The recent case of FCA v Arch and others  EWHC 2448 (Comm) considered whether policyholders of a number of business interruption insurance products were entitled to cover in respect of the recent Coronavirus pandemic.
Two of the wordings considered were the Argenta Holiday Insurance Underwriting Agencies (HIUA) Guest House and B&B Insurance policy (Argenta 1) and the HIUA Holiday Home and Self-Catering Accommodation policy (Argenta 2). All of Argenta's policyholders fall within the so called Category 6 group of businesses who were required to close on 26th March 2020 pursuant to Regulation 5(3) of The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020.
The relevant parts of the policy are cited in the judgment at paragraphs 150 -152, but the main aspect of the relevant non material damage business interruption extension is as follows:
The Extension insuring clause
““The COMPANY will also indemnify the INSURED as provided in The Insurance of this Section for such interruption as a result of
4. Defective Sanitation NOTIFIABLE HUMAN DISEASE Murder or Suicide
- (a) closure or restriction on the use of the PREMISES by order of a Public Authority consequent upon vermin pests defects in drains or defective sanitation at the PREMISES
- (b) any occurrence of a NOTIFIABLE HUMAN DISEASE at the PREMISES or attributable to food or drink supplied from the PREMISES
- (c) any discovery of an organism at the PREMISES likely to result in the occurrence of a NOTIFIABLE HUMAN DISEASE
- (d) any occurrence of a NOTIFIABLE HUMAN DISEASE within a radius of 25 miles of the PREMISES
- (e) any occurrence of murder or suicide at the PREMISES.
NOTIFIABLE HUMAN DISEASE -
illness sustained by any person resulting from
(a) food or drink poisoning or
(b) any human infectious or human contagious disease an outbreak of which the competent local authority has stipulated shall be notified to them excluding Acquired Immune Deficiency Syndrome (AIDS) or an AIDS related condition.
The COMPANY will not be liable for
(i) for any amount in excess of £25,000
(ii) for any costs incurred in the cleaning repair replacement recall or checking of the property
(iii) for any loss arising from those PREMISES that are not directly affected by the occurrence discovery or accident.”
“The COMPANY will pay as indemnity the amount of the loss
sustained by the INSURED as follows
A) In respect of the reduction in GROSS INCOME
the amount by which the GROSS INCOME during the INDEMNITY PERIOD falls short of the STANDARD GROSS INCOME due to the DAMAGE.”
STANDARD GROSS INCOME:
"the GROSS INCOME during that period in the twelve months immediately before the date of the DAMAGE which corresponds with the INDEMNITY PERIOD to which such adjustments will be made as necessary to take account of the trend of the BUSINESS and of the variations in or other circumstances affecting the BUSINESS either before or after the DAMAGE or which would have affected the BUSINESS had the DAMAGE not occurred so that the figures thus adjusted will represent as nearly as may be practicable the results which but for the DAMAGE would have been obtained during the relative period after the DAMAGE”
The Court's judgment of coverage under Argenta Holiday Insurance Underwriting Agencies (HIUA) Guest House and B&B Insurance policy (Argenta 1) and the HIUA Holiday Home and Self-Catering Accommodation policy (Argenta 2) is at paragraphs 157 - 174.
In brief the parties agreed that:
- For the purposes of the policy, COVID-19 became a notifiable human disease on 5th March 2020
- To constitute an occurrence of COVID-19 for the purposes of the extension, there must be at least one person within the relevant 25 mile zone who has contracted COVID 19 such that it is diangosed whether or not medically verified or symptomatic
- There would have been an occurence of COVID-19 within 25 miles of many policyholders "by at least the end of April 2020"
In brief, the Court held:
- As with the Eaton Gate (RSA3) wording [View the article on that policy here] and the Jelf/ Marsh (RSA4) wording [View the article on that policy here] cover was held not to be confined to the effects of a disease occurring only within the radius, or expressly or implicitly confined to the effects only of the cases of the disease within the radius.
- There was cover for business interruption arising from a notifiable disease of which there was an occurrence within the relevant policy area.
