it involves seeking to strip out from the claim for business interruption loss caused by insured damage, not merely the concurrent consequences of extraneous circumstances but the concurrent consequences of the very peril that caused the damage which was a proximate cause of the business interruption loss in the first place. However, the relevant insured peril is the Damage; not the cause of that Damage.
vicinity damage and loss of attraction, the precise reasons for cancellations and reduced revenue are likely to be a 'mixed bag' which cannot sensibly be separated from each other for the purpose of adjustment of a business interruption loss. However, the Tribunal's approach does not require an inquiry into actual motives. It takes the actual revenue as a given and then asks what, if any, loss has been caused on the basis of the stated assumption. That may not always be a straightforward exercise, but it can be done, as the evidence before the Tribunal and the Award itself demonstrate.
express reference to such situations, in a very clear exclusion clause. The Policy contains no express exclusion for business interruption loss caused by insured damage which is also caused by the vicinity implications of the same insured event operating more generally. However, this argument depends on establishing an ambiguity. The Tribunal did not consider there to be any ambiguity as to what was agreed by the Trends Clause, and I agree with them.
variations or special circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred" has to be something completely unconnected with the Damage in the sense that it had an independent cause to the cause of the Damage. The assumption required to be made under the Trends Clause is "had the Damage not occurred"; not "had the Damage and whatever event caused the Damage not occurred".
Generali that OEH's construction effectively requires words to be read into the clause or for it to be re-drafted. Further, such a re-drafting of the Trends Clause, which would allow OEH to recover for the loss in gross operating profit suffered as a result of the occurrence of the insured event (i.e. the hurricanes) as opposed to the loss suffered as a result of the Damage to the Hotel, is inconsistent with the causation requirement of the main Insuring Clause which OEH accepts requires proof that the losses claimed were caused by Damage to the Hotel.
Hotel) but caused by damage to the City/lack of demand are recoverable under the Loss of Attraction and Prevention of Access extensions. That is what OEH paid premium for under the Policy and that is what the Tribunal held that OEH is entitled to recover.
Conclusion