UK: High Court rules in favour of insurer on physical damage in COVID-19 business interruption insurance claim

Background

In this case, the claimant operates a café restaurant in Kensington, London. Between 21 March and 4 July 2020, it was forced to close as a result of the lockdown restrictions imposed by the  Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 (the ‘Regulations’). The defendant insured the claimant under a policy that included a ‘Business Interruption All Risks Estimated Revenue’ section (the ‘BI Section’). The policy largely represents the defendant’s standard ‘All Risks’ policy wording. 

The claimant argued that the closure of its business as a result of the Regulations fell within the BI Section of its policy. The defendant denied this and sought summary judgment to strike out the claim.

The Court’s ruling

The court found in the defendant’s favour and ordered summary judgment. In doing so, it found that the enforced closure and temporary loss of use of the claimant’s property did not amount to ‘loss of property’ under the policy. 

The decision turned on the policy’s precise wording, including certain defined terms.  Specifically: 

• The definition of ‘Business Interruption’ required the interference with the café to be in “consequence of an event to property used by the Insured at the Premises”. Notably, the use of the word ‘event’ here was not capitalised, i.e. it was not a defined term. 

• The BI Section provided cover for “Business Interruption by any Event”. As ‘Event’ here is capitalised, the policy covered “Accidental loss or destruction of or damage to property”. The fact that “destruction of or damage” followed “loss” suggested that the parties had intended that there be a physical aspect to the loss incurred.  The Court accepted the insurer’s position that coverage was only triggered by the physical loss of property, and so the policy did not cover temporary loss of use of the café.

Another factor in the court’s decision was a proviso to the Basis of Settlement clause in the BI Section. This required that the claimant had “an insurance in force covering the interest of the Insured… against such Event”. The claimant had no such insurance and the court rejected its argument that the parties intended that such insurance was provided by the section itself, stating that this would serve no useful commercial purpose. 

Impact of the Judgment

This judgment indicates that typical damage-based BI policy wordings will be strictly construed and are unlikely to provide cover for Coronavirus- and lockdown-related interruption losses (e.g. loss of revenue and additional costs of working as a result of enforced closure of premises). 

The decision is specific to the wording of the claimant’s policy. Significantly, that policy did not contain any BI disease or prevention/restriction of access clauses – the interpretation of these types of clauses are currently being considered in the FCA test case.  The High Court’s judgment in the test case, as issued on 15 September 2020, generally found in favour of policyholders – although that decision is subject to appeal in the Supreme Court. 

For more information on the FCA test case please read our summary here.

For more information on the impact of COVID-19 on business interruption insurance issues globally, please visit our Business Insurance Interruption Tracker.

For more disputes related content please visit Disputes+, Bird & Bird’s disputes knowledge portal.