Business interruption (BI) losses in the context of the Covid-19 pandemic have been considered in three recent judgments of Butcher J:
- Stonegate Pub Company v MS Amlin  EWHC 2548 (Comm) (Stonegate)
- Greggs PLC v Zurich Insurance PLC  EWHC 2545 (Comm) (Greggs)
- Various Eateries Trading Ltd v Allianz  EWHC 2549 (Comm) (Various Eateries)
The judgments will be an important reference point for policyholders looking at seeking multiple limits; cover for the entirety of their indemnity period; and whether any government support received by the insured should be taken into account, for the insurers' benefit, when calculating any sums recoverable.
All three cases concerned policies written on the Marsh Resilience wording. Each trial was separate and the parties in the different actions were represented by largely different teams. However, as the three cases dealt with common and overlapping issues, they were managed in a co-ordinated way, including being heard in sequence before the same judge. Butcher J handed down judgment following preliminary issues hearings in all three cases.
The Covid-19 pandemic and ensuing government restrictions on people's movements and businesses brought significant loss of revenue to business across the UK. The Financial Conduct Authority (FCA) test case (FCA v Arch  EWHC Comm 2448, and  UKSC 1) considered what cover there may be under various non-damage business interruption extensions for such losses. Following the FCA test case, where this firm acted for the FCA on behalf of policyholders (see our blog posts on the High Court and Supreme Court decisions), further cases have been commenced in the courts seeking in many cases multiple limits of liability.
The claimants in the three cases before Butcher J (Stonegate, Greggs and Various Eateries) all operated in the hospitality industry and had various locations across the UK. Their policies were all on the same Marsh Resilience wording, which was materially the same as one of the wordings considered as part of the FCA test case (known as RSA4) although the insurers were not the same on each policy.
In each case, insurers did not dispute that the relevant policy had been triggered or that the relevant claimant had suffered business interruption losses (BIL). The dispute related to the extent of coverage and, in particular, whether the losses claimed constituted a "Single Business Interruption Loss" and should be aggregated.
The preliminary issues hearings in all three cases proceeded on the basis of agreed and assumed facts in order to be determined on an expedited basis. Butcher J was, however, provided with expert evidence in the disciplines of virology and epidemiology.
There were five preliminary issues determined in the Stonegate case which were, to a large extent, mirrored in Greggs and Various Eateries. The decision in Stonegate (which determined all of the issues) is set out below and any additional points argued or determined in Greggs and Various Eateries have been added where appropriate. The issues were:
- The Trigger Issue: What was the trigger or Covered Event for the relevant insuring clauses of the Policy?
- The Aggregation Issue: Can the claimed losses be aggregated in respect of single occurrences and, if so, what were those occurrences?
- The Causation Issue: To what extent are the claimed losses proximately caused by relevant events in the Policy Period?
- The Additional Increased Cost of Working Issue: Is the limit for "Additional Increased Cost of Working" (AICW) £15 million in the aggregate or for each "Single Business Interruption Loss", and does it apply to economic or only uneconomic "Increased Cost of Working" (ICW)?
- The Government Support Issue: Are payments received by the insured under the Coronavirus Job Retention Scheme (also known as 'furlough') (CJRS) or business rates relief (BRR) to be taken into account in calculating sums recoverable under the policy?
The Trigger Issue
The parties in Stonegate disagreed as to the relevance of this issue but it was an active issue in the Greggs and Various Eateries cases. Stonegate maintained that the Trigger Issue was the "way in" to the Aggregation Issue. Butcher J's view was that Stonegate were essentially asking the court to determine how many Covered Events there were and each of the three relevant insuring clauses was considered in turn:
- The 'Notifiable Disease' clause in the policy included cover where a notifiable disease is discovered at an insured location or occurs within the "vicinity" of an insured location during the policy period (Disease Peril). Butcher J held that there would have been as many Covered Events as 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 policy period. He attributed a wide meaning to "vicinity" in accordance with the definition in the policy and the determination on the same wording in the FCA test case.
- The 'Notifiable Disease' clause also extended cover for BIL resulting from "enforced closure of any insured location by any governmental authority or agency...for health reasons or concerns" (Enforced Closure Peril). Butcher J held that the trigger for this clause was the actual closure of all or part of an insured location under relevant compulsion or instruction. On this basis the number of 'triggers' is the number of insured locations closed.
- The 'Prevention of Access' clause covered BIL resulting from "the actions or advice of the policy, other law enforcement agency, military authority, governmental authority or agency in the Vicinity of the Insured Locations" (Prevention of Access Peril). Butcher J found that the number of Covered Events or triggers in the context of this clause was the number of "actions or advices" and this would not be multiplied by the number of insured locations (as Stonegate had argued). He also noted (as argued by the insurer in Various Eateries) that the number of Covered Events would be the number of occasions on which there were materially different restrictions imposed which prevented or hindered the use of or access to insured locations. Advice which merely repeated or renewed an existing prevention of access or hindrance would form part of one set of "actions or advice" and therefore constitute one Covered Event.
