The All England Lawn Tennis Club had to cancel Wimbledon this year, thanks to coronavirus. Fortunately, however, concerns about the impact of a possible pandemic had caused the club to purchase event cancellation insurance for its tournaments at a cost of roughly £1.5m per annum. So, although it spent approximately £25.5m on cover over a 17-year period, it expected to recoup around £114m of the losses caused by the cancellation of this year’s event.
Other businesses will have looked on enviously. Most property owners will have buildings insurance and some may include provisions covering losses and expenses flowing from interruptions to their business – caused, for example, by notifiable diseases occurring within a specified radius of the insured premises or as a result of the policyholder being denied access to or use of its property, thanks to restrictions imposed by a public authority. How far will such cover extend? Does it cover losses arising in the context of the coronavirus pandemic, given that the government made Covid-19 a notifiable disease and much of the country went into lockdown to control its spread?
The litigation in Financial Conduct Authority v Arch Insurance (UK) Ltd [2020] EWHC 2448 (Comm) sought to test the meaning of the wording in 21 different policies. But the decision is expected to affect around 370,000 policyholders, with as many as 700 different policies issued by more than 60 insurers. Reports suggest that the sums at stake could total as much as £1.2bn and, because it was impossible for the court to consider the arguments on causation without examining the terms of each policy separately, the decision – that many of the policies did, in principle, provide business interruption cover – is a lengthy one.
The insurers relied, in particular, on Orient-Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm). In that case, a hotel had suffered significant hurricane damage, which interrupted its business. But the insurers denied its business interruption claim on the ground that the insured had not shown that the damage to the hotel had caused the interruption – and won. The court accepted that the business would have suffered the same interruption had the hotel been undamaged, because the surrounding area had been closed off. However, Lord Justice Flaux and Mr Justice Butcher, who delivered the judgement in Arch doubted the reasoning in Orient-Express. They noted that the insured would have been fully covered, had the hurricane damaged only the hotel. But, because the hurricane damage was widespread, the business interruption cover was illusory. This was counter-intuitive, as well as inherently unlikely – and the decision was clearly distinguishable thanks to the different wordings in the relevant policies.
So the insurers’ attempts to separate local occurrences of Covid-19 within the radius or vicinity of insured premises from the occurrence of the disease elsewhere in the country fell flat. The High Court considered that the proximate cause of the business interruption was the notifiable disease, of which individual outbreaks formed indivisible parts.
But the court interpreted the denial of access provisions more restrictively. The cover was narrow and more localised. Government advice, as opposed to regulations, had not denied access to premises and restrictions on movement and reductions in footfall did not, in themselves, prevent access to premises that remained open. However, cover would be available if a business had had to offer a service that it had not previously provided, which was fundamentally different from the business described in its policy.
Allyson Colby, property law consultant
