Various Eateries: Court of Appeal decision on COVID-19 business interruption losses

The most significant point on appeal related to aggregation. The limit of indemnity under the Notifiable Disease & other Incidents extension was £2,500,000 "any one Single Business Interruption Loss" ("SBIL"). The Policy definition of SBIL aggregated amounts payable under the extensions to the Policy "that arise from, are attributable to or are in connection with a single occurrence".

At first instance Allianz pleaded 18 different candidates that could constitute an occurrence giving rise to an SBIL. Those included: (i) "virology arguments" which related to the initial mutations which led to the progenitor virus; (ii) the first transmission or outbreak of the disease in Wuhan; (iii) the first or relevant transmission in the Vicinity (which was the whole of England or the UK following the FCA Test Case finding on the Marsh Resilience wording); (iv) the continuation or spread within the Vicinity; and (v) the Government actions within England (the rest of the UK not being relevant given the location of VE's premises). 

Butcher J found that the relevant occurrences for the purposes of aggregation were the Government actions/restrictions. Those included: (i) the Government's decision on 16 March 2020 which included instructions to avoid social venues and stop non-essential social contact; (ii) the Government's instruction to restaurants to close on 20 March 2020; (iii) the announcement and implementation of early closing and other restrictions on restaurants on 24 September 2020; (iv) the bringing into force of the three-tiered system on 14 October 2020; and (v) the imposition of the second lockdown from 5 November 2020. 

Allianz appealed Butcher J's finding that while the initial human infection in Wuhan had a sufficient causal relationship with VE's losses to satisfy the causal relationship required in the definition of an SBIL, those initial infections were too remote from VE's losses. Allianz also appealed Butcher J's findings that the introduction of COVID-19 into the UK or England did not amount to a relevant single occurrence on the basis that there were multiple introductions. That finding was on the basis that "there were multiple cases occurring at different times in different places, no single one of which can be said to have been causatively related to all the cases in the Vicinity which led to governmental action and public reaction."

The Court of Appeal upheld Butcher J's findings on the Wuhan candidates by conducting a detailed analysis of the "remoteness principle" which emerged in relation to aggregation clauses in Caudle v Sharp. In that case Lord Justice Evans stated that "The losses or series of losses envisaged by the clause must have 'arisen out of' one event, which in this context straightaway implies some causative element and some degree of remoteness, or lack of remoteness, which must be established in the circumstances of the particular case."

In its analysis, the Court of Appeal said, "the application of the remoteness principle therefore depends on the nature and strength (or weakness) of the causal link which the aggregation clause requires." In this case Butcher J "concluded that the language of the aggregation clause ("arise from, are attributable to or are in connection with a single occurrence") does require such a causal link, but that the inclusion of the words "in connection with" means that only a weak or loose causal link is required."

The Court of Appeal held that "the search is for the (or a) significant or relevant event, or for an event which provides a meaningful explanation for the loss" but warned that this was different from the proximate or effective cause. The Court of Appeal also stated that the analysis calls for an "exercise of judgment which is to some extent intuitive, but which also requires analysis of all the relevant circumstances of the case". Given the exercise to be undertaken, "an appellate court should not interfere with the trial judge's evaluation to the circumstances unless the conclusion reached is plainly wrong…".

Applying the above points, the Court of Appeal held Butcher was entitled to conclude that the initial human infection in Wuhan was too remote from VE's losses. That decision had been reached following "an intuitive exercise of judgment and the analysis and weighing of relevant circumstances, in which he, as the trial judge after a trial lasting several days which included expert evidence, was thoroughly immersed." Given the finding that Butcher J was entitled to reach the conclusion he did, the Court of Appeal stated that although it is not necessary, they agreed with Butcher J's finding. That was because there were a number of intermediate steps from the initial animal to human infection in Wuhan to VE's losses "none of which were inevitable or would have been perceived as inevitable by an informed observer in the position of the insured in early 2020". The Court of Appeal stated that if an informed observer had asked why VE was suffering losses after 16 March 2020 the answer would have been because the Government had required the closure of all its restaurants.

The Court of Appeal took a slightly different approach to Butcher J on the introduction of COVID-19 into the UK, holding that its arrival into the UK was something that happened at a particular time and in a particular way even though it is not possible to give a precise date or place where it first arrived. Therefore, it could qualify as a single occurrence for the purposes of aggregation. However, Butcher J was entitled and right to conclude the introduction of Covid-19 into the UK was too remote.

VE appealed Butcher J's finding that aggregation could not be on a "per Insured Location" basis. A finding in VE's favour would have resulted in the limit of £2.5 million applying separately to each of VE's restaurants.

The Court of Appeal dismissed VE's appeal on the basis that there was nothing in the SBIL definition that suggests aggregation operates on a per insured location basis. The provisions to which a policyholder would turn in order to understand how the aggregation clauses were intended to operate are clear and do not require looking at the other clauses VE referred to.

The Court of Appeal distinguished the decision in Corbin & King (where the policyholder was entitled to recover on a per location basis) because: (i) that policy was a composite policy insuring multiple insureds; and (ii) the points of construction in that case related to a different wording from the present case

VE sought permission to appeal Butcher J's finding that the renewal, relaxation or changing of Government measures did not amount to separate occurrences. The permission to appeal application was heard on a rolled-up basis with the appeals.

The Court of Appeal dismissed VE's application. In addition to agreeing with Butcher J's finding, the Court said it was relevant that the March 2020 regulations applied for six months unless revoked. The Court said the analysis may have been different had the regulations only applied for a specified period after which they had to be renewed by a positive decision.

Butcher J held that where there is an enforced closure within the period of insurance there would be cover for the resulting business interruption loss for as long as the closure lasted, irrespective of whether the whole period of closure was within or after the period of insurance. The same applied to actions or advice, within the period of insurance, which had the effect of preventing or hindering the use of or access to the Insured Locations. The extent of the interruption depends on how long the prevention or hindrance lasted. VE could therefore claim for losses arising outside the policy period provided the enforced closure or Prevention of Access started within the period of the Policy (subject only to the maximum indemnity period).

Allianz submitted that the reference to payment of business interruption loss "during the Period of Insurance" in the relevant extension meant that it is only losses suffered during the Period of Insurance that are indemnified. The Court of Appeal dismissed that argument stating that if a Prevention of Access or enforced closure occurs during the Period of Insurance, that is the Covered Event and the losses that result are recoverable even if they continue beyond the Period of Insurance.