The Aggregation Issue
This was a central issue in each of the cases. In short, whether the claimed BIL "arises from, is attributable to or is in connection with a single occurrence" and should be considered a Single Business Interruption Loss and subject to a single Limit of Liability.
Insurers argued that there was one Single Business Interruption Loss, or, failing that, there were at most a small number of Single Business Interruption Losses. In Stonegate, insurers pleaded 19 cases as to what constituted the relevant "occurrence" for this purpose including: any one case of Covid-19 in the vicinity; the initial outbreak of Covid-19 in Wuhan in late 2019; various aspects of the UK Government's decision-making in response; and the numbers of cases of Covid-19 reaching particular levels in the UK that meant an epidemic was likely or inevitable.
Stonegate's primary case was that there was no "single occurrence". In the alternative, it argued that aggregation to a single occurrence was not possible beyond a per premises basis or beyond the specific measures in England, Scotland or Wales requiring the closure of venues.
Butcher J considered relevant case law and the aggregation wording in the context of the policy terms. He looked first at the 'linking words' and said it was clear that the words "in connection with" in the aggregation clause were wide linking words but he was not persuaded that meant that no causal link was required. His view was the parties were contemplating a causal link but that what was required could be a relatively weak one.
After considering the different formulations of "occurrence" put forward by both sides, he found that there was a "single occurrence" in the collective decision taken jointly by the four UK governments on 16 March 2020 to advise the public to avoid pubs, restaurants and clubs. Alternatively, Butcher J said if he was wrong on this point then he 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 there were three occurrences). He also went on to find that the instructions given to all pubs, bars and restaurants to close on 20 March 2020 was a "single occurrence". In Various Eateries, Butcher J also accepted that there were other "occurrences" relating to the UK government response should they be relevant:
- 24 Sept 2020 – implementation of early closing and other restrictions on restaurants
- 14 Oct 2020 – three-tiered system brought into force
- 5 Nov 2020 – imposition of second lockdown
Butcher J did not, however, accept that there were separate occurrences when measures were renewed, immaterially changed or relaxed.
Butcher J felt that these "occurrences" met the unities test as set out in Kuwait Airways Corp v Kuwait Insurance Co SAK  1 Lloyd's Rep 664. As he explained in Greggs:
"They met the 'unities' test, and they can without any misuse or even imprecision of ordinary language be described as 'occurrences'. They would be known to the informed observer in the position of the policyholder, who of course had to know of the legal position as to whether it was permissible to open shops, and under what conditions. The informed observer would readily identify them as relevant occurrences, because of their capacity for causing losses."
It is worth noting that Butcher J also held that the "transfer of a virus to the human population on one, or perhaps a limited number of occasions in a very short period, which had apparently occurred at a place in Wuhan shortly before the first cases were reported" was an "occurrence". However, he held that "this occurrence is too remote from the losses to be regarded as being a relevant occurrence for the purposes of the aggregating provision". The requirement of an absence of remoteness was recognised in Caudle v Sharp  4 Re LR 389. The reasons he gave for the occurrence being too remote from the losses were:
- It was geographically remote – the occurrence was very distant from the UK territorial limits of the policy.
- It was temporally remote – the relevant losses (from around March 2020 onwards) only started to be incurred some months after the occurrence (November-December 2019).
- It was causally remote – it depended on a very large number of intermediate events and occurrences, involving first the establishment of the disease in the human population in China, secondly the spread of the virus to the UK, and thirdly the governmental and public response to the virus, to have an effect on Stonegate's business.
Butcher J was also not persuaded by the argument made by some of the insured claimants for a per premises approach to aggregation. He found no justification in the policy wording for this, in particular nothing in the wording of the definition of "Single Business Interruption Loss". In addition, in Stonegate, Butcher J noted the fact that Stonegate was the sole insured entity under the policy. The policy was not a composite one where separate insured locations owned or operated by separate insured entities each had, in effect, their own insurance. From that perspective, a reasonable person would regard the decision of the UK Government to be a unitary matter which would impact its business throughout the country, rather than as having significance only at a local level in terms of its impact on each venue individually.
The Causation Issue
Stonegate argued that all its BIL in the period up to the end of the 36 month Indemnity Period were caused by Covered Events which occurred in the policy period ending on 30 April 2020. In contrast, Insurers argued that cases of the disease occurring after the end of the policy were not Covered Events and BIL resulting from those cases was not insured.
