Covid Business Interruption Insurance: New Restrictions, New ‘Occurrence’
Businesses in certain sectors continue to recover financially following the pandemic, and a new decision that separate insurance claims can be made for each restriction or lockdown imposed will prove reassuring.
The High Court recently ruled on this as a specific issue relating to covid-related business interruption insurance – whether or not a claim for losses should be aggregated. It’s a vital issue for claimant business because if claims are to be aggregated, liability will be limited under the policy.
What’s the background?
Last year following a test case, the Supreme Court handed down a key ruling in favour of the business community. It confirmed that many insurers were wrongly refusing to pay out following claims by firms affected by the pandemic. It also provide useful practical clarification for businesses and insurers, though it’s important to remember the case did not look at all policy wordings. Further cases were inevitable.
One such case followed a claim by Greggs, the national bakery chain. Like thousands of other food and drink businesses, Greggs closed shop in the first lockdown followed by a phased reopening from late May 2020. Further restrictions followed which impacted Greggs’ business over certain periods and in certain locations.
Greggs started a claim for more than £150m from its insurer, Zurich, for covid business interruption loss and related losses. The preliminary question for the court was: were all the losses connected to a single occurrence such that they should be aggregated as one single business interruption loss (SBIL); or – as Greggs argued - was each government restriction a separate occurrences, each triggering a loss?
In support of its case, Greggs relied in part on the geographical differences in covid regulations across the four nations (it cited around 120 announcements and regulations in total). It argued that “the loss which Greggs suffered on any given day and in any given locality depended essentially on which [type of regulation] was the situation at that time and place”.
If Greggs’ argument was rejected, its claim would be limited to £2.5m under the policy. If successful, it would be entitled to up to £2.5m for each individual business interruption.
In an important win for the business community, the High Court sided with Greggs. It said that in general, “it is possible to say that governmental measures had the clear potential for causing loss to Greggs in a very direct manner. I also consider that such measures were not too remote from Greggs’ losses to be relevant as ‘single occurrences’ for the purposes of the SBIL definition”.
In this case, the real debated was whether all or just some of the various measures should properly be regarded as 'single occurrences'. For instance, while a local lockdown in some parts of a city can be considered a separate occurrence, the extension of the restrictions to other parts of the city would probably be ‘connected’ to the initial local restrictions, not a further separate occurrence.
What does this mean?
This ruling provides important clarity on a further aspect of these types of claims, and will be immensely reassuring for businesses who are still trying to recover from the financial impact of the pandemic. That said, it’s unlikely to be final word on covid-related business interruption insurance (whether or not Zurich appeals) as further cases are yet to be heard.
1Greggs v Zurich [2022] EWHC 2545
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