Following the outbreak of Covid-19 and Government closure order, early years facilities closed for at least three months. The insurers, C plc and M Ltd, provided policies to the operators of nurseries and childcare facilities that included cover for business interruption caused by a peril other than physical damage to the insured property. They paid the policyholders for business interruption losses caused by the closures and then each commenced arbitration proceedings for an indemnity under its reinsurance. Similarly worded hours clauses in the reinsurances provided a right to indemnity in respect of individual losses arising out of and directly occasioned by one catastrophe, of which the duration and extent was limited to 168 consecutive hours, and no individual losses which occurred outside that period were included. Two issues arose for determination, first, whether either Covid-19 or the closure order constituted one catastrophe, and secondly, whether the hours clauses meant that the reinsurances only responded in respect of the closure of premises during the stipulated period. On the first issue, the tribunals in both arbitration proceedings found that the Covid-19 losses arose out of and were directly occasioned by one catastrophe. In relation to the second, the tribunal in the C plc proceedings found that an individual loss occurred for the purpose of the hours clause when the nurseries were closed, even though the business interruption continued until the restrictions were lifted. By contrast the tribunal in the M Ltd proceedings concluded that the nurseries’ losses occurred day by day and that only those losses which occurred during the 168-hour period could be recovered under the reinsurance. C plc’s reinsurer appealed against the decision on both issues, M Ltd’s reinsurer appealed against the decision on the first issue, and M Ltd appealed against the decision on the second issue.
On the appeals—
Held, (1) reinsurers’ appeals on the first issue dismissed. A “catastrophe” for the purposes of the reinsurances did not have to cause or be capable of causing physical damage, did not have to be sudden in onset, short in duration or violent and was not an event that had to satisfy the three unities of time, place and way. A catastrophe had to be capable of directly causing individual losses and was something that could fairly be regarded as a coherent, particular and readily identifiable happening, with an existence, identity and “catastrophic character” which arose from more than the fact that it caused substantial losses. It ought to be possible, in a broad sense, to identify when the catastrophe came into existence and ceased to be. Furthermore, a catastrophe involved an adverse change on a significant scale from what had preceded it. The decision of the tribunal in the C plc proceedings that the outbreak of Covid-19 up to the Government closure order was a catastrophe was consistent with the proper interpretation of the word “catastrophe”. The decision of the tribunal in the M Ltd proceedings that the Government’s closure order was a catastrophe disclosed no error of law (paras 70, 75, 87, 97, 101–102, 104, 106, 109, 110, 134).
(2) C plc’s reinsurer’s appeal on the second issue dismissed, M Ltd’s appeal allowed. The hours clause was concerned with the duration of the individual losses rather than the duration of the catastrophe. The analysis that business interruption losses occurred day-by-day led to uncommercial consequences and did not sit easily with the case law relating to public houses and restaurants, which treated forced closure as a trigger with continuous effect, rather than involving a series of day-by-day triggers. It also did not readily accommodate with the manner in which business interruption losses under direct insurance policies were assessed. There were strong similarities, between damage business interruption, where the entire loss for business interruption recovered by a property owner under the direct insurance was treated for the purposes of any temporal limitations in the reinsurance as having occurred on the day of the property damage, and non-damage business interruption, such as that in the present case. That supported an analysis which treated an individual loss as occurring when a covered peril struck or affected insured premises or property, and that when the insured peril which struck the premises was the loss of the ability to use it, whether through damage to other property or premises or a closure order, the individual loss occurred at the same point, rather than day by day (paras 113, 120–121, 128, 147–149, 153).
Aidan Christie KC and Jocelin Gale (instructed by DWF Law) for Unipolsai Assicurazioni SpA.
Alistair Schaff KC and Simon Kerr (instructed by Slaughter and May) for Covéa Insurance plc.
Rebecca Sabben-Clare KC (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for Markel International Insurance Co Ltd.
Dominic Kendrick KC and Rebecca Jacobs (instructed by DLA Piper) for General Reinsurance AG.