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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Unipolsai Assicurazioni Spa v Covéa Insurance Plc [2024] EWCA Civ 1110 (30 September 2024) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2024/1110.html Cite as: [2024] Bus LR 1878, [2024] WLR(D) 423, [2024] EWCA Civ 1110 |
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CIVIL
DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Foxton J
2024]
EWHC 253 (Comm)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE NEWEY
and
LORD JUSTICE POPPLEWELL
____________________
UNIPOLSAI ASSICURAZIONI SPA |
Appellant |
|
- and - |
||
COVÉA INSURANCE PLC |
Respondent |
____________________
Alistair Schaff KC and Simon Kerr (instructed by Slaughter and May) for the Respondent
Hearing dates : 18 July 2024
____________________
Crown Copyright ©
Sir Julian Flaux C:
Introduction
Factual background
"Condition 1 Reinsuring Condition
In consideration of the payment of the premium and subject to the terms and conditions of this Contract, the Reinsurers agree to indemnify the Reinsured up to the Limit(s) in excess of the Deductible(s) on account of each and every Loss Occurrence, which the Reinsured may sustain under the business specified in Class of Business, as stated in the Risk Details during the Period [of the Covéa Reinsurance] …
Condition 2 Definition of Loss Occurrence
1) The term 'Loss Occurrence' shall mean all individual losses arising out of and directly occasioned by one catastrophe.
2) The duration and extent of any 'Loss Occurrence' so defined shall be limited to:
…
vii) 168 consecutive hours for any Loss Occurrence of whatsoever nature which does not include individual loss or losses from any of the insured perils mentioned in any of the paragraphs (i), (ii), (iii) or (v) above
and no individual loss from whatever insured peril, which occurs outside these periods or areas, shall be included in that 'Loss Occurrence'.
4) In all cases under this Condition 2 – Definition of Loss Occurrence …
3. the Reinsured may choose the date and time when any such period of consecutive hours commences and the date and time when it ends, subject always to the maximum period of consecutive hours set out hereinbefore;"
(1) Whether the Covid-19 losses for which Covéa sought indemnity under the Covéa Reinsurance arose out of and were directly occasioned by one catastrophe on the proper construction of the reinsurance;
(2) Whether the effect of the "Hours Clause" in the Covéa Reinsurance which confined the right to indemnity to "individual losses" within a set period had the effect that the reinsurance only responded to payments in respect of the closure of the insured's premises during the stipulated period.
The judgment below
"i. "The core principle [of construction] is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean": FCA v Arch Insurance (UK) Ltd (The FCA Test Case) [2021] UKSC 1, at [47].
ii. "Evidence about what the parties subjectively intended or understood the contract to mean is not relevant to the court's task" (ibid).
iii. I was also referred to the summary of the general principles of construction in the judgment of Flaux LJ and Mr Justice Butcher in the Divisional Court decision in The FCA Test Case [2020] EWHC 2448 (Comm), [62]-[70]".
"When discussing the background to the wording, Mr Kiln referred to issues which had arisen in the reinsurance market during the 1950s and 1960s as to whether losses arising from certain phenomena – for example a warm air front which generated a number of tornados, bush fires during a particularly dry summer, an exceptionally cold winter in the US which led to a greater level of motor claims and the cold winter in the UK in 1962/63 – could be aggregated for the purposes of claiming under property excess of loss reinsurance. Mr Kiln stated that in the revised wording drawn up against this background, the working party had used the words "occasioned by one catastrophe":
"because we felt it was more specific. It implied a violent happening which in itself caused damage. The word 'event' we felt might have applied to something which might have been the cause of a catastrophe rather than the catastrophe or disaster itself.""
"(a) To take out a quota share reinsurance on his business. To do this, he pays a pro rata share of his premiums and receives a pro rata share of premiums and receives a pro rata share of all claims and expenses.
(b) To take out an aggregate reinsurance to protect his business from a series of losses. This costs much less premium.
(c) To take out an excess of loss contract to pay him if he suffers either a large individual loss or a series of losses arising out of some contingency. The contingency being a catastrophe, an accident an event or whatever. For this the premium he pays is much less than the quota share and much less than the aggregate premium (for a comparable limit and deductible). The Reassured has a choice and gets what he paid for."
