In an important judgment for insurance policyholders, the Court of Appeal recently dismissed an appeal and cross-appeal against a High Court judgment in a COVID-19 business interruption (“BI”) claim.
The restaurant operator, Various Eateries Trading Ltd (“Various Eateries”), brought a claim against its insurer, Allianz Insurance Plc (“Allianz”), following significant trading losses in the region of £16 million said to have been caused by the COVID-19 pandemic (specifically, reduced trade and the closure of restaurants following the imposition of regulations). Allianz’s position was that the indemnity under Various Eateries’ policy (the “Policy”), which ran from 29 September 2019 to 28 September 2020, was limited to £2.5 million for BI losses.
One of the key issues related to the effect of an aggregation of losses clause in the Policy. The aggregating language provided that all BI loss was to be aggregated where the amounts payable “arise from, are attributable to, or are in connection with a single occurrence”.
The trial of preliminary issues took place in June 2022 with judgment handed down in October 2022. The trial focused on examining issues of causation, limits, and aggregation concerning the commonly employed ‘Marsh Resilience’ policy language, which first arose in the FCA test case addressing BI losses stemming from the pandemic.
High Court trial
Various Eateries contended that there was no aggregation under the Policy since there was/were no “single occurrence(s)” connected to the claimed loss. Additionally, Various Eateries proposed an alternative scenario, asserting that if aggregation did apply, it should be on a “per insured location” basis for each of its insured premises (i.e. restaurants) separately. A finding in favour of Various Eateries would have resulted in the £2.5 million liability cap applying separately to each of Various Eateries’ restaurants.
Allianz argued that all BI losses incurred should be aggregated as a single limit. In particular, it contended that this consolidation could be based on an event relating to either the emergence of the SARS-CoV-2 virus in Wuhan or its emergence in the UK. Alternatively, Allianz argued that aggregation should be applied with reference to government actions (e.g. the imposition of restrictions requiring venues to close).
At first instance, Mr Justice Butcher (“Butcher J”) rejected Various Eateries’ main argument that there was no aggregation. He also rejected Allianz’s assertion that there was a single occurrence with which all Various Eateries’ loss was connected. While acknowledging that the initial transmission of the disease from animals to humans in Wuhan could be considered a single occurrence connected to Various Eateries’ loss, it was considered too remote to qualify as an aggregating event.
The judge also dismissed Various Eateries’ case that aggregation should be applied separately to each premise, citing that the language did not properly support such an interpretation.
Appeal
Both Allianz and Various Eateries filed appeals, with the Court of Appeal hearing the case in November 2023. Allianz appealed primarily on the grounds of its aggregation argument and the construction of the ‘enforced closure’ and ‘prevention of access’ covers concerning the duration of coverage granted. Various Eateries appealed the dismissal of its “per premises” aggregation case.
The Court dismissed the appeals from both parties. Males LJ, delivering the lead judgment, indicated that whilst he would have found the introduction of COVID-19 to the UK to be a single occurrence “connected” to Various Eateries’ loss, this event would again be too remote to qualify as an aggregating single occurrence. Within his judgment, Males LJ conducted a thorough examination of the remoteness principle, which arose in relation to the aggregation clause in Caudle v Sharp [1995].
Males LJ’s extensive consideration of remoteness in aggregation included the following points of principle:
- The extent and application of remoteness hinges upon the true construction of the aggregation clause in question. Remoteness is an aspect of causation which needs assessment based on the connecting or causation language specified in each case.
- The application of the remoteness principle is contingent upon the nature and strength (or weakness) of the causal link required by the aggregation clause.
- Remoteness is essentially a legal tool applicable in various scenarios, including where there is a singular unifying event or multiple candidates for aggregation.
- The analysis must be carried out as an exercise of judgment, blending intuition with a thorough examination of all the relevant circumstances of the case.
- The nature of the exercise required is such that an appellate court should refrain from intervening in the trial judge’s assessment unless the conclusion is evidently incorrect, in the sense that it was not reasonably within the trial judge’s view or that an error of principle is apparent in the judgment.
The Court also affirmed Butcher J’s conclusions that in the event of an enforced closure during the insurance period, coverage for the consequential BI loss would be applicable for the entire duration of the closure. This was irrespective of whether the whole period of closure was within or after the period of insurance. The Court similarly upheld Butcher J’s findings in relation to the prevention of access coverage, in that there will be cover for any resulting interruption or interference in the use of or access to Insured Locations.
The Court of Appeal dismissed Various Eateries’ appeal regarding aggregation on a “per premises” basis. This was based on the absence of any indication in the Policy wording or language that aggregation operated on a per insured location basis.
An additional issue considered was whether a decision by the UK Government to renew, change or relax a restricting measure should count as a single occurrence – especially in the context of what occurred between March and September 2020. The Court of Appeal agreed with Butcher J’s view that measures which simply continued existing restrictions, reduced restrictions or made trivial changes should not amount to separate single occurrences.
Key takeaways
This Court of Appeal decision upholding the findings of the High Court is significant for all policyholders and insurers, most notably those utilizing the Marsh Resilience wording for BI coverage. That said, while the judgment is specific to the Resilience language, the Court of Appeal’s dismissal of the possibility to aggregate COVID-19 BI losses to events in Wuhan or the arrival of COVID-19 in the UK provides clarity to a contentious issue which might be pertinent to other BI policies.
For policyholders generally, this ruling indicates that there is no single occurrence to which their losses will aggregate. Although it will be very difficult to sustain an argument that recovery of losses should be made on a ‘per premises’ basis, the Judgment does suggest that policyholders are likely to have the right to be indemnified for multiple claims (each having a separate limit of indemnity) depending on how their business was affected – this would include, for example, separate claims relating to each government or legal restriction that required a business to close its premises or locations over the pandemic period during 2020.
With thanks to Evie Scott for her contribution in producing this article.
For further information, please contact:
Russell Williamson, Bird & Bird
russell.williamson@twobirds.com
