Latest BI insurance Court Ruling – Loss of Use Because of Lockdown Does Not Constitute Loss of Property
In another ruling on the issue of post-Lockdown claims under business interruption (BI) insurance policies, the High Court last week summarily dismissed an action brought by a London crêperie, holding that its reliance on its policy with Allianz Insurance plc (Allianz) could only be triggered by physical loss of property as opposed to merely temporary loss of use.
The proceedings were brought by TKC London Limited (TKC). TKC sought a declaration that it would be covered under its £2.7 million policy with Allianz for pandemic-related losses, after closing its doors in accordance with the COVID lockdown in March.
The BI section of the policy provided standard, property damage related BI cover, without any disease extensions or similar, meaning that it did not come within the remit of the FCA’s BI test case heard earlier this year (which dealt with non– property damage related BI claims).
The Allianz policy provided cover for “Business Interruption by any Event”, with Business Interruption defined as “Loss resulting from interruption of or interference with the Business carried on by the Insured at the Premises in consequence of an event to property used by the Insured at the Premises for the purpose of the business”. Event was defined as “Accidental loss or destruction of or damage to property used by the Insured at the Premises for the purpose of the Business”.
TKC argued that during the period of lockdown it had suffered damage due to the deterioration of its stock, which had resulted in business interruption, or alternatively that its inability to use the premises amounted to a loss of property.
The High Court rejected TKC’s arguments, instead holding that the claim was bound to fail and so granting summary judgment in favour of Allianz.
It concluded that the deterioration of stock did not result in the business interruption. Instead, it “was a consequence of the interruption or interference, not its cause.”
Further, the “loss…of…property” which forms part of the definition of “Event” as the trigger for BI, must be informed by its immediate context. As the wording is followed by “or destruction of or damage to”, the Court agreed with Allianz that in this context “loss” was “intended to have a physical aspect”. As such, temporary loss of use of the property could not form part of the definition.
This case is part of a general increase in litigation brought against insurers over BI policies and Lockdown related closures, with the rate of such increase unlikely to slow over the months to come. Insurers will no doubt take some comfort in the fact that the ruling confirms that to trigger loss of property under BI policies there must be more than just temporary inability to use premises.
Insurers will welcome such comfort, particularly after the Association of British Insurers told the Parliamentary Treasury Committee that its members estimate they will be paying out £1.2 billion to support businesses affected by the pandemic.