Court of Appeal hands down aggregation judgment in Various Eateries Covid-19 business interruption claim

On 16 January 2024, the Court of Appeal handed down judgment in Various Eateries Trading Limited v Allianz Insurance PLC. Various Eateries was part of a trio of cases including Stonegate and Greggs heard sequentially in the Commercial Court in summer 2022.

The principal issue under consideration was the effect of an aggregation clause in the policy providing for aggregation of COVID-19 business interruption losses “that arise from, are attributable to or are in connection with a single occurrence”. The Court also heard arguments in relation to the scope of cover under the Prevention of Access and Enforced Closure clauses. The first instance decision of Mr Justice Butcher, that the appropriate aggregating feature was certain Government action rather than either earlier incidents of COVID-19 infection (as argued by insurers) or aggregation per premises (as argued by policyholders), was largely maintained.

Relevant background

Various Eateries was insured under a Marsh Resilience policy.

Following Covid-19 related interruption to their businesses, the insureds submitted business interruption claims to their respective insurers, seeking cover under disease, Enforced Closure and Prevention of Access clauses. Whilst insurers accepted that cover was engaged and that a measure of loss had occurred, they took issue with the insureds’ approaches to important issues including aggregation and post-period losses. Issues relating to taking into account furlough and other forms of government support formed part of the Stonegate and Greggs litigation but not Various Eateries.

The Commercial Court handed down judgment on 17 October 2022 and key aspects of the judgment included: 

• Aggregation took place in relation to the government action taken in response to the spread of Covid-19, which amounted to a number of single occurrences. 
• For the purposes of Enforced Closure, there is a Covered Event when a closure takes place within the Period of Insurance. There can then be recovery for the resulting interruption and interference with the business, and the extent of that interruption or interference depends on how long the closure lasts, irrespective of whether the whole period of such closure was within or after the Period of Insurance. 
• For the purposes of Prevention of Access, there is a Covered Event where there are actions or advice which have, within the Period of Insurance, the effect of preventing or hindering the use of or access to Insured Locations. There will then be cover for any resulting interruption or interference, and the extent of that interruption or interference depends on how long the prevention or hindrance lasts. The clause does not require any period of such prevention or hindrance after the Period of Insurance to be disregarded.

Various Eateries and Allianz subsequently appealed these aspects of the judgment before the Court of Appeal.  

In relation to aggregation: 

• Allianz asserted that aggregation took place by reference to the initial outbreak in Wuhan, or the introduction of Covid-19 into England or the UK. 
• Various Eateries asserted that aggregation took place on a “per Insured Location” basis, which meant that the limit of £2.5 million should be applied separately to each of its restaurants.

In relation to the scope of cover under the Enforced Closure and Prevention of Access clauses, Allianz also asserted that the effect of the words “during the Period of Insurance” is that only losses suffered during the Period of Insurance, can be recovered. e.g in the case of Prevention of Access, that if access was prevented on 1st September 2020 and the restaurants were required to remain closed until 31st December 2020, only losses incurred in the first 28 days could be recovered.

The Court of Appeal's judgment

Aggregation

Both the Commercial Court and the Court of Appeal were prepared to accept that the initial human infection in Wuhan, China was a “single occurrence” as required under the aggregation clause. The Court of Appeal was also prepared to find, contrary to the Commercial Court, that the introduction of COVID-19 into the UK was a “single occurrence”. Further both Courts were prepared to accept that the losses suffered by Various Eateries were, at least, “in connection with” the Wuhan infection and equally Court of Appeal was prepared to accept that same for the initial UK infection. However that was not the end of the analysis. Both Courts identified remoteness as key to the aggregation issue and, importantly, a limit on whether those single occurrences were appropriate features to aggregate losses back to. The Court of Appeal summarised the relevant principles as follows: 

1. Remoteness is ultimately a “legal tool” which may be employed in a variety of circumstances. It may need to be considered, not only when there is only one candidate unifying event, in order to determine whether that event is too remote, but also when there are several candidates. In either case the search is for the (or a) significant or relevant event, or for an event which provides a meaningful explanation for the loss; these are all synonyms which express the same concept. They are not, however, to be equated with the proximate or effective cause. Particularly in a case where only a relatively weak causal link is required, that would be to introduce a strict requirement of proximate cause by the back door.
2. The analysis of remoteness calls for an exercise of judgment which is to some extent intuitive, but which also requires analysis of all the relevant circumstances of the case, including the nature of the causal link required by the aggregation clause. The analysis also includes consideration of the unities, so that an event which is far separate from the loss in time or place is more likely to be too remote than one which is contemporaneous with or geographically closer to the loss in question. Similarly, where the occurrence of the loss depends on a series of contingencies which may or may not occur after the happening of the event, that may also suggest that the event in question is too remote, i.e. that in all the circumstances it does not provide a meaningful explanation for the loss. But these are guidelines, not inexorable rules.

