Facts:

Various Eateries, the operator of a chain of Italian restaurants, was insured under a Marsh Resilience policy by Allianz. Following Covid-19-related interruption to their businesses, Various Eateries suffered a business interruption loss amounting to over £16 million as a result of the reduced trade in, and subsequent closure of, its chain of restaurants during the Covid-19 pandemic. Thus Various Eateries submitted business interruption claims of over £16 million.

Whilst Allianz accepted cover, they took the view that the losses arose from a single occurrence and were therefore limited to £2.5 million. While rejecting this argument as too remote from Various Eateries’ losses, Mr Justice Butcher however concluded that the UK Government’s decision to close restaurants and their renewals were indeed various single occurrences. Moreover, any aggregation did not apply to each insured location, according to the judgement. 

Decision:

The key issue was whether the insured should benefit from a separate limit of liability every time the Government imposed a restriction, or else reviewed or relaxed such restriction for each and every premises. 

The Court of Appeal agreed with the trial judge that only a weak or loose causal connection is sufficient for losses to be regarded as being ‘in connection with’ an occurrence, concluding that the initial human infection in China was a ‘single occurrence’. However, the Court disagreed with the Commercial Court and held that the introduction of Covid-19 measures should also be regarded as a single occurrence. The Court was of the view that, even though there was no continuous chain of infection, a reasonable policyholder would not have regarded the need for such a continuous chain as being relevant but would have viewed its losses as being interconnected with the initial introduction of the virus.

Such analysis was, however, not sufficient to cap the losses of Various Eateries to a single limit. The test of remoteness was, therefore, important. The Court of Appeal identified five principles applicable to the remoteness test: 

  • The extent of the remoteness principle depends on the correct interpretation of the aggregation clause.
  • The “application of the remoteness principle depends on the nature and strength (or weakness) of the causal link which the aggregation clause requires.”
  • “Remoteness is ultimately a “legal tool” which may be employed in a variety of circumstances.”
  • The analysis of remoteness requires an “exercise of judgement which is to some extent intuitive.”
  • The “Appellate court should not interfere with the trial judge's evaluation of the circumstances unless the conclusion reached is plainly wrong in the sense that it was not reasonably open to the trial judge or that the judgement discloses some error of principle.”

Regarding point 2 the Court made it clear that the words “in connection with” may not necessarily imply the need for a causal link when taken on their own but do so when read in conjunction with the words “arising from” and “attributable to”. 

Applying these principles, the Court of Appeal determined that the emergence of the virus in Wuhan was too remote from the losses to be an aggregating occurrence. It also found that the introduction of the virus into the UK in January 2020 was temporally too remote. The Court agreed with the trial judge that Various

Eateries should benefit from a separate limit across the summer of 2020, nor should it benefit from each separate restaurant. In the Court’s opinion, the Policy covers losses to the business as a whole and the limit applied per occurrence not per premises. 

Implications:

This case is the first in which the Court conducted a full analysis of the question of aggregation of losses stemming from the COVID-19 pandemic. This judgement, despite both appeals being dismissed, is favourable to insurers while providing useful guidance on those issues pertaining to COVID-19. The Court further clarified the elements of the remoteness test.

The Court of Appeal left open the possibility that those losses suffered before any Government action was taken might be connected with the initial introduction of the disease and subject to one single limit.