UnipolSai Assicurazioni SpA v Covéa Insurance plc

Insurance – Reinsurance contract – Construction – Respondent insurer providing business interruption cover for losses caused by peril other than physical damage – Appellant providing reinsurance contract including “hours clause” limiting indemnity to losses arising from “catastrophe” within set period – Whether “catastrophe” limited to sudden and violent event capable of causing damage – Whether losses occurring when businesses closed or day-by-day – Appeal dismissed The respondent provided cover to policyholders who ran children’s nurseries and childcare facilities, including under its standard NurseryCare Policy wording which included cover for “business interruption caused by a peril other than physical damage to insured property” (non-damage BI). Following the outbreak of Covid-19 and government closure orders, early years facilities closed for three months or longer. The respondent paid policyholders for business interruption losses caused by the closures. The respondent commenced arbitration proceedings, seeking an indemnity under a policy by which the appellant reinsured the respondent. Its principal case was that the outbreak of cases of Covid-19 in the UK immediately preceding the closure of schools and nurseries was a “catastrophe” under the policy; alternatively, the various government orders or decisions constituted one catastrophe. The appellant objected to payment, contending that the Covid-19 losses arose out of and were directly occasioned by one catastrophe on the proper construction of the reinsurance; and the effect of the “hours clause” in the reinsurance (which confined the right to indemnity to “individual losses” within a set period of 168 hours) had the effect that the reinsurance only responded to payments in respect of the closure of the insured’s premises during the stipulated period. The arbitrator made an award in favour of the respondent and the court dismissed the appellant’s appeal against that decision under section 69 of the Arbitration Act 1996: [2024] EWHC 253 (Comm). The appellant appealed. Held: The appeal was dismissed. (1) The judge’s conclusion that the outbreak of cases of Covid-19 in the UK in the period immediately preceding the closure of schools and nurseries on 20 March 2020 was a catastrophe was plainly correct. The reinsurance did not contain a definition of “catastrophe” and it was common ground that there was no special market definition or meaning, in contrast with “event” or “occurrence”, both of which came in the context of reinsurance with an “accumulated legal baggage”. Neither of those words was used in the reinsurance other than in the phrase “loss occurrence”, which was defined as “all individual losses arising out of or directly caused by one catastrophe”, referring back to “catastrophe”. In the circumstances, it was appropriate to have regard to the meaning of “catastrophe” in ordinary language, albeit by reference to the contractual context. The reinsurance wording was of particular significance. Whatever the position historically, BI cover written at the time the present reinsurance was concluded in late 2019 commonly included cover for non-damage BI, such as losses caused by notifiable disease and/or prevention of access. The judge correctly regarded those contractual provisions as providing strong support for no limitation on the scope of a “catastrophe”. (2) The judge found that, in the context of the reinsurance here, the “outbreak” could fairly be regarded as a coherent and discrete happening, with an existence, identity and “catastrophic character” which arose independently of the fact that it caused substantial losses. During the relatively short period, the Covid-19 outbreak assumed a certain coherence in its development and effect and gave rise to a profound subversion of the order of life within the UK. That was an evaluative judgment that the sudden outbreak of Covid-19 in the UK in March 2020 was a catastrophe which was not limited to a sudden and violent event. Furthermore, many of the perils identified in the hours clause need not be sudden in their inception or violent in their impact or operation. (3) The requirement that a catastrophe had to cause or be capable of causing physical damage was not inherent in the ordinary meaning of the word “catastrophe” and, given that there was no common market understanding or definition of the meaning of “catastrophe”, there could not be any such understanding or definition that that requirement was inherent in the concept of “catastrophe”. The judge’s analysis, could not be faulted. An “individual loss” first occurred when a covered peril struck or affected insured premises or property and, when the covered peril which struck the premises was the loss of the ability to use them (whether through damage to other property or premises or through a closure order as in this instance), the individual loss occurred at the same point. It was immaterial for these purposes how the property or premises were affected and by what type of peril. (4) An “individual loss” only occurred once for the purposes of the hours clause, irrespective of how long the financial loss suffered continued for. It encompassed the entirety of the loss sustained by the original insured as a result of the relevant catastrophe striking or affecting the premises, irrespective of whether the relevant “individual loss” comprised physical damage losses, BI losses or both. There was nothing in the hours clause which required the individual loss to be apportioned so that only the part of it sustained during the 168 hours was to be indemnified.  (5) The approach that the individual losses occurred day-by-day and that the hours clause limited the individual losses which could be aggregated to those which occurred in the 168-hour period, so that only business interruption during that period was covered, was artificial. That would involve “slicing and dicing” in the reinsurance what, at direct insurance level, was a net loss arrived at taking debits and credits over the entire indemnity period into account. It essentially conflated the occurrence of an “individual loss” with the continuing financial loss to which that individual loss gave rise. The interference with the business of each nursery which occurred on closure was functionally equivalent to each nursery suffering physical damage on that day. The relevant “individual loss” occurred on that day and not day-by-day for every day that the business interruption continued. Aidan Christie KC and Rani Noakes (instructed by DWF Law LLP) appeared for the appellant; Alistair Schaff KC and Simon Kerr (instructed by Slaughter and May) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of UnipolSai Assicurazioni SpA v Covéa Insurance plc