"I accept that the history of Article 6 of LPO 98 serves as an important reminder of the difference between a series of losses which can be linked at some level and which are catastrophic in their effect on the reinsured, and losses caused by a catastrophe properly so called. However, I am not persuaded that the materials before the court provide a basis for giving the word "catastrophe" in a property catastrophe excess of loss reinsurance any meaning other than that which it would bear on the application of ordinary principles of construction in the context in which it appears."
"a loss occurrence shall consist of all individual insured losses which are the direct and immediate result of the sudden violent physical operation of one and the same manifestations of the individual insured peril".
However, as the judge noted, a different wording again was used in the Covéa Reinsurance with no reference to "immediate result" or "sudden violent physical operation". The judge considered that the connection between the wording in issue and the market debate in the 1960s was too tenuous for the materials to be used, not simply to identify in a broad sense the commercial purpose of a provision of this kind, but to ascribe textual limits not apparent from the ordinary meaning of the word in its contractual context to "catastrophe".
"Second, knowing the target at which the change in wording discussed in Butler & Merkin and Kiln was aimed – to address the argument that all losses from a severe winter could be aggregated for the purpose of collecting under an excess of loss reinsurance protection, or (per Reinsurance in Practice, 78) the argument that it was possible to aggregate by reference to "something which might have been the cause of a catastrophe rather than the catastrophe or disaster itself" – does not of itself tell you where the line of permissible aggregation is to be drawn in a very different context such as the present."
"The mere fact that, in the 1960s and 1970s, a reinsured's property account may not have included non-damage perils, with the result that a reinsurer providing (or indeed drafting) catastrophe excess of loss reinsurance for such an account would not have expected losses which impacted the cover to occur without physical damage to the original insured's property does not mean that the wording used in the reinsurance would not extend to such losses as a matter of its ordinary meaning. There is a distinction between the meaning of words in context, and their expected field of practical application from time-to-time, and market reinsurance wordings which are used for lengthy periods against a background of developments in the relevant book of business of the reinsured are, in a sense, "always speaking" in the manner of statutes (cf R v Ireland [1998] AC 147, 158-59)."
"i. "Non-property damage business interruption cover has been a common feature of many combined property/business interruption policies since about the beginning of the 21st century and is now invariably written by property underwriters alongside the property damage risk, both as business interruption cover consequential upon damage to property and, under an extension, as cover for pure business interruption caused by perils other than damage to property"…
ii. "By the time the Reinsurance was bound at the end of 2019, any competent and experienced catastrophe excess of loss underwriter reinsuring a UK property book would or should have known that the business reinsured might well include both business interruption cover consequential upon physical damage to an insured property and cover for interruption of the business carried on at an insured property from a peril other than physical damage to the property"…
iii. "The unchallenged evidence … was that since the end of the last century it has become commonplace for the business written in property departments to include cover for business interruption from causes other than physical damage to property. Consequently, any experienced reinsurer underwriting the Reinsurance would know or ought to have known that the 'Class' of business written in Covéa's Property Department and classified as 'Household and Commercial' could, and probably would, include cover for non-property damage business interruption as well as for business interruption consequent upon property damage.""
"i. The Class of business was defined by reference to that "written within the Reinsured's Property Department and classified as Household and Commercial and all business classified by the Reinsured as Contractors' All Risks and Engineering All Risks including Motor Own Damage".
ii. Covéa was "the sole judge as to what is classified as 'Household' Business, 'Commercial' business and 'Contractors' All Risks and 'Engineering' All Risks business" (and there was no suggestion that the direct insurances which gave rise to its claims for indemnity were not properly so classified).
iii. The premium payable to UnipolRe was to be calculated by reference to the "gross premiums of the Reinsured in respect of business coming within the Class (excluding Motor) written during the Period" (which would include any premium in respect of non-damage BI cover written in the relevant department)."
"I accept that both definitions embrace usages which refer to sudden events. However, they also show that the ordinary use of the word is not always so confined, with both dictionaries offering meanings which do not require "suddenness" (…including, but not being confined to, matters with the characteristic of suddenness). Many of the definitions emphasise the existence of a significant break with the position up to that point … and something which is seriously adverse in its nature or effects… The final usage offered in the SOED embraces all of these themes, and significantly offers "sudden or widespread or noteworthy" as alternatives. Further, the definitions offered include those appropriate to particular contexts (literary analysis or geology) which would have to be applied with care in other contexts."
