Interpreted as a victory for both insurers and policyholders, three linked legal judgments from the High Court have brought further clarity but also raised yet more questions in the field of COVID-19 business interruption (BI) claims.
On 17th October, the High Court handed down three linked judgments in the matters of Stonegate v MS Amlin & Othrs, Greggs v Zurich and Various Eateries v Allianz. These cases concerned outstanding legal issues relating to COVID-19 BI claims. All three matters were heard by Mr Justice Butcher, who also was responsible (along with Lord Justice Flaux) for the Divisional Court’s first instance decision in FCA v Arch and Others (more often known, as the FCA Test Case).
Stonegate v MS Amlin & Othrs
Stonegate, the UK’s largest pub chain, claimed £845m in BI losses on the basis of an entitlement to multiple policy limits across various policy coverages.
Giving the leading judgment in the three matters before him, Mr. Justice Butcher’s ruling in Stonegate gives guidance on a number of key ‘Stage 1’ issues, namely:
What was the trigger for claims to be made under the Resilience Disease, Prevention of Access – Non Damage and Enforced Closure coverages? Was each occurrence of disease within the vicinity of each insured location a separate covered event, or were the relevant triggers more infrequent and tied to the imposition of government restrictions?
It is true that the claimed loss ‘arises from, is attributable to, or is in connection with’ a single ‘Occurrence’ for the purposes of joining together, or aggregating, the claims under a single limit?
Were the claimed losses (in a small sample of locations agreed between the parties) proximately caused by the insured event?
Were any payments received under the Coronavirus Job Retention Scheme (furlough) and/or any business rate reductions received to be taken into account for the Insurers’ benefit when calculating any sums recoverable under the policy?
Stonegate – Claim Triggers
Whilst this issue was seen as important by Stonegate’s legal team, it is noted by Mr Justice Butcher that the defendant insurers’ lawyers felt the question was ‘irrelevant’ on the basis that regardless as to how many covered events there were, they would all fall to be aggregated as a single loss with a single limit, under the Resilience wording. On this basis it appears that the defendant insurers chose to not spend any significant time in challenging Stonegate’s arguments on the subject, albeit the same issues were also present in the Greggs and Various Eateries claims described further below.
That being said, and of potential use for those seeking coverage under different policy forms, Mr Justice Butcher went on to give his views as to when claims could potentially be triggered under the Disease, Enforced Closure and Prevention of Access – Non-Damage coverages in the Resilience wording.
With respect to the Disease clause, the Court’s position was that a claim could be triggered when ‘there were cases of Covid-19 which were either (a) discovered at an Insured Location or (b) occurred within the Vicinity…of one or more Insured Locations, during the Period of Insurance.’ The ruling seemingly rejected the defendant insurer’s arguments that there could only be three such covered events, linked to government speeches that caused an interruption or interference in Stonegate’s trade.
Turning to the Enforced Closure cover, Mr. Justice Butcher noted that ‘I consider that the ‘trigger’…is the actual closure of all or part of an Insured Location under relevant compulsion or instruction. On this basis, the Policy is ‘triggered’ in respect of each such closure, and the number of ‘triggers’ is the number of Insured Locations so closed’. Whilst Mr Justice Butcher made it clear that he did not consider that there would not be separate covered events unless businesses re-opened and were subsequently closed again (as opposed to being closed throughout a period of numerous enforced closures), his opinion here serves to confirm that each closure of each single location has the potential to be, in itself, a covered event.
Finally, Mr Justice Butcher addressed the Prevention of Access – Non-Damage clause. The coverage in this instance related to a hindrance or prevention of access resulting from the ‘actions or advice of governmental authority or agency’. Mr Justice Butcher took the view that ‘the number of ‘triggers’…is properly regarded as the number of such actions or advices’. However, in the case of the Resilience wording, it was noted the policy reference to the cover being for ‘Insured Locations’ was suggestive of the fact that each advice or action would only be a single covered event across numerous locations i.e. not a separate covered event for each location.
In essence, whilst issues of aggregation may reduce the relevance of an analysis of how many triggering events there have been, Mr. Justice Butcher appears to have been largely supportive of Stonegate’s suggestion that there could be multiple covered events, at multiple locations either driven by individual occurrences of Covid-19 within the vicinity, or the enforced closure, of insured premises. Interestingly however, when it comes to Prevention of Access – Non Damage claims, the Court chose to take a different approach on the basis of the language in the Resilience wording, ruling that a single claim would be triggered across multiple locations by a single set of actions or advice.
Stonegate – Aggregation
The issue of whether multiple claims were to be aggregated or combined into a single claim, attracting a single policy limit, was at the heart of the Stonegate case. The defendant insurers vehemently sought to argue that Stonegate’s claims should be aggregated as they all arose from a single occurrence. Conversely Stonegate sought to argue for much broader coverage which allowed for separate claims and limits across all insured locations.
