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.
One of the wordings considered was the NDML Nightclub and Late Night Venue Policy (QBE2).
When asked of the greatest difficulty facing a Prime Minister, Harold Macmillan is said to have responsed "Events, dear boy, events."
Ironically, a nightclub owner in possession of an NDML Nightclub and Late Night Venue Policy might ruefully utter the same response when asked about their inability to claim for COVID 19 business interruption under the policy as a result of the national lockdown in March. Their Lordships held in FCA v Arch and others that the inclusion of the word "event" in the NDML policy to describe "any occurrence of a notifiable disease within a radius of 25 miles of the premises" sets it aside from other similar disease policies containing similar insured perils that are not expressed as being "events."
The relevant parts of the policy are cited in the judgment at paragraphs 208 -212, but the main aspect of the relevant business interruption section (Section 6) is as follows:
“3.2.4 Infectious disease, murder or suicide, food or drink or poisoning
Loss resulting from interruption of or interference with the business in consequence of any of the following events:
a) any occurrence of a notifiable disease at the premises or attributable to food or drink supplied from the premises;
b) any discovery of any organism at the premises likely to result in the occurrence of a notifiable disease;
c) any occurrence of a notifiable disease within a radius of 25 miles of the premises;
d) the discovery of vermin or pests at the premises which cause restrictions on the use of the premises on the order or advice of the competent local authority;
e) any accident causing defects in the drains or other sanitary arrangements at the premises which causes restrictions on the use of the premises on the order of the competent local authority;
f) any occurrence of murder or suicide at the premises;
provided that the
g) insurer shall not be liable for any costs incurred in cleaning, repair, replacement, recall or checking of property except as stated below;
h) insurer shall only be liable for loss arising at those premises which are directly subject to the incident;
i) insurer’s maximum liability under this cover extension clause in respect of any one incident shall not exceed GBP 100,000 or 15% of the total sum insured (or limit of liability) for this insured section B, whichever is lesser, any one claim and GBP 250,000 any one period of insurance.”
- Indemnity Period -
“18.47.1 Indemnity period means the period beginning with the occurrence of the damage and ending not later than the maximum indemnity period thereafter during which the results of the business will be affected in consequence of the damage.
18.47.2 But for the purposes of clause 3.2.4 the indemnity period shall mean the period during which the results of the business shall be affected in consequence of the an [sic] event beginning in the case of:
3.2.4 a) and d) with the occurrence or discovery of the incident, 3.2.4 b) and c) above with the date from which the restrictions on the premises are applied,
“Notifiable disease means illness sustained by any person resulting from:
18.67.1 food or drink poisoning, or
18.67.2 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), an AIDS related condition or avian influenza”
The Court's judgment of coverage under NDML Nightclub and Late Night Venue Policy (QBE2) is at paragraphs 230 - 235.
In brief, the Court held:
- NDML Nightclub and Late Night Venue was said to be "significantly different" from other so-called "disease clauses"
- "the cover is indeed intended to be confined to the results of specific (relatively) local authority."
- the insuring clause identifies insured peril as "events" which "indicates that what is being insured is matters occuring at a particular time, in a particular place and in a particular way." The Court followed Axa Reinsurance v Field  1 WLR 1026 at 1035 as to the meaning of "event"
- Crucially, this meant that unlike the other clauses Eaton (RSA3), Marsh/ Jelf (RSA4), HIUA (Argenta 1 and 2), MS Amlin (MSA 1 and 2), and other QBE policies (QBE1 and 2), cover was not triggered "by the fact that the disease has occurred within 25 miles, but on the particular occurrences of the disease within the 25 mile radius which must have caused the business interruption or interference."
- Consequently, the use of the word "event" within the insuring clause made all the difference distinguishing the policy from the other disease clauses considered.
- "It is the event which caused the business interruption or interference. If there were occurrences of the disease at different times and/or different places then these would not constitute the same "event" and the clause provides no cover for interruption or interference with the business caused by such distinct "events""
- Their Lordships were fortified in their belief that "the clause is concerned with specific events, limited in time and place", given that (h) provides the "insurer shall only be liable for loss arising at those premises which are directly subject to the incident;" and (i) also refers to limitation per "incident" and that the definition of indemnity period refers to "results of the business shall be affected in consequence of the an [sic] event" and the "occurrence of the incident"
- This was also said to be consistent with other parts of the policy including the General definitions, which referred to an "accumulation limit" in respect of "a single event, or series of events in 20km radius" indicating that the policy distinguished between "an event, a series of events, and a cause"
- Consequently there would be an “occurrence” of COVID-19 within the radius when a person has the disease within the area, whether symptomatically or not, but cover only if "there is business interruption as a result of the “event” of the person(s) sustaining that illness within the area. It is difficult to see how there could be such consequential interference if the disease was asymptomatic and undiagnosed."
- On causation, "this clause, unlike others we have considered, is drawing a distinction between the consequences of the specific cases occurring within the radius and those not doing so, because the latter would constitute separate “events”, we consider that insureds would only be able to recover if they could show that the case(s) within the radius, as opposed to any elsewhere, were the cause of the business interruption."
"It does not appear to us that the causation requirement could be satisfied on the basis that the cases within the area were to be regarded as part of the same cause as that causing the measures elsewhere, or as one of many independent causes each of which was an effective cause"
"this clause, in our view, limits cover only to the consequences of specific events."
KEVIN HOLDER © 2020
33 BEDFORD ROW
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