"First, what was said to be the origin of the property catastrophe excess of loss class of business, which was said to go back to the San Francisco earthquake in 1906, and the origin of the LPO 98 wording following the physical damage claims brought following the severe winter of 1962/63."
However, the judge was not persuaded that the fact that non-damage BI does not appear to have been written when the LPO 98 wording was formulated in the 1960s confined the meaning of "catastrophe" in a market excess of loss reinsurance wording today. He agreed with Covéa that the established market practice by the time the reinsurance was written and the wording of the reinsurance provided strong support for the tribunal's rejection of the supposed limitation on the nature of a catastrophe for the purposes of the reinsurance.
"identifying whether a happening is "sudden" will not always be a straightforward task, which suggests that some caution is required before treating this as an inherent but unspoken requirement for a catastrophe. Strong winds may build over time."
"the radical discontinuity with what went before which is inherent in OED meaning 3(a) and SOED meaning 3… contemplates the ability to distinguish between the period when the catastrophe is in existence and when it is not… The more diffuse and extended the matter alleged to amount to a catastrophe is… the more difficult it may be to establish the coherent, particular and identifiable character which a catastrophe will have."
"A number of parties submitted that it was not necessary that in order for an event to be characterised as a catastrophe it must involve an element of suddenness. That submission sits quite uncomfortably with the above dictionary definitions and those matters which might ordinarily be regarded as catastrophes: volcanic eruption, substantial explosion, earthquake, conflagration, tidal wave, a major deadly gas leak from a factory, cyclone, or hurricane. These examples support the necessity for a catastrophe to be sudden, or, at the very least, for it to have a commencement which is relatively certain in time and tend to eschew the inclusion of a state of affairs which emerges relatively slowly or progressively over time." (the judge's emphasis at [96].
"For these reasons, I reject the appellants' argument that a catastrophe must necessarily be "sudden" in onset, or short in duration, or that it must be "violent". Even if I had accepted that argument, it would not have provided a basis for challenging the Covéa Award in which the arbitral tribunal found that any requirement of "suddenness" was satisfied. There was no suggestion that this conclusion was "necessarily inconsistent" with the correct application of the relevant legal test, nor could that submission have realistically been advanced."
"In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way... A cause is to my mind something altogether less constricted. It can be a continuing state of affairs; it can be the absence of something happening. Equally, the word "originating" was in my view consciously chosen to open up the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate. To my mind the one expression has a much wider connotation than the other."
"is how to distinguish between a catastrophe properly so-called, which is an appropriate basis for aggregating individual losses when seeking indemnity under a property catastrophe excess of loss policy, and a series of discrete losses which share some common point of ancestry, but the adverse effects of which so far as a direct insurer is concerned are properly the subject of stop-loss protection (cf [52]-[53]). As Sir Jeremy Cooke observed in Simmonds v Gammell [2016] EWHC 2515 (Comm), [29], the "unities" are merely an aid to determining whether a series of losses involve such a degree of unity as to satisfy the contractual aggregation requirement."
"It is not necessary, for the purposes of disposing of these appeals, to provide a definition of catastrophe which can demarcate these distinct scenarios for all purposes, even assuming it is possible to do so. The answer is likely to be heavily dependent on the commercial and contractual context in which it arises. However, in the context under consideration here, I am satisfied of the following:
i. The catastrophe must be something capable of directly causing individual losses, because that is what both "Hours Clauses" require. That requirement of itself is likely in most if not all foreseeable scenarios to exclude attempts to aggregate by reference to what are often described in aggregation disputes as "states of affairs".
ii. The catastrophe must be something which, in the context of terms of the Reinsurances in which the term appears, can fairly be regarded as a coherent, particular and readily identifiable happening, with an existence, identity and "catastrophic character" which arise from more than the mere fact that it causes substantial losses.
iii. To that extent, it ought to be possible, in a broad sense, to identify when the catastrophe comes into existence and ceases to be, even if an attempt at a precise temporal delineation would offer scope for legitimate debate and dispute.
iv. A catastrophe will involve an adverse change on a significant scale from that which preceded it."
