How Covid Business Interruption Losses Are To Be Aggregated

(1) Stonegate Pub Co v MS Amlin and Others                    

(2) Various Eateries Trading v Allianz            

(3) Greggs v Zurich

(2022, Commercial Court)     

The Commercial Court has given judgment in three cases raising similar issues as to how business interruption (‘BI’) insurance operates in the context of the covid 19 pandemic and the government’s and the public’s reaction thereto.  The actions are not consolidated, but, with the parties’ agreement, the judgments take account of issues arising across the three sets of proceedings. 

The three claimants in these cases took out BI insurance on the same standard form of policy wording (known as the Marsh Resilience form) and are claiming from their insurers in respect of BI losses sustained at their respective pubs, bars and other locations across the UK.  The judgments will be significant for insurers and insureds who still have covid-related BI claims to resolve.

The judgments lay down general principles, as the first stage in determining how much each insured can claim, particularly in relation to how retentions and limits apply to covid-related losses. 

Essential to the court’s judgments is the distinction drawn between (1) a ‘covered event’, being an event covered under the insurance which gives rise to a claim under the policy, (2) the issue of whether the insured‘s BI loss was caused by a covered event and (3) the aggregation of losses, and imposition of a monetary limit per occurrence as provided for under the insurance, where individual covered events are connected by a ‘single occurrence’. (The insureds contend for the maximum number of occurrences and the insurers contend for the minimum.)

 The main findings of the court are set out below, by reference to the Stonegate judgment which is the fuller of the three, cross-referring to the other judgments for specific points. 

What are the ‘covered events’ in covid-related BI losses?

Cover for Notifiable Diseases and Other Incidents – Each of the three insureds had cover for BI loss where any of the diseases listed in its policy, or another disease which came to be classified as a notifiable disease under the health regulations, was discovered at any of its insured locations or occurred within the vicinity of an insured location, during the period of insurance. The term ‘vicinity’ was defined in the policy.

The disease section of cover extended to ‘Enforced Closure’.  This gave cover for BI loss resulting from the enforced closure of an insured location by a governmental or other relevant authority, for health reasons.

Covid 19 was made a Notifiable Disease in early 2020.

In the Various Eateries case, the insurers’ primary argument was that this section was expressed to cover the discovery or occurrence of the disease within the vicinity, and accordingly the state of affairs constituted by the presence of the disease in the vicinity should be regarded as the covered event. 

Meanwhile, in the Greggs case, the insurers argued that the effect of the policy was to provide an indemnity where the insured’s business was interrupted as whole, and therefore that the disease clause should be regarded as triggered by the spread of the pandemic.

However, the court, applying the analysis made in the test case of FCA v Arch decided by the Supreme Court in late 2020, held that each individual case of covid which was either (a) discovered at an insured location or (b) occurred within the vicinity of an insured location, was a covered event under the Notifiable Disease section, equally effective with every other such case in causing the governmental action and public response thereto that gave rise to BI loss.

Turning to the Enforced Closure section, the court held that each actual closure of all or part of an insured location under the relevant compulsion or instruction was a covered event and trigger of coverage.

Cover for Prevention of Access (Non Damage) – Each of the three insureds also had cover for BI loss resulting from the actions or advice of the police, or another relevant authority, in the vicinity of an insured location which prevented or hindered the use of, or access to, an insured location. It is to be noted that this did not require that the official action should be due to an emergency or danger in the vicinity.

The court held that, under this section, it is the action of the relevant authority, if this prevents or hinders the use of, or access to, one or more insured locations, which is the covered event.  The number of covered events is the number of actions and advices (excluding reiterations of the same action or advice), rather than the number of insured locations to which the actions or advices relate.

When are covid-related BI losses arising out of covered events aggregated as a single occurrence?

In respect of BI loss resulting from Notifiable Diseases and Enforced Closure, the policy specified a retention of £100,000 and a limit of liability of £2.5m, any one single business interruption loss (‘SBIL’).

In respect of BI loss resulting from Prevention of Access, the policy specified a retention of £100,000 and a limit of liability of £1m, any one SBIL.

A SBIL was defined, relevantly, as,

all Business Interruption Loss and Business Interruption Costs & Expenses … that arise from, are attributable to or are in connection with a single occurrence‘.

The policy thereby included aggregation wording, providing that individual covered events causing BI loss should be aggregated as a single occurrence, with one retention and one policy limit, in a case where the events were connected by a unitary and identifiable occurrence.