The aggregation language used in the policy was relatively unusual in that it did not seek to join cases by reference to an ‘event’ or ‘original cause’ but by the losses being ‘attributable to or in connection with a single occurrence’. Mr Justice Butcher noted that ‘as a matter of ordinary language, and without any need to refer to authority, that the words ‘in connection with’ are wide linking words’.
The policy wording therefore necessitated an analysis of what aspects of the Covid-19 pandemic could arguably meet the legal definition of an ‘Occurrence’, generally defined in law as ‘something which happens at a particular time, at a particular place, in a particular way’. Considering a number of alternative arguments Mr. Justice Butcher ruled out, amongst a number of options put forwards by the defendant insurers, the emergence of Covid-19 in Wuhan in 2019 as being a suitable aggregating factor. It was also confirmed that no single infection of a person with Covid-19 (within the vicinity of insured premises) could constitute a ‘single occurrence’ for the purpose of the Resilience wording as no one individual with the disease had more of an impact than any other in the UK Government decision to impose restrictions.
However, to Stonegate’s obvious disappointment, the Court was ultimately persuaded that ‘the decision taken at the COBRA meeting on 16 March 2020 that the public should be advised to avoid pubs, restaurants and clubs [could constitute] an occurrence’, going on to confirm that ‘if I am wrong in saying that there was a single occurrence in the decision of COBRA on 16 March 2020, I would have regarded each of the announcements of the new advice to the public by the Prime Minister on 16 March 2020, and the First Ministers of Wales and Scotland on 17 March 2020 as being a single occurrence (i.e. on this view, that there would have been three occurrences).’ This ruling in effect means that the defendant insurers are potentially able to aggregate all Stonegate’s losses that arose from the COBRA decision into a single claim, with a single £2.5m limit.
Furthermore, crucial to the value of the claim, Mr Justice Butcher also concluded that:
‘The Policy was not a composite one, whereby separate Insured Locations owned or operated by separate insured entities each had, in effect, its own insurance. Instead the Limits of Liability were on the amounts recoverable in respect of the losses to Stonegate’s business as a whole, and in the absence of any words to that effect, cannot be read as applying per premises.’
Stonegate – Proximate Cause
Mr Justice Butcher’s ruling examined a number of areas of legal causation and the ways in which losses could be said to be proximately caused by the insured perils. This issue was also considered in the Various Eateries decision detailed below.
Ultimately the Court’s ruling on these issues is generally favourable to insurers in that it serves to limit Stonegate’s claims to the losses sustained by disease which occurred in the first lockdown period, and not beyond it, save for in a small number of circumstances (such as customer deaths which occurred after lockdown ended, losses related to customers with Long Covid and certain event cancellations). Mr Justice Butcher noted that whilst the restrictions imposed on hospitality and leisure venues (which came to an end on 4th July in England) were proximately caused by disease as early as 17th February, restrictions imposed after this point were caused by a newer picture of disease.
Stonegate – Furlough
As one of the most contentious issues between policyholders and insurers, the question of who would benefit from government support payments was arguably the most highly anticipated aspect of the Stonegate judgment.
The defendant insurers contended that, either as a matter of the express terms of the Resilience policy, or as a matter of the application of the legal principles of subrogation, they were entitled to the benefit of furlough payments and any business rate reductions. Conversely Stonegate sought to argue both that Government support had not served to reduce their loss, in that they still retained an obligation to pay wages to their staff (before reclaiming that money from the Government), and that it was not the intention of Government in giving the support to benefit insurers.
Mr Justice Butcher examined the business interruption calculation mechanisms in the policy wording, noting that:
‘the [furlough] payments were ones which, prima facie, did diminish the insured loss. They were payments made in respect of employment costs which Stonegate would otherwise have borne itself, either as wages, if staff were kept on the payroll, or by way of redundancy payments, if staff had been let go. In either case, they would have contributed to the financial loss arising from the interruption or interference to Stonegate’s business.’
Furthermore, the Court concluded that there was insufficient evidence that the Government payments were made with ‘the intention of benefiting Stonegate alone to the exclusion of insurers’. The ruling confirms that even if the policy mechanisms did not serve to allow insurers to take the benefit of the payments, the legal doctrine of subrogation would in effect achieve the same outcome (that the payment would go to the insurer’s benefit).
The ruling with respect to business rates reductions was similar, in that where the rates were paid from turnover insurers would be able to take the benefit of those reductions.
Whilst this ruling is likely to frustrate policyholders it is important to note that Mr. Justice Butcher’s decision was very much based on the BI quantification machinery language in the Resilience policy wording. On this basis the judgment is not necessarily the death knell for other policyholders who are insured under different policy forms.
Greggs v Zurich – A limit per lockdown?