"105. The Covéa tribunal recorded the "explosion of cases" from the second half of February to the middle of March, the Prime Minister's broadcast and the closure order. In the "Award and Disposition" they found that:
"the outbreak of Covid-19 in the United Kingdom, reflected in an exponential increase in the number of infections during a period up to and including 18 March 2020, was a 'catastrophe' within the meaning of Condition 2(1)."
106. Having rejected UnipolRe's legal arguments at [72] to [102] above, there is no basis on which it can be said that this answer is "necessarily inconsistent" with the proper interpretation of the word "catastrophe" in the Covéa Reinsurance, indeed quite the contrary:
i. There has been no suggestion that the catastrophe so identified did not directly occasion the original losses in respect of which indemnity is sought…
ii. In the context of the Covéa Reinsurance, the "outbreak" described by the Covéa tribunal can fairly be regarded as a coherent and discrete happening, with an existence, identity and "catastrophic character" which arise independently of the fact that it causes substantial losses. As the Covéa tribunal noted, "during this relatively short period, the Covid-19 outbreak assumed a certain coherence in its development and effect and gave rise to a profound subversion of the order of life within the UK".
iii. The Covéa tribunal identified the relatively short period within which the catastrophe came into existence.
iv. The Covéa tribunal noted the (undisputed) wholesale disruption to our national life which the outbreak occasioned."
"I accept that a necessary element in a claim for damage business interruption is that the business interruption results from physical damage itself caused by an insured peril. However, that is also true of some forms of non-damage business interruption claims (see [120]) and it is not of itself particularly informative. If it matters (and I am not persuaded that this does provide a principled basis for any difference in treatment on its own, in any event), I do not read Arch, [215] as suggesting that damage to property is the insured peril to which damage business interruption cover responds. At [215], the Supreme Court is equating the interruption to the policyholder's activities in a non-damage business interruption claim with the "destruction of or physical damage" in the Court's three stage "insured peril > proximate cause > physical damage" sequence. The implication of the Supreme Court's analysis is that the proper sequence for non-damage business interruption of the kind they were considering was "insured peril > proximate cause > business interruption…"
"135. The Covéa tribunal concluded that an "individual loss … occurs" for the purpose of the "Hours Clause" when the nurseries were closed on 20 March 2020, even though the business interruption continued until the nurseries were allowed to re-open when the first lockdown restrictions were lifted…, that being when "the insured first sustains indemnifiable business interruption loss within a nominated 168 hour period", with loss which the insured continues to sustain afterwards being aggregated with the loss sustained during the 168 hour period.
136. By contrast the Markel tribunal took the view that the original insured's business interruption losses occur "day by day"… and that only those losses which occurred (on that construction) during the 168 hour period can be recovered..."
"138. Business interruption insurance provides cover during the period which it takes the business to return to normal trading (i.e. the level of trading which would have prevailed but for the operation of the insured peril), subject to a "Maximum Indemnity Period" which will provide a cut-off. There was a three-month cut-off in the Covéa NurseryCare Policy (Covéa Award, [92]). As UnipolRe and General Reinsurance noted when seeking to address the argument, there can be substantially longer Maximum Indemnity Periods, for example 36 months is not uncommon."
[The judge set out an extract from Riley on Business Interruption Insurance at [139]]
140. Further, within the relevant indemnity period (i.e. the actual recovery period, or, if shorter, the Maximum Indemnity period), the amount of the indemnity is not calculated on a "day-by-day" basis at the direct policy level, but across the period, with claims for increased cost of working, and credits for saved expenses…"
[The judge set out a hypothetical calculation from Riley at [140]].
"141. There is usually provision for adjustment of the trend of the business which is the subject of the Business Interruption claim…" [The judge then set out the explanation by the Supreme Court in The FCA Test Case at [253]-[254].
142. It will be apparent from the above [the passage from The FCA Test Case] that the amount paid to settle an individual business interruption loss can reflect a combination of credits and debits over a certain period, and that there may be considerable variation over time before you arrive at the final amount. This is very far-removed from a "day by day" calculation which UnipolRe's and General Reinsurance's arguments appear to assume. It is also clear that the assessment of a Business Interruption loss at the direct insurance level involves looking at the net effect over a particular period, not the aggregation of a series of daily losses (which answers Mr Christie KC's point that Covéa's case involves a "double aggregation")."
