A. INTRODUCTION
In June and July of this year, the Commercial Court heard three Trials in relation to claims arising from COVID-19 Business Interruption under Policies using the Marsh Resilience form of wording. The Trials heard certain common or overlapping issues in the three actions, with the first and “lead” Trial being in relation to a claim by Stonegate Pub Limited against MS Amlin, Liberty and Zurich, followed by claims by Various Eateries against Allianz UK and then Greggs against Zurich.
Although the three Trials proceeded separately with different legal representation for the parties, there was considerable overlap in the evidence, agreed and assumed facts and the arguments put forward on behalf of the claiming Policyholders on the one hand and the Defendant Insurers on the other. Each Trial proceeded on the basis of certain preliminary or “key” issues but did not address issues of quantification. The sums involved were, however, significant, with Stonegate originally pleading a claim of approximately £860m, subsequently increased to approximately £1.1bn.
B. KEY ISSUES
Although put slightly differently in each case, the key issues in common to all three cases were:
- What is the relevant “trigger” under the relevant Insuring Clauses in each Policy?
- Were the claimed Business Interruption Losses capable of being aggregated to one or more “single occurrences”?
- Were the claimed losses proximately caused by Covered Events within the relevant Policy Periods?
- Was the additional increased cost of working (“AICOW”) sub-limit (in Stonegate) an aggregate limit or applicable to each Single Business Interruption Loss?
- Does AICOW cover apply to economic Increased Cost of Working (“ICOW”) or only to uneconomic ICOW?
- Are payments received by an Insured under the Furlough Scheme or any Business Rates relief to be taken into account when calculating the sums recoverable under the Policy?
Not every issue is addressed in each of the three Judgments but all are addressed and analysed in the Stonegate Judgment. The brief analysis set out below focuses, accordingly, on the Judgment in Stonegate with additional comment where relevant from Various Eateries. The Judgment in Greggs addresses slightly different issues because of the different Policy Period in the Greggs Policy. In Stonegate, the Policy Period ended at the end of April 2020 and in Various Eateries, on 28 September 2020. The Greggs Policy Period ran through to the end of 2020.
C. OVERVIEW
The Court has found largely in favour of Insurers. In particular, it found against Stonegate on its arguments concerning “triggers” for Covered Events on a per location basis (it operated from some 760 locations). Although it found that all of the policyholders’ losses in each case did not aggregate around one single occurrence, it decided that there were likely to be only a small number of aggregating occurrences (and hence applicable limits) and not the unlimited liability for which the policyholders had contended. The Court also found largely in favour of Insurers on the causation issue. Although the Court agreed with Stonegate that AICOW was not limited to an aggregate limit, it agreed with Insurers that AICOW only applied to uneconomic ICOW. Lastly, and very importantly, on Furlough and Business Rates, the Court has agreed with Insurers’ arguments that these are matters that should be taken into account when calculating any indemnity under the Policy.
D. BRIEF ANALYSIS OF THE INDIVIDUAL KEY ISSUE FINDINGS
The Court found that each case of COVID-19 that was either discovered at an Insured Location or occurred within the Vicinity of one or more of the Insured Locations was, essentially, a separate Covered Event.
Insurers contended that all of the claims could be related back in a loosely causative sense to the initial outbreak of COVID-19 in Wuhan in China in November 2019. On that basis there would only be one Single Business Interruption Loss, with a limit of £2.5m.
The Court accepted that what happened in Wuhan was an “occurrence” but decided that it was too remote an event to Stonegate’s losses to constitute a “single occurrence” for the purposes of the Policy.
Insurers also contended, however, that Government action in March constituted a “single occurrence”. The Court agreed that the collective decision made jointly by the four UK Governments on 16 March 2020, which was then implemented at the same time throughout the Vicinity (as defined in the Policy) and then the instruction given on 20 March 2020 for pubs, bars etc. to be closed, constituted two “occurrences”. The judge felt it was at least possible that the announcement of the National Lockdown on 23 March 2020 could be a further occurrence. However, given that pubs and restaurants had already been locked down on 20 March 2020, it is doubtful that this is of any relevance to these claims.
The effect of this analysis was that the losses flowing from Government action in mid-March should be aggregated so that there was a maximum recovery of two limits (being £2.5m per limit) although the two single occurrence “limits” do not aggregate any of the Insured’s claimed Business Interruption loss incurred before 16 March.
