Business Interruption claim struck out as COVID-19 did not fall within the ‘Infectious Disease’ clause in a hotel’s insurance policy

In summary, disease clauses provide cover for BI losses caused by infectious and contagious diseases that occur at an insured’s business premises (or within a specified distance or proximity from such premises).

In Rockcliffe, the policy in question contained an ‘Infectious Disease’ extension which provided cover for BI loss caused by: (i) an “Infectious Disease manifested by any person whilst at the Business Premises which results in closure of the whole or part of the Business Premises by the order of an appropriate competent authority”; or (ii) an “outbreak of Infectious Disease within 10 miles of the Business Premises”. The term ‘Infectious Disease’ expressly referred to 34 illnesses or diseases including food poisoning, cholera, smallpox, and plague, but not COVID-19. The list was exhaustive as it began with the words “Infectious Disease means” (instead of using a non-exhaustive term such as ‘includes’).

The policyholder, Rockliffe Hall hotel, argued that the word ‘plague’ should be interpreted as a general term for an infectious disease with a high mortality rate, an epidemic or a pandemic. The Court rejected this interpretation, holding that the word ‘plague’ was intended to refer to the specific disease caused by Yersinia pestis bacteria. The judge commented that matters might "be different if 'plague' were in the company of 'famine', war' and 'pestilence'". Accordingly, the clause did not cover BI loss caused by COVID-19 and the policyholder’s claim was struck out.

The hotel also argued that COVID-19 could cause, or be associated with, some of the diseases included within the clause’s list, such as meningitis and encephalitis. However, the judge considered that such a construction would amount to an "Alice in Wonderland approach” and dismissed the argument that the list was similar to the lists contained in the ‘Notifiable Disease’ clauses considered in the FCA test case. Specifically, the difference was that ‘Notifiable Disease’ clauses expressly refer to a government-maintained external list of notifiable diseases (i.e. diseases notified under public health regulations). However, in this case, there was a clear closed and non-exhaustive list of diseases that could only provide cover for loss resulting from one of those listed diseases.

This is the first decision addressing the issue of whether there is cover in a situation where the policy includes infectious disease clauses referring to a specified list of diseases, not including COVID-19. It is therefore a welcome reminder that: (1) the Courts will interpret and construe BI policies strictly in accordance with their express terms; and (2) policyholders should carefully review the express terms of their policies before deciding whether a BI claim should be pursued (and, if so, on what basis).

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

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