"i. The Reinstatement Provision provided "Losses hereunder are applied chronologically by date of loss." In the case of pure business interruption losses, it is difficult to see how this provision is to operate if there are separate losses day by day (or even hour by hour).
ii. The Extended Expiration provision addresses the position where the Reinsurance expires or terminates "while a Loss Occurrence is in progress", providing that in such a scenario, UnipolRe are liable "as if the entire loss or damage had occurred prior to the expiration or termination of this Contract provided that no part of that Loss Occurrence is claimed against any renewal or replacement of this Contract." … it would be surprising if the Reinsurances responded to physical damage suffered after the expiration date and consequential business interruption caused by a hurricane which had commenced before and continued to operate after that date, but not business interruption loss which continued after the expiration date, caused by a result of denial of access resulting from physical damage to neighbouring property which was complete before the expiration date."
"…the Ultimate Net Loss clause, with the allocation of loss adjustment expenses, litigation costs and the application of salvage and recoveries, and the "follow the settlements" clause. On UnipolRe and General Reinsurance's case, business interruption losses and associated expenses and credits paid by the reinsured have to be unpicked at the reinsurance level to distinguish between expenses and credits referable to interruption during the relevant "Hours" period, and that referable to any subsequent period. While this is an aspect of a more general issue where a settlement or loss at the reinsured level reflects both losses which are reinsured and those which are not, it does present that difficulty in a particularly acute form."
"147. It was common ground in both appeals that the references in the two "Hours Clauses" to "individual losses" mean the loss sustained by the original insured. That is significant, because it points the enquiry in the direction of the direct insurance. Further, as the Covéa tribunal noted, the "Hours Clause" defines "the extent and duration of a 'Loss Occurrence'"… not the duration of an "individual loss"...
148. As the Covéa tribunal found…, and as was common ground before the Markel arbitration, when considering damage business interruption, the individual loss occurs when the insured peril damaged the insured premises. I agree with the Covéa tribunal that this supports an analysis which treats an individual loss as occurring "when a covered peril strikes or affects insured premises or property" …, and that when the insured peril which strikes the premises is the loss of the ability to use it (whether through damage to other property or premises or a closure order), the individual loss occurs at the same point.
i. That reflects the position at the direct level, to which the words "individual loss" naturally direct attention and, as the Covéa tribunal noted at Covéa Award, [97], "there is nothing in the Reinsurance wording to support an apportionment of an 'individual loss'".
ii. Not only am I not persuaded that there is any sufficient basis to distinguish between the treatment of damage business interruption, business interruption following damage to other property owned by another and "pure" business interruption losses in this regard, but there are obvious parallels between the impairment of the rights of those entitled to property resulting from damage and that resulting from the inability to use the property: [120].
iii. That analysis is consistent with the approach of Mr Justice Butcher in Stonegate and Various Eateries and the Court of Appeal in the latter case and the Supreme Court in FCA v Arch ...
iv. This construction better coheres with the provisions dealing with the timing of the individual losses in the Reinsurances…
v. It avoids the uncommercial consequences of the "day-by-day" construction as outlined at [138]-[142] and [145]-[146] above and [150]-[151] below, and in that respect derives some limited support from the provisions of the Reinsurances quoted at [145]-[146] above."
"i. First, he posited the example of a closure order being made in respect of premises where the occupier was on holiday at the time when the closure order took effect (e.g. a cotton factory during "Whit week"), such that there was no impact on the business until the factory reopened.
ii. However, the interference with the owner's right to use the factory occurs when the order comes into effect, whatever use the owner wishes to make of the factory at that point in time. Lord Halsbury's celebrated observation in The Mediana [1900] AC 113, 117 is in point:
"Supposing a person took away a chair out of my room and kept it for twelve months, could anybody say you had a right to diminish the damages by shewing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd."
