Orient-Express Hotels Ltd v Assicurazioni General SA (UK Branch) (t/a Generali Global Risk)

Business interruption cover responds only to loss caused by physical damage to the insured property, unless a policy extension provides otherwise. Where wider damage caused by the same event would have produced the loss even without damage to the insured property, the loss is excluded from the primary cover by the agreed but for approach. A Trends Clause may require that counterfactual assessment. Although exceptional cases may justify relaxing the usual factual causation test where fairness and reasonableness require it, that possibility does not displace clear policy wording. Losses caused by damage to the surrounding area may instead fall within specific prevention-of-access or loss-of-attraction extensions.

Orient-Express Hotels Ltd appealed under section 69 of the Arbitration Act 1996 from an arbitration award concerning business interruption losses suffered after Hurricanes Katrina and Rita damaged its New Orleans hotel and the surrounding city. The tribunal assessed the recoverable loss on the basis of an undamaged hotel in an otherwise damaged city. The appeal raised two questions: whether the policy covered loss concurrently caused by hotel damage and damage to the vicinity, and whether the same hurricanes could constitute special circumstances for adjustment under the Trends Clause.

1. Appeal dismissed. No error of law was established in the tribunal’s construction or application of the policy.
2. The primary insuring clause covered business interruption loss directly arising from “Damage”, defined as direct physical loss, destruction or damage to the insured property. It did not cover loss caused by damage to the surrounding city or resulting loss of attraction, except under the specific Prevention of Access and Loss of Attraction extensions.
3. The ordinary but for test was the appropriate starting point for factual causation. In principle, fairness and reasonableness might justify relaxing that test outside tort, including in contract, particularly where two independent causes would otherwise mean that neither was a cause. That possibility depended on the circumstances and did not assist the claimant here.
4. The Trends Clause required assessment of what would have happened had the hotel damage not occurred. It did not require the further assumption that the hurricanes or their other consequences had not occurred. The tribunal was therefore entitled to assess the loss on the basis of an undamaged hotel in an otherwise damaged city.
5. The policy wording was not ambiguous and did not require adjustment for the consequences of the peril causing the hotel damage, as opposed to the consequences of the insured Damage itself. The application of the but for test did not produce a complete absence of recovery: losses attributable to vicinity damage could be recoverable under the Prevention of Access or Loss of Attraction extensions.

• High Court (Commercial Court): On an appeal under section 69 of the Arbitration Act 1996, Mr Justice Hamblen dismissed the appeal from the arbitration award. Permission to appeal had been granted by Mr Justice Burton.
• Arbitration tribunal: The tribunal assessed recoverable business interruption loss on the hypothesis of an undamaged hotel in an otherwise damaged city.