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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)  EWHC 1186 (Comm) (27 May 2010)
Cite as:  Lloyd's Rep IR 531,  Bus LR D7,  1 CLC 847,  EWHC 1186 (Comm)
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QUEEN'S BENCH DIVISION
IN THE MATTER OF THE ARBITRATION ACT 1996
IN THE MATTER OF AN ARBITRATION
Strand, London, WC2A 2LL
B e f o r e :
| ORIENT-EXPRESS HOTELS LIMITED
|- and -
|ASSICURAZIONI GENERAL S.p.A. (UK Branch)
Trading as Generali Global Risk
Mr Simon Picken QC & Miss Sushma Ananda (instructed by Steptoe & Johnson LLP) for the Defendant
Hearing dates: 17th May 2010
Crown Copyright ©
Mr Justice Hamblen :
(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
(1) The Policy's Insuring Clause:"In consideration of the Insured... paying the premium.... the Insurers... agree... to indemnify the Insured
a) 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 variations in or special circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which but for the Damage would have been obtained during the relative period after the Damage."
"This policy is extended to include reduction in Revenue incurred by the Insured:
a) arising out of Property in the vicinity of any location owned occupied or operated by the Insured suffering Damage or being closed (in whole or part) or deemed unusable by a competent authority and which shall consequently prevent or hinder the use of the location concerned or access thereto whether Property Insured shall be damaged or not;..."
"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 CONSTRUCTION ISSUE
15. 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. Expressed in summary terms the issue is this: does the Insuring Clause of the Policy provide cover (as OEH submits) for any and all losses suffered by the Hotel as a result of the Hurricanes and their effect both on the City of New Orleans and in causing damage to the Hotel or does it provide cover (as Generali submits) only for losses caused by damage to the Hotel itself but not (save for the Prevention of Access and Loss of Attraction extensions) losses caused by the damage to and devastation of the City? If, for example, the consequence of the damage to the City but not to the Hotel was a severe shortage of staff or a lack of demand for Hotel accommodation, are those matters which Generali can deploy to limit the claim or not?
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 Hotel. Cover for Business Interruption is for "loss due to interruption or interference with the business directly arising from Damage". The Business Interruption Section of the Policy uses substantially the same language. The condition for cover is that there has been Damage and that "the Business be in consequence thereof interrupted or interfered with". So, too, the provision that the insurance is limited to the amount by which the Revenue of the Hotel "shall in consequence of the Interruption" fall short of the "Standard Revenue". The Trends Clause is perhaps even clearer. The target is to establish Revenue figures for the previous 12 months and the period following the Damage which "represent as nearly as may be reasonably practicable the results which but for the Damage would have been obtained during the relative period after the Damage". The emphases are ours.
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 Hotel within the meaning of the Policy. To that question he submitted (rightly) that there was only one answer: Yes. There is no dispute, for example, that the top four floors of the Hotel in particular suffered considerable physical damage from Hurricane Katrina and that Hurricane Rita caused (in particular) rain damage to the already damaged Hotel. The second question, Mr Fletcher submitted, was whether that damage caused interruption or interference with the business of the Hotel. Again there is no dispute that the answer to that question is in the affirmative, albeit there are major disputes as to the extent to which it did so. The third question, in Mr Fletcher's formulation in opening submissions, was what is the loss resulting from such interruption?
19. It is the third question on which the parties part company. On behalf of Generali, Mr Picken QC submitted that the words are clear: the cause of the loss has to be and be shown by OEH to be interruption or interference resulting from the physical damage to the Hotel and not from the damage to the City of New Orleans or, say, want of demand because of the damage to the City which the Hotel would have suffered even if it had not been damaged at all.
20. Mr Fletcher did not, in the view of the Tribunal, ever supply a convincing answer to this submission. He criticised the submission as one creating a false hypothesis because the cause of the damage to the City and to the Hotel was the same event or events and submitted that the policy was intended to cover losses resulting from all damage caused by the events which damaged the Hotel and only to exclude losses resulting from damage which was completely unconnected in the sense that it had an independent cause. He submitted that the law relating to concurrent causes would in any event enable the Hotel to recover in circumstances where a given loss was caused both by Damage to the Hotel and the damage to the City. And he submitted that the effect of excluding losses resulting from damage to the City was to require an artificial and hypothetical enquiry to be made. But none of these submissions in the view of the Tribunal address the language used in the provisions to which we have referred and which we have emphasised. That language requires OEH to establish that the cause of the loss claimed is the Damage to the Hotel. It is not necessary or relevant for this purpose to go behind the Damage and consider whether the event which caused the Damage also caused damage to other property in the City: the fact that there was other damage which resulted from the same cause does not bring the consequences of such damage within the scope of the cover. As for the argument that there were concurrent causes, it is difficult to think of examples of a loss that would reasonably be attributable both to the Damage to the Hotel and to the Damage to the City. But in any event the language of the Trends clause is, the Tribunal thinks, conclusive. This clause specifically requires the business interruption loss to be assessed by reference to the results which "but for the Damage" (i.e. the damage to the Hotel) would have obtained during the relevant period. It is accordingly irrelevant whether there was a concurrent cause of any such losses. As for the point that this is an artificial enquiry, all claims for Business Interruption raise hypothetical issues and whilst the Tribunal would acknowledge that the evaluation required on the facts of the present dispute is more difficult than most, this cannot affect what is the correct approach in principle.