This was effectively the point made by the Covéa tribunal.
iii. The "Whit week" closure would no doubt be factored into the calculation of loss during the indemnity period (as would the reverse position, where the first week involved the most profitable contract of the year).
iv. The same issue could equally arise when there is physical damage during a period of holiday.
v. Indeed, this argument rather points to the difficulties of UnipolRe's construction, confining cover to the position over 7 days, when profits, costs and savings are likely to be "lumpy" in their effect, rather than play themselves out on a linear basis over time. What is to happen, for example, where the insured premises experience an initial saving in costs over the first seven days (for example because the bulk of children were not due to return for another week after the date the closure order came into force), but a significant net loss over the indemnity period as a whole? On UnipolRe's approach, it is not clear whether this precludes an indemnity under the Reinsurance in respect of that claim, nor what the position would be in the reverse cases, where the adverse effects on the insured business are "front-loaded".
vi. This is also true of the provisions in the Covéa and Markel Reinsurances allowing a "Loss Occurrence" or catastrophe which is "greater than the above periods" to be divided into two or more "Loss Occurrences" or "Events": it would involve "slicing and dicing" what, at the direct insurance level, is a net loss arrived at taking account of debits and credits over the indemnity period into account, so as to place constituent parts of that calculation into separate periods.
151. Second, he posited the example of a (for example) retail premises undergoing repairs scheduled to last many months when a closure order took effect which allowed workers to attend at the premises, but not customers. He suggested that no business interruption "loss occurrence" could occur until the premises re-opened, and that it would make no sense for there to be a different result if "the direct insured's business was interrupted, however fleetingly, when the restriction on access was first imposed." However, I do not accept the correctness of Mr Christie KC's premise, to which the points made in the preceding paragraph are equally apposite."
The grounds of appeal
(1) The judge wrongly concluded that "the outbreak of Covid-19 in the United Kingdom, reflected in an exponential increase in the number of infections during a period up to and including 18 March 2020" was a "catastrophe" within the meaning of Condition 2(1) of the Reinsurance.
(2) On the assumption that, contrary to Unipol's case, there was a "catastrophe" the judge wrongly concluded that for the purposes of the Hours Clause in Condition 2(2) of the Reinsurance:
a) an "individual loss" occurs on the date the covered peril strikes;
b) "when the insured peril which strikes the premises is the loss of the ability to use it… the individual loss occurs at the same point"; and
c) where the (re)insured first sustains indemnifiable business interruption loss within a nominated 168-hour period, subsequent losses after that period fall to be aggregated with losses sustained within the nominated 168-hours as part of a single "Loss Occurrence".
The parties' submissions
"67.. I revert to Mr Boyd's four principal submissions. The first (para 26 above) was that the causal link expressed by the phrase "arising out of" is a weak one, and that therefore and possibly in any event there was nothing that occurred after the initial invasion and capture of the airport that outweighed their significance for purposes of causation.
68. In my judgment, however, there is nothing in the authorities to support that submission as a matter of principle. On the contrary, it seems to me that in Dawson's Field, and again in Caudle v. Sharp a significant causal relationship was, albeit implicitly, imposed. In those cases Mr Kerr and this court found the relevant event (or occurrence) in the nearer events, rather than in the more distant. In the latter case, the concept of remoteness was expressly adverted to. I accept that in Dawson's Field the choice was obscured by the fact that the hijackings could not be regarded as a single event, and for that reason could not even be a candidate. Nevertheless, it seems to me ultimately to be inherent in the concept of aggregation ("arising out of one event") that a significant causal link is required. In this connection I would refer to Lord Hoffmann's substantial contribution in recent years to an understanding of what lies behind the courts' intuitive judgments on issues of causation: see, for instance, Empress Car Co (Abertillery) Ltd v. National River Authority [1999] 2 AC 22 at 29/35. Lord Hoffmann emphasises that it is not possible to give an informed answer to a question of causation when attributing responsibility under some rule without knowing the purpose and scope of the rule. In the present context, the purpose and scope of the rule has to be found in the concept of aggregation inherent in wording such as "arising out of one event". A plurality of losses is to be regarded as a single aggregated loss if they can be sufficiently linked to a single unifying event by being causally connected with it. The aggregating function of such a clause is antagonistic to a weak or loose causal relationship between losses and the required unifying single event. This is the more easily seen by acknowledging that, once a merely weak causal connection is required, there is in principle no limit to the theoretical possibility of tracing back to the causes of causes. The question therefore in my judgment becomes: Is there one event which should be regarded as the cause of these losses so as to make it appropriate to regard these losses as constituting for the purposes of aggregation under this policy one loss?"
