The High Court has handed down three new judgments on BI insurance claims resulting from Covid-19: Stonegate Pub Co Ltd v MS Amlin Corporate Member Ltd [2022] EWHC 2548 (Comm), Various Eateries Trading Ltd (formerly Strada Trading Ltd) v Allianz Insurance Plc [2022] EWHC 2549 (Comm) and Greggs v Zurich Insurance Plc [2022] EWHC 2545 (Comm). 

These cases are another reminder of the complexities of BI insurance and the particular challenges created by Covid-19.

The claims were brought by Stonegate Pub Co Ltd, one of the UK’s largest pub companies, Various Eateries which runs a number of restaurants (formerly under the Strada brand) and Greggs, the well-known bakery chain. All of the insureds were forced to shut their doors at various times during the pandemic and were seeking cover for the business interruption losses they suffered as a result. 

The cases, whilst not consolidated into one claim, all deal with similar issues, and were heard consecutively by Mr Justice Butcher, with each party given the opportunity to make submissions in the other trials. 

All three claims are made under policies written on the Marsh Resilience Form, which was also addressed in the Divisional Court’s ruling in the FCA Test Case and is the subject of on-going litigation in claims brought against insurers by a number of Premier League football clubs.

Whilst the decisions deal only with preliminary issues and do not address quantum directly, the figures being claimed are substantial, with Stonegate seeking approximately £1.1bn.

The judgment, which was largely a victory for insurers, dealt with a number of complex issues, many, but not all, of which were common across the three claims. We have summarised below some of the key points.

Trigger/Aggregation

Issues concerning aggregation and what ‘triggered’ the policies arose across all three cases. 

The relevant insuring clauses contained a sub-limit of liability of £2.5m for any business interruption losses that “…arise from, are attributable to or are in connection with a single occurrence…” defined as a Single Business Interruption Loss and referred to as SBIL in the judgments. The SBIL clause also operated as an aggregation clause; the function of which is to treat certain losses as if they were one loss.   

Insurers argued that the losses flowing from the Covid-19 pandemic should be aggregated to one or, at most, a small number of different occurrences. 

The claimants, by contrast, argued that there were a much larger number of occurrences, resulting in a much higher limit of liability as the SBIL sub-limit of £2.5m would apply per occurrence. 

In respect of the disease clause, Butcher J found, in insurers’ favour, that whilst there was more than one “single occurrence” there were only a small number (the exact number depending upon the policy period and geographical scope of cover).  For example, in Various Eateries where the policy period ended on 28 September 2020 there were aggregating occurrences on 16 and 20 March (relating to the first national lockdown) and on 24 September with the decision to close restaurants early. 

Additionally, Stonegate contended that the SBIL limit applied per location. However, Butcher J held that as “There was only one Insured under the Policy…The Policy was not a composite one, whereby separate Insured Locations owned or operated by separate insured entities each had, in effect, its own insurance”, the result of which was that the £2.5m liability cap did not apply per location, but only per occurrence. This decision is in contrast to the Corbin v King which found (on different policy wording) that the limits of liability applied per location (see our summary here).

Causation

The findings on causation relied heavily on: (i) the facts of the case; (ii) the policy period; and (iii) the effect the Government announcements and regulations had on the individual policyholders. 

In broad terms, the insureds contended that the effect of the Covered Events extended beyond the relevant policy period including up to the end of the Maximum Indemnity Period. Insurers took a more restrictive view of which losses were caused by the Covered Events. 

Having considered the case on causation Butcher J found in Stonegate (where the policy expired on 30 April 2020) that:

“…the realistic view of what happened is that the extension of the lockdown beyond the third review was equally proximately caused by the cases of the disease within the Period of Insurance, which had led to its imposition and to an attitude of caution on the part of the governments, and to the incidence and threat of further cases in the period up to the third review…it can be said that the cases of Covid-19 which constituted Covered Events were equal proximate causes of the closure of hospitality venues, including Stonegate’s, up to 4 July 2020 for England, 6 July 2020 for Scotland, and 13 July 2020 for Wales.”

However, once hospitality venues had re-opened, subsequent restrictions could not be said to have been caused by cases of the disease within the policy period. 

When considering the Disease Clause in Various Eateries (for which the policy expired on 28 September), Butcher J explained:

“To put the matter in concrete terms, I accept that cases of Covid-19 occurring in the Vicinity during the Period of Insurance had the potential to be a proximate cause of government action for a time after 28 September 2020. This is in part because of the fact that information on cases occurring in that period remained, for a time, the most up to date information on which decisions were made; and also because of the period for which people infected with the disease remain infectious, which the parties agree to be 14 days.”

For the Enforced Closure and Prevention of Access clauses the position was different. If the closure / prevention of access took place within the period of insurance “There could then be recovery for the resulting interruption and interference with the business, and the extent of that interruption or interference would depend on how long the closure lasted, irrespective of whether the whole period of such closure was within or after the Period of Insurance."

Government support

Significantly, it was held the insureds were not able to recover losses that had already been covered by Government schemes including the Coronavirus Job Retention Scheme (more commonly known as furlough) and the Business Rates Relief. Butcher J stated, “if a third party has made a payment which has eliminated or reduced the loss to the insured against which it had insurance, subject to the exception [that if the payer intended the payment to benefit only the insured and not insurers], the insurers are entitled to the benefit of that payment”. 

Whilst perhaps not surprising, this is decision could well have a significant impact and Butcher J’s reasoning is likely to be relevant outside of the specific wording in question. 

Additional Increased Costs of Works (AICW)

A typical Business Interruption Policy may indemnify the insured for increased costs of working (ICW) i.e. additional expenditure that is necessary to avoid or reduce the reduction in turnover which would otherwise have occurred. The policy wording in the Marsh Resilience Form contained a further extension for Additional Increased Costs of Works (AICW) which provided cover for:

‘expenditure (other than Increased Cost of Working) reasonably incurred by, or on behalf of, the Insured with the intention of maintaining essential administrative functions and/or avoiding or minimising any Reduction in Turnover which would have taken place during the Indemnity Period and/or avoiding or minimising the interruption or interference to the Insured’s Business’

The AICW clause was confirmed by Butcher J to be subject to a limit of £15m per SBIL, which was additional to the £2.5m SBIL sub-limit (supporting Stonegate’s argument).
Stonegate then contended that the words ‘other than Increased Cost of Working’ should be read as meaning “other than recovered as ICW” so that the AICW clause could be used to recover ICW in excess of the £2.5m SBIL limit. 

Butcher J found against Stonegate and held that the AICW and ICW were mutually exclusively. The phrase “other than Increased Cost of Working” meant “other than falling within the definition of Increased Cost of Working” with the result that costs falling with the definition of ICW could not be recovered under AICW with its additional £15m limit of liability. 

Comment

There is still much to be fought over in the three cases but Butcher J’s decisions on these preliminary issues have bolstered insurers’ position. 

Whilst each case will depend upon its own facts and the policy wording in question, the judgments serve to give further clarity on several difficult, but important, issues that are still being addressed in the context of BI claims flowing out of the pandemic. 

Footnote:

Butcher J found that the approach to causation taken by the Supreme Court in the FCA Test Case could not simply be applied in the current circumstances as the question at hand was different: “The FCA Test Case simply did not consider questions as to whether cases of the disease could be relevantly divided by reference to when they had occurred, as opposed to issues as to where they occurred, and in particular did not consider any issues as to the effect of early cases on governmental measures or consumer reaction in the period after 4 July 2020” [emphasis added]” and undertook a fresh analysis of causation.