The court held that, in order for there to be a unifying ‘occurrence’, it is necessary to identify something that occurs at a particular time and place, in a particular way.  The policy contained the usual requirement for a covered event to be the proximate cause of BI loss.  However, as to the degree of connection required between the unifying occurrence and the individual BI losses, the court held that the words quoted above require only relatively weak causal linkage.  Wording of this type does not, for example, require that the unifying occurrence itself should be the proximate, sole or main cause of the loss.  Further, the policy wording clearly contemplated that losses could be aggregated more widely than on a per premises basis.  However, in order to be relevant for the purposes of the aggregating provision, the unifying occurrence must not be too remote, geographically or temporally.

As to the relevant time for determining whether losses arise from a single occurrence, given that one of the primary functions of BI insurance is to provide the insured with funds during the interruption, the court held that the relevant point is the earliest time after commencement of loss at which a reasonable person in the position of the insured (also referred to as an informed observer)  would seek to decide whether there was one relevant occurrence. This will be a relatively short period after loss starts to be sustained. The determination proceeds on the basis of the best material that would have been known to the informed observer at that juncture.

The insurers proposed various set of circumstances as unifying occurrences in the case of covid-related BI losses.  Taking into account the matters in the preceding two paragraphs, the court found as follows.

The first development of the virus, or subsequent specific mutations of the virus (‘the virology options’) – These were rejected as candidates for the unifying occurrence because events of this type were too remote, but also too uncertain.  Further, the informed observer would not have been aware of matters of such highly specialist knowledge at the time for making the determination.

The first transfer of the virus to a human or the outbreak of covid in Wuhan – These were rejected because the initial transfer of the virus to a human was too remote.  Meanwhile, an outbreak did not qualify as a single occurrence and was also too remote.

The tipping point at which the pandemic became inevitable – This was rejected because the relevant definitions, and assumptions as to possible outcomes in terms of counter-measures and other actions that could have been taken at any given point, prevented the court from identifying an occurrence of this type with sufficient certainty.

Any one single case of covid within the vicinity – The court held that an individual case of covid could not be used as the unifying occurrence with which the insured’s losses from other single cases, being covered events, were connected, because no individual case had more significance as a unifying factor than any other.  It was only by reason of there being very many such losses, each equally effective, that individual cases had the relevant causative effect.

The government’s response – The court did not accept the argument put forward in the Greggs action that the government’s  co-ordinated response to the pandemic between March and December 2020 was a single occurrence, because as a matter of fact there was no such co-ordinated response across the four nations of the UK, while the purpose of governmental action varied over the period.

However, the court did accept the general submission made by the insurers that a governmental measure which sought to contain the spread of covid and did so in ways which affected the insured’s business constituted a unifying occurrence falling within the terms of the insurance.

Thus, the decision taken at a meeting in the Cabinet Office Briefing Room (‘COBR’) on 16 March 2020, that the public should be advised to avoid pubs, restaurants and clubs, was a unifying occurrence. Alternatively, there were three relevant occurrences, in the form of the announcements of the new advice to the public by the Prime Minister on 16 March 2020 and by the First Ministers of Wales and Scotland, the following day. An informed observer would have regarded the decision of the three governments as a unitary matter which would have an effect on its business throughout the country.

Again accepting the insurers’ submission, the  court held further that the government’s instructions given on 20 March 2020 to all pubs, bars and restaurants to close and not reopen the following day was a single occurrence, or alternatively three occurrences, for England, Scotland and Wales respectively.

Further points made in the judgments included the following.

Possibility of further unifying occurrences – It was the insurers who had proposed the occurrences of 16 and 20 March 2020 as unifying occurrences with which individual covered events were connected.  The court had reservations as to whether these were the only circumstances which could be characterised as unifying ‘occurrences’ in that period.  Thus, it was possible that the announcement of the lockdown on 23 March 2020 was a further occurrence.

However, the review and renewal of the 26 March 2020 regulations in April, May and June 2020 would not be regarded as separate occurrences.

Effect on the recoverability of BI loss in the indemnity period, given that the pandemic was continuing –  It would be for the insured to establish that all its BI loss in the indemnity period was caused by covered events occurring in the period of insurance, rather than caused by cases of the disease occurring after the period of insurance. Cases of disease in the vicinity after the end of the policy period  could not simply be regarded as the playing-out of the effect of the covered events.

Related actions – (per the judgment in the Greggs case) The BI losses that flowed from a decision to close the whole of a business even though the insured was only required by regulation to close part of the business, could be losses connected with a single occurrence in the form of a governmental measure directed at containing the spread of covid.

When the insured must give credit for Government support – Such support, in the form of business rate relief and grants under the Coronavirus Job Retention Scheme (i.e. furlough payments), would as a matter of general principle reduce the amount of BI loss payable to the extent that such support reduced expenditure payable by the insured out of turnover, albeit that this would depend on the wording of any applicable savings clause in individual policies.

For further information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.


3 November 2022