THREE NEW JUDGMENTS PROVIDE FURTHER CLARITY ON THE AGGREGATION OF BUSINESS INTERRUPTION (BI) LOSS CLAIMS AGAINST INSURERS ARISING FROM THE COVID-19 PANDEMIC
In decisions which have been welcomed by insurers, Butcher J has permitted the aggregation of BI losses arising from the Covid-19 pandemic to a small number of 'occurrences' (being (i) the decision to implement; and (ii) the subsequent announcement of pandemic lockdown measures). This significantly limits the overall payout to claimants. The court also applied a narrow measure of causation, which again restricted the claimants' recovery. The decisions are subject to appeal (permission for which has been granted).
Stonegate Pub Company Ltd v MS Amlin Corporate Member Ltd and ors; Various Eateries Trading Ltd v Allianz Insurance plc; and Greggs plc v Zurich Insurance plc.
Stonegate Pub Company Ltd (Stonegate) owned and operated 760 bars, restaurants and pubs across England, Scotland and Wales. Under a BI insurance policy it sought to recover losses in excess of £1 billion which it claimed to have suffered as a result of the pandemic. The insurance was for the policy period 1 May 2019 to 30 April 2020 (the Policy). It used specific Marsh 'Resilience' wording (the Resilience Wording).
In separate actions, Greggs Plc (Greggs) and Various Eateries Trading Ltd (VE), also in the hospitality industry, made similar claims against their insurers under the Resilience Wording.
The court heard the three trials in sequence, drawing on the Supreme Court's findings in the Financial Conduct Authority's business interruption test case (considering the Resilience Wording, there named "RSA 4").
The Resilience Wording defined a "Single Business Interruption Loss" as "all Business Interruption Loss and Business Interruption Costs & Expenses…and any amounts payable under Extensions that arise from, are attributable to or are in connection with a single occurrence…". ("SBIL clause").
Insurers sought to limit the scope of their liability for Stonegate's losses to a single £2.5 million policy limit on the basis that they all arose from a single occurrence (or alternatively a small number of occurrences) . Stonegate argued that the insurers should be liable for losses across its insured locations as these had been caused by separate occurrences (depending on the relevant insured 'peril'), allowing access to multiple policy limits.
As to causation, and per the FCA Test Case, it was common ground between the parties that only losses proximately caused by insured events which took place in the period of insurance would be recoverable. However, they disagreed as to the scope of 'proximate causation': Stonegate sought all BI losses suffered as a result of the occurrence of Covid-19 in the vicinity of its insured premises up to the end of the 'Maximum Indemnity Period' in the Policy (end of April 2023).
Distinguishing factors were in place in relation to the Greggs and VE cases:
Greggs' policy expired on 31 December 2020 (Stonegate's ended in April 2020). Greggs contended that the Resilience Wording entitled them to make a claim for each set of restrictions imposed by the Governments of England, Scotland and Wales throughout 2020; and
VE's policy expired on 28 September 2020. VE argued that losses resulting from the national lockdowns post-dating the expiry of its policy should also be covered by the policy on the basis that the government measures resulted from cases of Covid-19 within the policy period.
Only one "occurrence"
Butcher J considered the word "occurrence" to be synonymous with the word "event", using the generally accepted legal definition of "something which happens at a particular time, at a particular place, in a particular way" (Axa Reinsurance (UK) plc v Field  2 Lloyd’s Rep 233)
Applying that reasoning, Butcher J agreed with insurers that there were (at least) two occurrences by reference to which Stonegate's losses could be aggregated: a decision made during a COBRA meeting on 16 March 2020 that the public should avoid pubs, restaurants and clubs; and the governmental decision to close all pubs, bars and restaurants as announced on 20 March 2020. Losses attributable to both occurrences would form part of a SBIL reference to the 16 March 2020 occurrence. The decision did not consider occurrences after 30 April 2020, as this was the date on which the Stonegate policy expired.
In practice this meant that Stonegate's losses would be aggregated into a single claim, with a single policy limit.
Regarding causation, Butcher J found that Stonegate could only establish proximate causation up to the period of reopening venues: up to 4 July 2020 for England, 6 July 2020 for Scotland, and 13 July 2020 for Wales. Losses which arose between the occurrence dates identified by Butcher J and these later dates were capped at the SBIL limit(s) as described above.
As to the Greggs and VE claims:
The Greggs action considered decisions taken from May 2020. Butcher J decided that the later imposition of restrictions by each of the Governments of England, Scotland and Wales were separate occurrences. Greggs, therefore, was able to access separate £2.5 million limits for losses proximately caused by the imposition of new restrictions. In VE, Butcher J considered BI losses occurring after the period of insurance but within the Maximum Period of Indemnity. In this specific case, cases of Covid-19 within the period of insurance had the potential to be a proximate cause of government action for a time after 28 September 2020. As a result, the imposition of a tiered lockdown system on 14 October 2020 and a second lockdown on 5 November 2020 were found to be capable of being single occurrences.
Furlough was an additional aspect of these claims. Stonegate's insurers claimed that governmental support arising from the pandemic, including furlough payments, should be offset against BI losses claimed by Stonegate. Stonegate argued that this was inappropriate "as these do not on the proper construction of the Policy go to reduce the claim".
Using the business interruption quantification language in the Resilience Wording, Butcher J decided that there was no indication that the Government made payments with "the intention of benefiting Stonegate alone to the exclusion of insurers". It was held that Stonegate were to take into account furlough payments received from the Government when assessing its loss. Butcher J applied this reasoning in Greggs.
We understand that permission to appeal has been granted.
However, subject to any appeal, these judgments provide guidance as to how aggregating occurrences will be assessed (including the point in time at which they should be assessed). Findings as to causation are very fact sensitive and are dependent on the length of the policy, indemnity period, and the policyholder's business (and the causal connection between an occurrence and the losses which can be aggregated by reference to it cannot be too remote).
Butcher J's determination in Greggs that separate lockdowns can constitute individual occurrences will be welcome news for policyholders seeking to access different policy limits. However, this must be viewed in the context of the limitations imposed by the decision in the VE case (i.e. that the cases of the disease occurring in the immediate run up to each government restriction / lockdown will still be considered the proximate cause of each such occurrence). For example, policyholders arguing that cases of Covid-19 in March 2020 caused the lockdowns in October and December of that year are less likely to be successful.
Policyholders with multiple insureds/premises or those seeking to make an insurance claim under disease, enforced closure or prevention of access clauses will need to carefully consider the government decisions and/or measures that led to their claimed losses to ascertain whether a single or multiple policy limits will apply. Policyholders should also consider the implications of having to offset any furlough payments they have received against insurance claims.