- Argenta's argument that the business interruption was caused by the government's reaction in implementing lockdown rather than the disease within a given radius was wrong as holidaymakers were likely to have been deterred from holidaying near to incidences of COVID-19 irrespective of government action.
- Argenta's argument that the government reaction was the independent and true proximate cause of loss would mean "the insured would...have been in a better position under its insurance if the government had not taken steps to prevent the spread of the disease" and that "such results cannot have been intended" and that an interpretation that gave rise to such an outcome whould not have been "that which a reasonable person would have put on the language" used in the policy.
- Argenta's argument that a local as opposed to national lockdown (such as that imposed in Leicester) would be covered, would raise similar questions as a national lockdown. If there were two local outbreaks more than 25 miles apart and the decision was made to impose a lockdown over a larger area covering both areas, it would not be permissible for insurers of a business in location A to say that lockdown would have been imposed because of the outbreak in location B (irrespective of the outbreak at location A).
- Questions of causation are largely answered by construction, which determines what can and cannot be said to be an indpendent cause.
- The insured peril is business interruption as a result of an occurence of a notifiable disease within 25 miles.
- "As a result of" is part of of the inured peril meaning that the notifiable disease must be "an effective cause of the interruption".
- The causal connection which the phrase imports must give effect to the intention of the parties and not defeat it.
- When construing the trends clause, all that is covered under the insuring clause must be stripped out of the "counterfactual", including "business interruption referable to COVID 19 including ia the authorities' and/ or the public's response thereto"
- Interruption for the purposes of the policy does not require a complete cessation of business. The 26th March Regulations caused an interruption to businesses otherwise operating.
- The government's advice on 16th March may have caused business interruption and the 21st March Regulations may have caused interruption to policyholders that operated a bar and/or restaurant.
When COVID 19 became a notifiable disease?
- It was common ground between the parties that COVID 19 became a notifiable disease on the 5th March 2020 when it was assed to list of notifiable diseases in schedule 1 of the 2010 Regulations
- It was also common ground that an “occurrence” of COVID-19 for the purposes of Extension 4(d) requires there to be at least one person within the relevant 25 mile zone on the relevant date who has contracted COVID-19 such that it is diagnosable, whether or not it has been verified by medical testing and whether or not it is symptomatic.
- Argenta accepted that there will have been an occurrence of COVID-19 within 25 miles of many of its policyholders by at least the end of April 2020, but its position is that it will be a matter for the policyholder to prove in each case by reference to the best available scientific evidence at the time the issue is decided.
- As stated above, this was agreed to be a radius of 25 miles.
Disease outside the radius
Critical here again is the fact that Extension 4(d) does not say “any occurrence of a NOTIFIABLE HUMAN DISEASE only within a radius of 25 miles of the PREMISES” or anything which dictates such a reading. Essential also is that what was being insured under Extension 4(d) was business interruption resulting from Notifiable Human Diseases, and that it was known at the time of the conclusion of the contracts that such diseases embraced the list...including SARS and other highly contagious or infectious diseases...some of which were capable of spreading over large areas, as infected people moved around...The potentially widespread effects of the diseases in question were recognised by the fact that the “relevant policy area” was stipulated to be a radius of 25 miles...an area of about 2,000 square miles...an area the size of Oxfordshire, Berkshire and Buckinghamshire combined. The ways in which a disease could have such an effect must have been recognised as including via the reaction of the authorities and / or the public. The parties thus knew or must be taken to have known that what was being insured under Extension 4(d) was business interruption deriving from a range of diseases some of which might spread over a wide and unpredictable area, and which might have an effect at a considerable distance from a particular case, including through the reaction of the authorities; and where it might well be impossible to distinguish whether that reaction was to the disease within or outside the relevant policy area. [Para 160]
the parties were not agreeing that it was the business interruption consequences of a notifiable disease only insofar as it was within the “relevant policy area” that was being insured, but the business interruption arising from a notifiable disease of which there was an occurrence within the relevant policy area. We consider that this is consistent with and does no violence to the language used and avoids what we see as significantly anomalous results of the insurers’ construction [Para 161]
KEVIN HOLDER © 2020
33 BEDFORD ROW
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.