Court of Appeal say no change in approach to aggregation in Covid-19 BI cases

The Court of Appeal dismissed both the policyholder's and insurers' appeals in Various Eateries Trading Limited v Allianz [2024] EWCA Civ 10 in one of the latest of the Covid-19 business interruption decisions coming from the courts.

The principal issue on appeal concerned the effect of the aggregation wording in the policy which provided for aggregation of losses "that arise from, are attributable to or are in connection with a single occurrence".

BACKGROUND

The Covid-19 pandemic and ensuing government restrictions brought significant loss of revenue to business across the UK. The Financial Conduct Authority (FCA) test case (FCA v Arch and others [2020] EWHC Comm 2448, and [2021] 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.

Various Eateries operated a chain of Italian restaurants in the UK and was insured for business interruption insurance on the Marsh Resilience wording, which was materially the same as one of the wordings considered as part of the FCA test case (known as RSA4).

FIRST INSTANCE DECISION

The High Court heard preliminary issues along with two other cases – Stonegate and Greggs – on the basis of agreed and assumed facts.

Insurers disputed cover on various grounds, but a central issue was whether the losses claimed constituted a "Single Business Interruption Loss" (SBIL) and should be aggregated (the Aggregation Issue).

Insurers argued that there was one SBIL, namely the initial outbreak of Covid-19 in Wuhan in late 2019. Their liability would thus be limited to £2.5 million.

Butcher J rejected that argument and 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, the judge 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). Butcher J 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”. The judge also accepted that there were other “occurrences” relating to the UK government response should they be relevant:

• 24 September 2020 – implementation of early closing and other restrictions on restaurants
• 14 October 2020 – three-tiered system brought into force
• 5 November 2020 – imposition of second lockdown

Butcher J did not, however, accept that there were separate occurrences when measures were renewed, immaterially changed or relaxed.

The judge was prepared to accept that the initial human infection(s) in Wuhan could be a "single occurrence" under the aggregation clause, but considered that it was too remote from Various Eateries' losses to be regarded as a relevant occurrence.

Finally, Butcher J was not persuaded by Various Eateries' argument 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”.

You can read our full analysis of the first instance decision here on our Insurance Blog.

COURT OF APPEAL DECISION

Insurers and Various Eateries both appealed aspects of the first instance decision on the Aggregation Issue.

Of most interest is (1) Insurers' appeal of the conclusion that the initial infection(s) in Wuhan were too remote to be a relevant "occurrence"; and (2) Various Eateries' appeal of the decision rejecting a per premises approach to aggregation.

The Court of Appeal dismissed both parties' appeals, upholding the judge at first instance, in a judgment from Males LJ with whom Newey LJ and Sir Julian Flaux C agreed.

Remoteness

On the question of remoteness, the Court of Appeal derived the following relevant points:

• Whether and to what extent remoteness applies depends on the true construction of the aggregation clause.
• It therefore depends on the nature and strength (or weakness) of the causal link which the aggregation clause requires.
• Remoteness is ultimately a legal tool and, whether there is a single candidate or several candidates, the search is for the (or a) significant or relevant event or an event which provides a meaningful explanation for the loss.
• The analysis calls for an exercise of judgment which is to some extent intuitive, requires analysis of all the relevant circumstances including the nature of the causal link required by the aggregation clause, the four unities test, and awareness of any contingencies (which may suggest something is too remote). These are guidelines not inexorable rules.
• Finally, an appellate court should not interfere with a trial's judge evaluation of the circumstances unless it is plainly wrong (in the sense of being unreasonable or disclosing some error of principle).

Applying these to the case, the Court of Appeal held that Butcher J was entitled to reach the conclusion that the initial infection(s) in Wuhan were too remote to be a relevant "occurrence". The judge had considered and weighed all the relevant circumstances and was "thoroughly immersed" in the expert evidence. His approach disclosed no error of principle or other error which would justify interference.

Although the Court of Appeal recognised it need not go this far, Males LJ noted obiter dicta that he also agreed with the judge's decision at first instance. He noted particularly the time between the first infection(s) and the losses and the number of intermediate steps between them, concluding that an informed observer would have said that the losses were caused by the Government action to close restaurants.

'per premises' approach to aggregation

Various Eateries submitted that because the triggers for cover under the policy were expressed by reference to matters occurring in relation to an insured location, aggregation should therefore apply separately in relation to each insured location affected. In short, the perils were "premises-specific". In support of this argument for a per premises approach to aggregation, Various Eateries also pointed to the different limits and indemnity periods, as well as the description of their business which included different locations and brands. Various Eateries also sought to rely on the decision in Corbin & King Ltd v Axa Insurance Plc [2022] EWHC 409 (Comm) where the court in that case had held that the limits applied on a per premises basis.

Insurers, in opposing this argument, pointed to the fact that there was nothing in the definition of a SBIL which referred to losses at an individual insured location or otherwise supported a per premises approach.

The Court of Appeal accepted that the definition of SBIL did not contain anything to suggest a per premises approach to aggregation, and noted that it was perfectly capable of applying where a single "occurrence" affected multiple locations. The Court also noted that the insuring clause referred to the "Insured's Business" which was defined as "…a chain of Italian restaurants…" (i.e. referred to the business as a whole). In the Court's view, the position was put beyond doubt by the retention provision which distinguished between a SBIL and a SBIL "affecting one or more Insured Locations". This, in the Court's view, made it clear that a SBIL may affect multiple insured premises.

Finally, the Court of Appeal distinguished this case from Corbin & King because, unlike in the present appeal, in that case each premises was separately owned by a separate insured entity. The analysis was therefore materially different (and based on the well known concept of composite policies).

Other points appealed

The parties' appeals covered other issues, although similarly none were successful in front of the Court of Appeal:

• Insurers again argued in favour of a UK-wide "occurrence", but the Court of Appeal agreed with Butcher J that it was too remote in time and contingent on the subsequent Government actions.
• Various Eateries sought to appeal the finding that renewal, immaterial changes or relaxations of Government restrictions were not an "occurrence", but the Court of Appeal rejected this for the same reasons as Butcher J (namely that they were effectively a continuation of the status quo or of a nature which would reduce losses not lead to them).
• Insurers also sought to appeal the decision that Various Eateries could recover for losses under the Prevention of Access wording which were incurred after the Period of Insurance (but where a covered "occurrence" was within that Period). The Court of Appeal rejected this appeal on a construction of the policy wording.

COMMENT

This decision leaves Butcher J's analysis at first instance undisturbed. The position is, for policyholders and insurers alike, as it was. Given that the Stonegate and Greggs cases have now settled, all stakeholders can have some certainty on these issues unless either party wishes to seek permission to appeal to the Supreme Court.

The Court of Appeal has provided some helpful guidance to policyholders and insurers looking for further guidance on the remoteness test. This decision makes clear that the strength (or otherwise) of the causal link in the aggregation wording is a key determination. That, along with the time difference between the proposed occurrence and the loss and the number/effect of any contingent steps, appears to have been a driving force in the Court of Appeal's thinking.

However, given the "intuitive" nature of the remoteness analysis exercise, the Court of Appeal was bound to conclude that these questions do not lend themselves to inexorable rules (which may have provided more certainty) but rather merely guidelines in what is ultimately an exercise of policy construction.

The Court of Appeal was not willing to make a finding for 'per premises' aggregation where it did not consider the wording of the policy supported this construction. The Court of Appeal made clear that its findings were specific to this policy wording and by distinguishing the policy in this case from that considered in Corbin & King leaves the door open to policyholders with composite policies and different wordings to argue for 'per premises' aggregation.