"A disease that spreads is not something that occurs at a particular time and place and in a particular way: it occurs at a multiplicity of different times and places and may occur in different ways involving differing symptoms of greater or less severity. Nor for that matter could an 'outbreak' of disease be regarded as one occurrence, unless the individual cases of disease described as an "outbreak" have a sufficient degree of unity in relation to time, locality and cause. If several members of a household were all infected with Covid-19 when a carrier of the disease visited their home on a particular day, that might arguably be described as one occurrence. But the same could not be said of the contraction of the disease by different individuals on different days in different towns and from different sources. Still less could it be said that all the cases of Covid-19 in England (or in the United Kingdom or throughout the world) which had arisen by any given date in March 2020 constituted one occurrence. On any reasonable or realistic view, those cases comprised thousands of separate occurrences of Covid-19. Some of those occurrences of the disease may have been within a radius of 25 miles of the insured premises whereas others undoubtedly will not have been. The interpretation which makes best sense of the clause, in our view, is to regard each case of illness sustained by an individual as a separate occurrence. On this basis there is no difficulty in principle and unlikely in most instances to be difficulty in practice in determining whether a particular occurrence was within or outside the specified geographical area."
(1) It would be flatly inconsistent with the clear meaning and intention of the Hours Clause. The structure of the Reinsurance assumes that catastrophes may endure (hence the need for an Hours Clause), but that losses are instantaneous, or occur at specified times.
(2) Business Interruption loss can occur only when revenue is in fact lost on a day-to-day basis and does not occur in its entirety (nor necessarily at all) at the time when the peril strikes. This is consistent with the fundamental principle of indemnity insurance: it only responds to actual losses, and not future hypothetical losses. There is no need to introduce a fiction into Condition 2 that all BILs were incurred all at once on day 1.
"Relying on this analysis does not involve interpreting the aggregation provisions in the Reinsurances on the flawed premise that they are intended to operate in the same manner as those in the direct insurance (cf Axa Reinsurance (UK) Ltd v Field [1996] 1 WLR 1026, 1034). The reference to "individual losses" in both Reinsurances naturally directs attention to the position at the level of the original insured, and the Markel tribunal's overriding consideration – that "it is natural to think that business interruption losses occur day by day" (Markel Award, [58]) – is also concerned with the nature of such losses at the position of the original insured."
"Some further support for this view in the present context can be derived from Simmonds v Gammell, where Sir Jeremy Cooke was right to consider that the relevant question was whether the arbitrators were "entitled" to decide the case as they did. Although an appeal from arbitrators involves the additional feature that the court's jurisdiction is limited to determining a question of law arising out of the award, and that it has no jurisdiction to review the arbitrators' factual findings, Sir Jeremy Cooke was right in my view to regard the issue as requiring the kind of exercise of judgment with which an appellate court will not interfere in the absence of an error of principle."
"if the idea of a 'sudden disaster' is inherent in the meaning of catastrophe…the exponential increase in Covid-19 infections in the UK during the first three weeks of March 2020 did amount to a disaster of sudden onset such as to qualify as a catastrophe."
Discussion
"In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way. I believe that this is how the Court of Appeal understood the word. A cause is to my mind something altogether less constricted. It can be a continuing state of affairs; it can be the absence of something happening."
"In the context of the Covéa Reinsurance, the "outbreak" described by the Covéa tribunal can fairly be regarded as a coherent and discrete happening, with an existence, identity and "catastrophic character" which arise independently of the fact that it causes substantial losses. As the Covéa tribunal noted, "during this relatively short period, the Covid-19 outbreak assumed a certain coherence in its development and effect and gave rise to a profound subversion of the order of life within the UK" ([49])."
"It will be apparent from the above that the amount paid to settle an individual business interruption loss can reflect a combination of credits and debits over a certain period, and that there may be considerable variation over time before you arrive at the final amount. This is very far-removed from a "day by day" calculation which UnipolRe's and General Reinsurance's arguments appear to assume. It is also clear that the assessment of a Business Interruption loss at the direct insurance level involves looking at the net effect over a particular period, not the aggregation of a series of daily losses…"
Lord Justice Newey
Lord Justice Popplewell