Covid Business Interruption Disputes: Aggregation in Various Eateries

Covid Business Interruption insurance claims - Aggregation in Various Eateries Trading Limited v Allianz Insurance Plc

Summary

In the Various Eateries Trading Limited v Allianz Insurance Plc decision, the Court of Appeal considered the correct approach to aggregation of business interruption losses to determine how many limits of indemnity should apply. In particular, whether a single limit of indemnity applied because all losses arose from “a single occurrence”. The Court of Appeal largely upheld the decision of the judge below, holding that the relevant aggregating “occurrences” were the Government’s enforced closure of restaurants in March 2020, and early closure restrictions in September 2020.

Background

The insured restaurant chain, Various Eateries (VE), claimed under its insurance policy for losses caused by reduced trade and restaurant closures during the Covid-19 pandemic. VE had obtained insurance for property damage and business interruption losses on Marsh Resilience wording.

The policy:

• covered (amongst other things) business interruption losses occurring during the period 29 September 2019 to 20 September 2020 (the Period of Insurance), with a 24-month maximum indemnity period;
• contained both a “Notifiable Disease” clause, covering BI losses caused by occurrences of the disease “occurring within the Vicinity of an Insured Location” and also a “Prevention of Access – Non-Damage” clause covering BI losses suffered where actions of a governmental authority had prevented access to Insured Locations; and
• provided a limit of indemnity of £2.5m “any one Single Business Interruption Loss” (SBIL) which, insofar as relevant, was defined as all BI loss and amounts payable “that arise from, are attributable to or are in connection with a single occurrence…”

The VE case was tried at first instance as part of a trio of cases concerning the Marsh Resilience wording (the others being Stonegate v MS Amlin and Greggs v Zurich - see our webinar here on those decisions, together with the first instance decision in Various Eateries v Allianz.)

Following settlement of the appeals in the Stonegate and Greggs cases, only the Various Eateries case proceeded to be heard in the Court of Appeal.

The appeal decision in Various Eateries Trading Limited v Allianz Insurance Plc.

The principal issue before the Court of Appeal was the effect of the aggregation clause in the policy.

At first instance, Mr Justice Butcher had held that although the first infection of a human could qualify as an occurrence (and furthermore that the clause - with its “in connection with” wording - required only a loose causal connection with the losses) the BI losses in the UK were too remote from the outbreak in Wuhan. He had also dismissed insurer’s argument that the entry of the disease into the UK a ‘single occurrence’ at all: there had been multiple entry points. Butcher J also held that, correctly construed, the Prevention of Access clause was not limited to covering an insured’s losses from interruption or interference with the business during the Period of Insurance.

The Court of Appeal (Males LJ giving the leading judgment) upheld Butcher J’s decision, and the dispute has since settled. The appeal decisions on the issues of (i) aggregation, (ii) limit per insured location and (iii) the Prevention of Access clause are considered below:

Aggregation

The Court of Appeal held that:

• the initial human infection in Wuhan qualified as an “occurrence”, being synonymous for these purposes with ‘event’, namely something that happened at a particular time, in a particular place and in a particular way;
• Butcher J had been entitled to find that that occurrence satisfied the loose causal requirement of the clause denoted by the term “in connection with”;
• in addition to (or as part of) the causation analysis, it was necessary to consider whether the occurrence was too remote from the losses. The Court of Appeal was reluctant to interfere with Butcher J’s decision on remoteness. VE’s counsel had argued that the judge had undertaken an exercise which involved an evaluative judgment following a factually complex trial, and that the Court of Appeal should not interfere with his conclusion in the absence of any error of principle in his approach. Males LJ summarised a number of authorities on this point, and agreed. Notably though, Males LJ observed that he agreed with the judge’s conclusion on remoteness in any event; the BI losses were remote from the initial infection in time, and place, and there were several intervening events between the initial infection and the losses in question
• In relation to insurers’ secondary case, namely that the ‘occurrence’ was the arrival in the UK of the disease, the Court of Appeal disagreed with Butcher J that the fact that there were several entry points prevented the first of these as being ‘an occurrence’. However, the Court of Appeal felt that, even if the entry to the UK was the ‘occurrence’, this was still too remote from the BI losses to qualify as the aggregating cause.

