Covid-19 Business Interruption claims – Key takeaways for policyholders after Stonegate

On 17 October 2022 the High Court handed down judgments in the much anticipated Covid-19 business interruption cases of Stonegate Pub Company v MS Amlin, Various Eateries Trading Ltd v Allianz, and Greggs PLC v Zurich Insurance PLC. Whilst not consolidated, as all three claims concerned the same policy wording and dealt with a number of overlapping issues, they were heard in sequence before Mr Justice Butcher. This blog considers the judgments and sets out some key takeaways for policyholders.

Background

As the policy wording was materially the same as the RSA 4 wording considered in the FCA Test Case, there was no dispute as to coverage. Rather, the dispute before the court was the extent of coverage. The main issues for determination before the court in Stonegate (and which, to large extent, were mirrored in Greggs and Various Eateries) were:

1. The Trigger Issue
2. The Aggregation Issue
3. The Causation Issue
4. The Additional Increased Cost of Working (AICW) Issue
5. The Government Support Issue

This blog will consider each of the above issues in turn.

The Trigger Issue

Whilst the parties disagreed with its utility, the first issue for determination before the court was what constituted the ‘trigger’ or Covered Events for the relevant insuring clauses of the policy. In doing so, the court held the following:

• In relation to the Disease peril, there would have been as many Covered Events or ‘triggers’ as there were cases of Covid-19 which were either discovered at an Insured Location or occurred within the Vicinity of one or more Insured Locations.
• In relation to the Enforced Closure peril, the ‘trigger’ was the actual closure of all or part of an Insured Location under relevant compulsion or instruction. On this basis, the policy was ‘triggered’ in respect of each such closure, and the number of ‘triggers’ was the number of Insured Locations closed. There would not, however, have been multiple ‘triggers’ where a closure was enforced by the reiteration, continuation or renewal of regulations which were materially to the same effect.
• In relation to the Prevention of Access Peril, the number of ‘triggers’ was the number of actions or advices which prevented or hindered the use of or access to the Insured Locations. In a similar fashion to the Enforced Closure Peril there would not, however, be new ‘triggers’ or Covered Events where advice given simply repeated or renewed an existing prevention or hindrance of access.

The Aggregation Issue

The second issue before the court, and central to the dispute between the parties, was whether the claimed business interruption losses (BIL) “arise from, are attributable to or are in connection with a single occurrence” and should therefore be considered a Single Business Interruption Loss (SBIL) which was subject to a Limit of Liability of £2.5million.

Insurers’ primary position was that all of the BIL were attributable to a single occurrence (being the initial outbreak of Covid-19 in Wuhan) and therefore constituted a SBIL. In an attempt to limit their losses, insurers also put forward a number of alternative cases that there were a small number of SBIL’s. On the contrary, policyholders’ position was that there was no single occurrence or, in the alternative, that aggregation was not possible beyond a per closure per premises basis or beyond the specific measures in England, Scotland or Wales requiring the closure of venues in the relevant jurisdiction.

Having considered both sides, the court rejected insurers’ primary position and held that that there were a number of ‘single occurrences’ in the government response to the pandemic in the period after 16 March 2020. In Stonegate (where the policy period ended on 30 April 2020), the court held that there was a ‘single occurrence’ in the decision taken at the COBR meeting on 16 March 2020 that the public should be advised to avoid pubs, restaurants and clubs and a further ‘single occurrence’ in the instructions given to pubs, bars and restaurants to close on 20 March 2020. The court was also open to there being separate occurrences per nation (rather than UK wide) and to the possibility of the announcement of the lockdown on 23 March 2020 being a further occurrence (but this was not argued before the court).

In Various Eateries (which had a longer policy period, ending on 28 September 2020), the court went on to conclude that there were a number of further ‘occurrences’ in:

• The implementation of the early closure of restaurants on 24 September 2020
• The introduction of the three-tiered system on 14 October 2020
• The second national lockdown on 5 November 2020

The court did, however, confirm that it did not regard the review or renewal of regulations which simply continued existing regulations or made trivial changes as being separate ‘single occurrences’ for the purposes of the SBIL definition. The court also held that, because the policy was not a composite one and because of the specific way the policy was worded, the Limits of Liability of £2.5million were on the losses to the business as a whole and could not be read as applying on a per premises basis.

