As the first of the COVID-19 cases make their way through the courts, this case considers whether losses suffered by businesses as a result of forced closures under the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 can be recovered under standard form insurance policies.
On 21 March 2020, a cafe owned by TKC London Limited (TKC) was forced to close and cease selling food or drink for consumption on the premises as a result of measures adopted under the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 (the Coronavirus Regulations). During the period of forced closure, certain stock, consisting primarily of dairy, fruit and veg, meat and fish and frozen goods, deteriorated and were therefore unusable. The cafe did not reopen until 4 July 2020.
TKC sought to recover the losses it had suffered as a result of the forced closure under a commercial select insurance policy (the Policy) held with Allianz Insurance plc (Allianz).
This case chiefly concerned the interpretation of the following two terms under the Policy.
1. Property damage all risks section (the property damage section)
This section provided cover for 'Damage to Property Insured at the Premises'.
Damage was defined as 'accidental loss or destruction of or damage to Property Insured'.
Property/Property Insured included 'buildings, contents, stock and other items shown and/or described in the schedule.'
2. Business interruption all risks estimated revenue (the business interruption section)
This section provided cover for 'Business Interruption by any Event'.
Business Interruption was defined as 'loss resulting from interruption of or interference with the Business carried on by the Insured at the Premises in consequence of an event to property used by the insured at the premises for the purpose of the Business'. Event was defined as 'accidental loss or destruction of or damage to property'.
There was also a 'basis of settlement' clause which provided: 'the insurer will pay the Insured in respect of each item covered, the amount of their claim for Business Interruption, provided that at the time of any event (a) there is an insurance in force covering the interest of the insured in the property at the Premises against such Event; and that (i) payment has been made or liability has been admitted for payment...'
Both of the above sections also contained specific exclusions from the cover provided. Two of note were for damage/business interruption caused by or consisting of 'inherent vice' and 'gradual deterioration'.
TKC asserted that that the business interruption section of the Policy responded to the losses it had suffered, and that it was entitled to be indemnified in respect of its losses resulting from the interruption of or interference with its business caused by the closure of its business premises and/or the loss/destruction of its stock. Allianz, on the other hand, argued that it was plain as a matter of interpretation of the Policy that TKC's temporary inability to carry on its business at the premises, as a result of the Coronavirus Regulations, was not something covered by the Policy terms. There were two limbs to Allianz's argument.
First, Allianz submitted that what TKC alleged had happened did not amount to 'Business Interruption by any event' as the temporary closure of the business was not an 'Event' within the meaning of the Policy. Relying on a number of authorities, Allianz submitted that the fact both 'destruction' and 'damage' are words whose usual meaning is a physical one, provided a powerful indication that the entirety of the definition of 'Event' was referring to physical matters and that the word 'loss' in this context was therefore referring to physical loss. Allianz argued that physical loss required something more than merely temporary deprivation and that the most TKC could establish was merely a temporary loss of the use of its property.
Secondly, Allianz submitted, even if they were wrong on the first point, the proviso to the 'basis of settlement' clause in the business interruption section required there to be 'an insurance in force covering the interest of the insured in the property at the Premises against such Event'. Allianz held that as TKC had admitted that no claims had been made under the Policy or any other policy in relation to any 'Event', except for the present claim under the business interruption section itself, it followed that there could in any event be no liability upon Allianz to make payment. Allianz submitted that this was a standard wording, the purpose of which was to ensure that insurers only need to make good consequential business interruption loss if the insured has the benefit of separate cover with which to make good the underlying property loss.
TKC's alternative basis of claim was that it had suffered loss of and/or damage to stock rendered unusable by the forced closure, that the loss and/or damage to its stock constituted damage to property and that its losses flowing from that loss constituted loss resulting from interruption of, or interference with, the business carried on at the premises consequent on such loss to, alternatively loss of, such property.
Allianz argued that the definition of 'Business Interruption' required the interruption or interference to be 'in consequence of an event to property used by the Insured at the Premises...' Allianz submitted that the word 'consequence' required there to be proximate causation, and that it followed the 'event to property' had to be the dominant, effective, or operative cause of the interruption or interference. Under such an interpretation, Allianz argued that that the loss of stock did not cause any interruption or interference with TKC's business as TKC's cafe was already closed as a result of the Coronavirus Regulations. Allianz submitted that the suggestion to the contrary by TKC was something that was so obviously implausible and without substance, as in reality if the deterioration of the stock had threatened to interrupt the business TKC would have bought replacement stock and thereby avoided any loss.
Allianz further submitted that the definition of 'Damage' in the property damage section and of 'Event' in the business interruption section both required any damage to be accidental. Allianz said events that happen in the course of nature and all ordinary and foreseeable consequences of such events are not accidents. Allianz submitted that to describe the natural decay of the unsold stock as an accident would be illogical and that this was in fact an inherent vice of the goods, which was excluded from cover.
On TKC's alternative basis of claim, the judge agreed with Allianz, stating that he could summarily reject TKC's assertion that the deterioration in the stock caused interruption or interference with the business as this was wholly unrealistic. The judge also accepted that what happened to the stock was not accidental as, in his judgment, accidental did not include the natural process of decay or deterioration. The judge agreed that what was alleged to have happened was something that was caused by or consistent with 'inherent vice' and/or 'gradual deterioration'. The judge held that these conclusions meant TKC could also have no valid claim under the property damage section in respect of the deterioration of its stock.
The judge also held that he could not accept TKC's argument in relation to the property damage section, which was that the property damage section itself responded to the closure of TKC's premises and was therefore 'an insurance in force...against such Event' within the meaning of the proviso to the basis of settlement clause in the business interruption section. The judge accepted Allianz's argument that, to amount to 'loss...of...Property Insured' within the property damage section, the insured must show that it had been physically deprived of that property in circumstances, where it is not plainly irrecoverable, making its recovery uncertain. The judge held that this was not what was alleged to have happened.
As to TKC's principal ground of claim, while the judge held that he accepted TKC's argument that there was, in fact, a 'Business Interruption', he could not overlook the fact that the Policy only responded to 'Business Interruption by any Event'. The judge said that 'Event' had the meaning given in the definition and the crucial question therefore was whether the enforced closure could properly be said to be 'accidental loss... of...property' within that definition. In dismissing TKC's claim, the judge agreed with Allianz that 'loss...of...property' in the definition of 'Event' could not sensibly be interpreted as including mere temporary loss of use of property.
Given the circumstances surrounding this case, the judge acknowledged that his decision could have a very wide-ranging impact, particularly in view of the fact that the Policy was expressed as being 'all risks'.
This case serves as a warning to businesses that they must be familiar with the terms of their insurance policies and obtain adequate cover for specific circumstances, where possible. The judge poignantly quoted a passage from AIB Group (UK) Ltd -v- Martin  UKHL 63, which summarises the judge's approach in reaching his conclusion very neatly and succinctly: 'a standard form is designed for use in a wide variety of different circumstances. It is not context-specific. Its value would be much diminished if it could not be relied upon as having the same meaning on all occasions. Accordingly the relevance of the factual background of a particular case to its interpretation is necessarily limited'.
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