21. Mr Fletcher sought to draw support for his arguments from various passages in a textbook, Riley on Business Interruption Insurance, and from the case of Prudential Lmi v Colleton Enterprises, 976 F2d 727 (1992), a decision of the United States Fourth Circuit Court of Appeals. The passages from Riley were not specifically directed to the question whether losses resulting from events which caused the damage to the insured's property are recoverable under a standard business interruption wording even if the losses are not due to that damage itself but to damage to other property which is not the responsibility of the insured: and in the Tribunal's view the passages cited do not begin to bear the weight which Mr Fletcher sought to place on them. Nor did the Tribunal derive assistance from the United States case, which involved different policy wording. The critical question in that case was whether particular profits would have been earned "had the loss not occurred". The majority of the Court of Appeals interpreted these words as requiring the court to ask whether the profits would have been earned had the hurricane not occurred, to which the answer on the facts was "no". The third member of the Court of Appeals dissented on the ground that "had the loss not occurred" did not refer to the hurricane or to the overall loss in the surrounding area, but only to the loss incurred by the insured. It seems to the Tribunal, with respect, that the reasoning of the dissenting judge is persuasive; but whether it was right or not on the wording of the policy in that case, the Tribunal has no doubt that the Policy in the present case permits recovery only for loss caused by the Damage to the Hotel itself.
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."
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;
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 vast multitude of cases a necessary condition of the imposition of liability: it is by no means a sufficient condition because the all important cause in law tests, as we shall see, must be satisfied as well.
6-007 The importance of the cause in fact test lies not in its everyday observance but in its very occasional breach. For, as we shall see, there are situations where the test proves inadequate to the task, situations where fairness and reasonableness require that there be a relaxation in the standard of factual causation required.
(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."
"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 very many cases this test operates satisfactorily, but it is not always a reliable guide. Academic writers have drawn attention to its limitations: see, for example, the late Professor Fleming's The Law of Torts, 9th ed (1998) , pp 222-230 , and Markesinis & Deacon, Tort Law, 4th ed (1999) , pp 178-191 . Torts cover a wide field and may be committed in an infinite variety of situations. Even the sophisticated variants of the "but for" test cannot be expected to set out a formula whose mechanical application will provide infallible threshold guidance on causal connection for every tort in every circumstance. In particular, the "but for" test can be over-exclusionary.
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 value judgment on responsibility. In making this judgment the court will have regard to the purpose sought to be achieved by the relevant tort, as applied to the particular circumstances."
"(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 variety of these causal anomalies. This is the case where two causes, each of them sufficient to bring about the same harm, are present on the same occasion. A defendant starts a fire which, before it destroys property, joins a fire started by another. Each would have been sufficient to have burnt the property. Two men may simultaneously fire and lodge a bullet in their victim's brain, or may simultaneously approach an escaping gas with a lighted candle. In these cases the normal assumption that on any given occasion only one set of sufficient conditions of a given contingency is present has broken down. With it goes the possibility of treating either of the two 'causes' as a necessary condition in the third of the three senses analysed above: we cannot say that either was necessary on this occasion and so a condition sine qua non, because the other cause would have sufficed to produce it (p123).
…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 view, as explained in Chapter V, when each factor is sufficient, with other normal conditions, to bring about the harm as and when it occurs, each is properly described as a cause of the harm. Thus, when two persons, A and B simultaneously shoot at C, each shot being sufficient to kill him, both A and B are criminally and civilly liable for C's death. This is because each shot is sufficient, in conjunction with other normal conditions, to bring about C's death as it occurred (viz. by shooting) at the moment when it occurred." (p235)
"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 Employers Liability Assurance Corporation Ltd  1 QB 57. I am not sure that, on this hypothesis, insurers contend to the contrary."
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."
"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."