Greggs’ claims were based on the argument that they were entitled to make multiple claims under their Resilience wording for different sets of UK Government restrictions across 2020. Zurich however contended that under the terms of the policy there was a ‘single occurrence’ (the same argument pursued by the defendant insurers in Stonegate) pursuant to which all claims would be aggregated under a single £2.5m policy limit. Unlike Stonegate, whose policy expired on 30th April 2020, Greggs’ policy expiry was not until 31st December 2020. This inevitably brought argument that there would be separate covered events and available limits for the secondary and tertiary lockdown restrictions (and potentially other government actions) imposed across 2020 by the UK government.
In considering what events could be described as a ‘single occurrence’ Mr Justice Butcher undertook a further analysis, in very similar terms to the Stonegate judgment, to determine what aspects of the Covid-19 pandemic and the UK Government’s response to it could be said to meet the legal definition.
Again, ruling that Covid-19’s emergence in Wuhan was ‘too remote’, and that the emergence of the global pandemic ‘did not happen at any identifiable time or place’, Mr Justice Butcher preferred the argument that specific decisions of Government could be said to be ‘occurrences’.
Whilst the judgment did not go into every one of the 120 different announcements and measures pleaded by Greggs to be a ‘single occurrence’, Mr Justice Butcher signalled that he agreed with their argument that each major set of restrictions imposed by the UK or devolved governments could be said to be a ‘single occurrence’ for the purposes of the policy. This would mean that Greggs is able to access a separate £2.5m limit for losses that can be shown to be proximately caused by those separate announcements (in combination with cases of Covid-19 in the vicinity of insured premises).
Various Eateries v Allianz
Two further questions of significance were discussed in the Various Eateries judgment, the first of which was whether the policy indemnity period began with the covered event (e.g. the date of the occurrence of the person with Covid-19 in the vicinity of insured premises) or when the business interruption or interference began. This distinction could potentially have a significant impact on the value of any resulting Covid-19 BI claim. Considering the specific language used in the Resilience wording, Mr Justice Butcher ruled that ‘the proper construction of the words used is that the Period of Indemnity starts with the commencement of the interruption or interference which results from the Covered Event’. This is likely to be welcomed by Resilience policyholders as it ensures the indemnity clock does not begin to tick until they have actually begun to suffer financially.
The second question for discussion (in a similar vein to the causation issues addressed in Stonegate) was as to the extent that Covid-19 losses which occurred as a result of restrictions imposed after the period of insurance had ended could be included in the claim (where those losses remain within the indemnity period). Whilst Mr Justice Butcher was keen to point out the need for clear evidence of proximate cause, he was prepared to accept that the Various Eateries’ argument that disease within the policy period (which expired in September 2020) were causes of the tier restrictions imposed in October 2020. However, the allowances here are likely to be very limited; it is made clear in the judgment that generally the proximate cause of government restrictions would be the picture of disease in the ‘immediate run-up to the measure, together with the anticipation of further cases in the future’. On this basis, arguments that occurrences of disease in March 2020 were a cause of restrictions in September - December 2020 are likely to fail.
It is clear from these three first instance judgments that the Court’s ruling is very much specific to the policy wording. Those policyholders insured on other policy forms may find that the ruling is not directly applicable to the arguments they are presenting to their insurers.
Some policyholders and practitioners may find some utility in the analysis undertaken with respect to what can trigger a ‘covered event’ and what features of the Covid-19 pandemic (and the UK government’s response to it) could be said to meet the legal definition of an ‘occurrence’. Those who were seeking, as per Greggs, to show that separate UK government restrictions could constitute separate ‘Occurrences’ for the purposes of accessing separate policy limits will welcome the decision.
However, whilst the specific legal argument may be irrelevant to many policyholders, the change in prevailing winds following the very pro-policyholder decisions in the FCA Test Case and Corbin & King v AXA, may be concerning. In particular, the Court’s determination that insurers are able to take the benefit of furlough and business rates relief is likely to be disappointing and frustrating to many. Others with differing BI quantification machinery in their policies may retain hopes of success, but certainly these judgments are not the positive bellwether that some policyholders were hoping for. The High Court’s willingness to get into the weeds on issues of proximate cause and aggregation is also evident across the judgments; both areas which have the potential to vastly reduce the value of policyholder claims if decided in insurers’ favour.
An appeal is highly likely given the relatively narrow interpretation taken by Mr. Justice Butcher, particularly given the broad approach to causation taken previously by the Supreme Court in the FCA Test Case. In the meantime however, those pursuing Covid-19 BI claims may find their insurer’s approach is hardening, given the largely restrictive and pro-Defendant flavour of these decisions.
Samuel Ellerton – Regional Claims Lead, Senior Vice President
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This article is in no way intended to provide legal advice. The reader should obtain independent legal advice from a suitable practitioner as required. Lockton Companies LLP does not accept any liability with respect to reliance upon the content or accuracy of this note.