For Various Eateries, given that the Period of Insurance ended on 28 September 2020, the Court identified only a small number of aggregating occurrences, namely the decisions of 16 and 20 March (culminating in the first National Lockdown) and then the decision to close restaurants early at 10pm which was taken on 24 September 2020. It also found that losses which were proximately caused for a short time after expiration of the Period of Insurance might also be aggregated by reference to the introduction of the Tier restrictions or the second National Lockdown (however those “occurrences” post-dated expiration of the relevant Period of Insurance in Various Eateries – but not in Greggs).
In Various Eateries, the Court also found that the argument advanced by Various Eateries that no losses were connected with any single occurrence (such that the Disease and Prevention of Access limits would be redundant and there should be no aggregation at all) was wrong.
E. CAUSATION
The Court found, subject to some very limited potential exceptions as set out in paragraph 229 of the Judgment in Stonegate, that no claimed losses in England, Scotland or Wales after respectively 4, 6 and 13 July were proximately caused by Covered Events in the Stonegate Policy Period. In other words, the causative effect of Covered Events within the Policy Period ceased in mid-July at the latest. This was in contra distinction to Stonegate’s case that the effect of those Covered Events ran to the end of the Maximum Indemnity Period in the Stonegate Policy, being April 2023.
In Various Eateries, the Judge agreed with Allianz that Government Action was principally based on current and projected incidences of disease and not on past cases (with a similar finding in Stonegate). The Court also accepted, however, that under the Notifiable Disease clause, covered cases of disease within the Period of Insurance will have influenced Government action for a short time after expiration of the relevant Period of Insurance. This was because of the time lag in obtaining up to date Covid-19 data upon which the Government had to make decisions and the period of time during which people remained infectious could be up to 14 days.
On the facts of Various Eateries, accordingly, the Court accepted that the Government’s decision to announce the three tier system in late September/early October would have been caused by cases of disease during the Period of Insurance. Conversely, however, when on 29 October 2020 the Government announced that it would add more areas to Tier 2, the proximate cause of such restrictions was cases of disease outside the Period of Insurance. It followed that the second National Lockdown in November 2020 would not be a covered loss and Government action beyond 28 October would not be a Covered Loss under the Notifiable Disease clause.
F. AICOW
The Court found that there was not a single aggregate limit. This was on the basis that the AICOW sub-limit of £15m applied to each Single Business Interruption Loss (essentially each “single occurrence”).
Importantly, however, the Court has found that the cover for AICOW is limited to those costs which were incurred by Stonegate that were not “economic” in the sense that they had an effect on maintaining Turnover. This is a significant distinction and means that where cost was incurred which was “economic” this falls within the scope of the limits referred to above i.e. the £2.5m “Single Business Interruption Loss” limit not the £15m limit for AICOW.
G. FURLOUGH
The Court has found, significantly, that payments received by businesses like Stonegate for “Furlough” should be taken into account when calculating any indemnity. This is on the basis that they were either “savings” within the meaning of the Policy or, potentially, on the basis that there would otherwise be a form of “double indemnity”.
A similar decision was reached in relation to Business Rates relief although that depends, to an extent, on the nature of the accounting treatment of such relief.
H. CONCLUSION
In overall terms, accordingly, the Court has found largely in favour of Insurers on most of the key issues.
It has not supported the Stonegate case in relation to claims being asserted on a “per location” basis (other than in relation to cases of Disease before mid-March 2020), has largely agreed with Insurers on the key issue causation, and has found there to be only a small number of aggregating occurrences.
Although it found against Insurers on the aggregated limit for AICOW, it found in favour of Insurers on the key element of analysis in terms of the extent to which AICOW is available to Stonegate, being limited to “uneconomic” costs incurred, whereas much of the claim appears to be in relation to “economic” ICOW.
Insurers have also obtained a significant success in relation to the approach to be adopted to Furlough and Business Rates relief being taken into account when calculating any indemnity.
The Resilience judgments appear to be a significant result from Insurers’ perspective, limiting claims under the Resilience wording to a relatively small number of occurrences (and therefore limits), limiting the effect of Covered Events in terms of causation, restricting cover under the AICOW cover to uneconomic costs and allowing Insurers to take Furlough and Business Rates relief into account when calculating the indemnity.
Chris Wilkes and Ilana Gilbert of DAC Beachcroft acted on behalf of MS Amlin, Liberty and Zurich in the claim brought by Stonegate Pub Limited. James Deacon, Matt Dalley and Hannah Stanford of DAC Beachcroft were instructed by Allianz in respect of the claim brought by Various Eateries.
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