The Causation Issue

The third issue before the court was causation and the extent to which the claimed losses were proximately caused by relevant events in the policy period. In brief, Stonegate claimed that all of the business interruption losses in the period up to the end of the 36 month Indemnity Period were caused by Covered Events which occurred in the Period of Insurance ending on 30 April 2020.

Having considered both sides, the court held that cases of Covid-19 which constituted Covered Events were equal proximate causes of the closure of hospitality venues up to 4 July 2020 in England (which was beyond the end of the Period of Insurance). The court did, however, conclude that government responses after 4 July 2020 were not equally caused by cases of Covid-19 before the end of the Period of Insurance but rather were predominantly caused by more recent cases, and the threat of future cases, at the time of the adoption of the measure in question.

In Various Eateries, the court also considered causation in the context of the Prevention of Access and Enforced closure perils. In doing so, it held that there could be a claim for interruption or interference caused by the continuance of the closure or prevention/hindrance for as long as it is in place, even if it lasts for a very considerable time (and even if it went past the end of the policy period). However, if it becomes in substance a new enforced closure or prevention/hindrance, then its effects would not be covered under the policy.

Additional Increased Cost of Working

The fourth issue before the court concerned Additional Increased Cost of Working (AICW) and addressed two points of policy construction. The first was whether the sub-limit of £15million applied in the aggregate or in relation to each SBIL and the second was whether AICW applied to economic or only uneconomic Increased Cost of Working (ICOW). On the first point the court held that the AICW sub-limit of £15million applied in relation to each SBIL. On the second point, the court held that the AICW was only available for expenditure which was not ‘economic’ and could not act as a ‘top-up’ cover once ICOW was exhausted.

Government Support

The fifth and final issue before the court was in relation to government support and whether payments received under the Coronavirus Job Retention Scheme (CJRS) (better known as ‘furlough’) or business rates relief (BRR) were to be taken into account in calculating the sums recoverable under the policy.

On CJRS, whilst the court held that the payments were to be taken into account under the savings clause (reducing the amount payable to policyholders), it did accept that this would not be the case if it could be established that the third party, in making the payment, intended to benefit only the insured to the exclusion of insurers. The court went on to hold, however, that Stonegate had failed to adduce evidence of this and that there was no express statement by the Government to that effect.

On BRR, the court held that if Business Rates would have been paid out of turnover, then BRR would fall within the savings clause and, in the same way as furlough payments, would reduce the amount payable to policyholders. If, however, they would not be paid out of turnover the position would be different (although the court failed to make a determination on this issue).

Takeaways for policyholders

Whilst it has been suggested by some that the judgments were a resounding success for insurers, that is by no means the case. Instead, there were findings both for and against policyholders and insurers and the extent to which the judgments will impact other claims will be completely dependent on the policy wording in question. Some of the key takeaways for policyholders are:

• In the absence of specific wording to that effect, insurers will not be able to aggregate all business interruption losses to a single occurrence. Instead, there will be a separate limit for each government response and policyholders may, therefore, have a number of additional claims under their policies. If, for example, your policy period ran from March 2020 to March 2021, you could have multiple bites of the cherry.
• The court’s finding that the SBIL did not apply on a per premises basis was as a result of the specific policy wording in question and cannot be applied broad brush to other claims. The judgments do not, for example, contradict the conclusions of Cockerill J in Corbin & King, in which she held that the limit of liability which applied to ‘any one claim’ under a NDDA clause applied to each premises separately. In cases where the policy is composite and/or where the policy wording points to cover in respect of each premises, the court’s findings in relation to the per premises point will have very little, if any, effect.
• It is possible for policyholders to claim for losses which were suffered after the policy period. With Prevention of Access and Enforced Closure wordings, for example, it will be sufficient to show closure/prevention during the policy period, however long it lasts (subject to it remaining substantially the same throughout, and to maximum indemnity periods). In some cases, this may result in policyholders’ loss periods being extended by a number of months.
• Whilst the court found in favour of insurers on furlough, whether or not furlough is deductible will again be dependent on the policy wording in question. In paragraph 289 of Stonegate, for example, the court differentiated the Australian judgment of Star Entertainment Group v Chubb Insurance Australia Ltd[2020] FCA (which concluded that JobKeeper payments were not deductible) on the basis that the relevant clause was materially different to the clause in question in this case. Stonegate have, in any event, announced its intention to challenge the court’s decision on furlough and we await further news in this regard.

If you have any questions in relation to the above and how it may or may not impact upon your Covid-19 claim, please contact Roger Franklin or any member of our Insurance Litigation team.

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