Aggregation per Insured Location

The Court of Appeal held that the judge had been right to reject VE’s submission that aggregation operates on a “per Insured Location” basis. The definition of a SBIL does not refer to losses at an individual Insured Location, but only to loss arising from, attributable to or in connection with a single occurrence. Some occurrences might affect only a single location, while others might affect multiple locations.

Prevention of Access

Insurers sought to challenge the decision that even business interruption losses occurring outside the policy period were covered where the Covered Event had occurred during the Period of Insurance.

The Court of Appeal agreed with Butcher J on this point too. Where a relevant Covered Event (a Prevention of Access or an enforced closure) occurred during the Period of Insurance, VE is entitled to recover the Business Interruption Loss proximately caused by that Covered Event, even if that loss extended beyond the Period of Insurance. The Business Insurance Loss which it agrees to pay is the Reduction in Turnover caused by the Covered Event, beginning on the date of the Covered Event and continuing for a maximum of 12 (or 24) months. Necessarily, therefore, the losses which VE is entitled to recover may continue beyond the end of the Period of Insurance.

Commentary

The Court of Appeal quoted four requirements identified by Rix LJ in the Court of Appeal in Scott v Copenhagen Re for the operation of an "arising out of one event" aggregation clause: (i) there needs to be an event (i.e. that satisfies the requirement that it happens at a particular time, in a particular place and in a particular way: Axa Re v Field); (ii) the event must occur prior to the losses it is suggested should be aggregated; (iii) there must be a causative link between the losses and event, although that link is looser than a proximate cause requirement; and (iv) the losses must not be too remote from the event. Whether and to what extent the remoteness principle applies depends on the construction of the aggregation clause, and in particular the causal link language used. Use of the phrases "that arise from, are attributable to or are connected with" necessarily involves a causal link between the event and the loss. The phrase "in connection with" means only a weak or loose causal link is required whereas a phrase such as "arising out of one event" requires a much stronger causal link.

The approach to the concept of remoteness in relation to causation when construing an aggregation clause is worth noting. Even where only “loose” causal wording is in issue, the causation and remoteness analysis is to be carried out partly through findings of facts, and partly through an exercise of judgment. Per Rix LJ in Scott v Copenhagen Re, the exercise is “to some extent intuitive, but … also requires analysis of all the relevant circumstances of the case”. The Court of Appeal’s view was that an appeal court should be slow to interfere with a first instance judge’s conclusions in relation to aggregation where these involved considerations of mixed fact and law. We do note, however, that Andrews LJ expressed a different view when deciding an aggregation question in [Axis Specialty Europe SE v Discovery Land Company LLC & Ors]7 (see our analysis of that decision here). Her view was that where the issue required “an exercise of judgment based on a fact-sensitive evaluation”, although the appeal court, “must pay due respect” to the lower court’s evaluation, it “…is in as good a position as the Judge to decide the aggregation issue.”

Finally, in construing the cover in Various Eateries, the court (by reference to the now well-rehearsed principles set out in the FCA Test case) cited an Australian decision (LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCASC 17). Establishing what the words of the contract would mean to an ordinary policyholder may involve looking at the “ease with which an insured may establish matters relevant to its claim for indemnity”. In the context of BI cover, whose very purpose is to allow business to remain afloat, “a construction which advances the purpose of the cover is to be preferred to one that hinders it.” Where an authority has acted “upon its belief as to the existence of an outbreak”, an insured may well be deprived of the benefit of cover if required to prove detailed underlying facts sitting behind that authority’s decision.