Stonegate's case on this issue concentrated on the Disease Peril. Butcher J agreed with Stonegate to some extent in holding that cases of the disease in the policy period could be said to have caused the losses due to continuation of the first lockdown to 4 July 2020 in England (6 July 2020 in Scotland and 13 July in Wales) which was beyond expiry of the policy on 30 April 2020. He found that cases of the disease within the policy period had led to the imposition of the lockdown and to an attitude of caution on the part of governments. However, beyond 4 July 2020 in England (6 July in Scotland and 13 July in Wales), when hospitality venues reopened, Butcher J found that the government response was principally in response to the subsequent developments of the disease and the threat it posed from time to time, and not cases of the disease within the policy period.
In Various Eateries Butcher J also noted that:
"It needs to be shown that there was interruption or interference resulting from Covered Cases. In particular, I do not consider that there can be any general assumption that any fall off in numbers attending insured venues after the end of the Period of Insurance (by comparison with the previous year, for example) was due to cases of the disease occurring before the end of the Period of Insurance...It appears to me obvious that there might have been a number of reasons for any such fall off, if it occurred, which include the effects of the ongoing pandemic, and new government measures and warnings."
In Various Eateries, the court also considered this issue but in the context of the Enforced Closure Peril and Prevention of Access Peril, i.e. to what extent there is cover for BIL after the policy period but within the indemnity period. Butcher J found that if there was a Covered Event which results in enforced closure/prevention of access during the policy period, there could be cover for the resulting interruption from that closure/prevention of access even if that went beyond the policy period.
The Additional Increased Cost of Working Issue
There were two points of policy construction in dispute on this issue:
- Whether the £15 million sub-limit provided by the policy for "Additional Increased Cost of Working" (AICW) applied in the aggregate or to each "Single Business Interruption Loss"?
- Does AICW apply to economic or only uneconomic "Increased Cost of Working" (ICW)?
On 1, the court found in favour of Stonegate that the sub-limit for AICW applied for each and every Single Business Interruption Loss.
On 2, the court agreed with insurers that AICW and ICW are mutually exclusive and AICW cover is only available for expenditure which is not 'economic'. The definition of AICW in the policy expressly says that it "means expenditure (other than Increased Cost of Working) reasonably incurred ..." and Butcher J found that this was how AICW cover usually worked.
The Government Support Issue
The issue for the court was whether payments received by Stonegate under CRJS or BRR should be taken into account for the insurers' benefit when calculating any sums recoverable under the policy.
On CRJS, Butcher J held that they should be taken into account for the following reasons:
- CRJS, which the parties agreed had been a consequence of a Covered Event, reduced pro tanto Stonegate's employment costs which were costs normally payable out of turnover.
- Such an approach is consistent with the accounting standards relevant to Stonegate (and Greggs) who elected to have its accounts prepared in accordance with International Financial Reporting Standards (IFRS). The relevant provision in the IFRS provides that such payments can be presented as an offset against employment expenses. Although Butcher J does make the point that the treatment of CRJS grants for the purpose of a policy will not necessarily depend upon the financial reporting standards adopted by the policyholder.
- The CRJS catered for payments being made to the employer before payment to the employee.
- This position accords with the basic principle that the policy is a contract of indemnity.
Butcher J distinguished the Australian decision of Star Entertainment v Chubb where the court took a different view in relation to Job Keeper payments on the basis that the clause was worded differently.
Butcher J did accept that a payment made by a third party which eliminates or reduces the insured's loss will not fall to insurers' credit "if it can be established that the third party, in making the payment, intended the benefit only to the insured to the exclusion of the insurers" (relying on cases such as Castellain v Preston  11 QBD 380 and Merrett v Capitol Indemnity  1 Lloyd's Rep 169). However, he went on to hold that Stonegate had failed to adduce evidence that the UK Government's furlough payments were being made only in respect of uninsured losses.
On BRR, Butcher J held that if Business Rates would have been paid out of turnover then BRR would fall within the savings clause and should be taken into account when calculating sums recoverable under the policy. He did not make a determination of the issue if it transpired that Business Rates would not be paid out of turnover.
These cases have been eagerly anticipated by all stakeholders in the insurance contractual chain – policyholders and insurers given the significant impact on quantum that the application of aggregation wording can have, but also reinsurers who will be watching the outcome of underlying claims with great interest in assessing their own exposure to losses from the pandemic.
Case law has shown us that applying aggregation wording can be challenging in practice and in the context of the Covid-19 pandemic, the point has been proved again. Of course, this is a series of judgments on one particular wording and we know there are many different forms out there. The basic premise that a government ruling is capable of being an occurrence (and presumably therefore an event) capable of aggregating multiple otherwise covered claims is likely to have wide implications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.