Applying those principles to the present case, the Court of Appeal rejected both parties’ appeals. In relation to Allianz’s appeal, the Court of Appeal:

• Agreed with the Commercial Court that the initial human infections at Wuhan were too remote from VE’s loss because: 
  • They were geographically remote, occurring a long distance from the territorial limits of the policy. 
  • They were temporally remote, with the relevant losses only starting months after the occurrence. 
  • They were causally remote, depending on “very large number of intermediate events and occurrences, involving first the establishment of the disease in the human population in China, secondly the spread of the virus to the UK, and thirdly the governmental and public response to the virus...”
• Noted that even if a “relatively generous or flexible approach” to remoteness was applied, to reflect the weak causal requirement of the clause, the “meaningful explanation” of Various Eateries’ losses was not the initial human infections in Wuhan but the Government’s response to the same. If the informed observer had been asked why Various Eateries suffered loss after 16 March 2020, he would have said because the Government required all its restaurants to close and to remain closed. 
• In relation to Allianz’s argument that aggregation took place by reference to the introduction of Covid-19 into England or the UK, the Court of Appeal disagreed with the Commercial Court in relation to single occurrence and causation, finding that a single occurrence had occurred and that it had the requisite causal link to the cases in the UK that led to the Government’s response and, in turn, to Various Eateries’ loss. However, the argument failed because, as correctly concluded by the Commercial Court, the introduction of Covid-19 into the UK was too remote. Although it was geographically more proximate, the losses depended on the disease spreading to such an extent so as to trigger the Government action that took place. This was not certain to have happened.  

In relation to Various Eateries’ appeal, the Court of Appeal found that:

• The policy contained nothing to suggest that aggregation was intended to operate on a “per Insured Location” basis and that it was capable of applying where a single occurrence affected multiple locations. 
• Insuring Clause 2.3 defined the “Insured’s Business” as “operating a chain of Italian restaurants” i.e. referring to the business as a whole, the clause also defined “Turnover” by reference to the business as a whole. 
• The Policy’s Retention provision provided for a retention of £5,000 to apply to “each Single Property Loss”. It mirrored the language of the aggregation language and made clear that it “may affect multiple Insured Locations, in which case a single Retention will still apply”. 
• The Corbin and King decision (in which the Court found that limits applied on a per premises basis) was not relevant. That case related to a composite policy insuring the business of multiple insureds, where each restaurant was separately owned by a separate company, which is a material distinction from the present case. Further, the relevant construction arguments in Corbin and King were made in relation to a different wording. 

The scope of cover under the prevention of access and enforced closure clauses

The Court of Appeal rejected Allianz’s appeal, agreeing with the Commercial Court’s construction of the Prevention of Access and Enforced Closure clauses. It stated: “The function of the Insuring Clauses is to identify the Covered Events under the policy. The relevant Covered Event is a Prevention of Access or an enforced closure occurring during the Period of Insurance, that is to say between 29th September 2019 and 28th September 2020. A prevention or enforced closure occurring on 1st September 2020 is such a Covered Event because it occurs during the Period of Insurance.”

In support of the Commercial Court’s approach to construction, the Court of Appeal pointed to the definitions of “Indemnity Period” and “Reduction in Turnover” which, when read together with the Insuring Clauses meant that Allianz agreed to pay “Business Interruption Loss proximately caused by a Covered Event which occurs during the Period of Insurance” and that “The Business Insurance Loss which it agrees to pay is the Reduction in Turnover caused by the Covered Event, beginning on the date of the Covered Event and continuing for a maximum of 12 (or 24) months. Necessarily, therefore, the losses which VE is entitled to recover may continue beyond the end of the Period of Insurance.”

Appeals for which permission was refused

Various Eateries also sought permission to appeal in relation to the Commercial Court’s conclusions that:

• Renewals and relaxations of existing measures could not amount to single occurrences for the purposes of the SBIL. 
• If there is a Covered Event giving rise to Business Interruption Loss, there will always be at least one SBIL.

The Court of Appeal refused permission on both grounds. 

Conclusion

Given the complexity and scale of the COVID-19 pandemic the number of issues of aggregation thrown up under various policy wordings has, perhaps, not been surprising. The original Commercial Court judgment and now this Court of Appeal judgment provide helpful guidance on these issues specific to COVID-19 but also more generally. “Remoteness” is an important limit to aggregation which has developed over the years from the decision in Caudle v Sharp [1995]. The exact limit imposed by remoteness is linked to, but arises independently of, the contractual language used. In this particular scenario it was accepted that the occurrences and the loss were connected, and so satisfied the contractual language but were, legally, still too remote, or distant, from each other particularly because the Government action which had been taken in the intervening period.  It is important to recognise however when applying these principles to other claims or other scenarios that aggregation is very fact sensitive. So, for example, the Court of Appeal did not rule out aggregation back to Wuhan or the initial UK infection for losses which occurred prior to any Government action on 16 March 2020; the link between those losses and the occurrence may not be too remote. More broadly the language of the policy will be important in identifying the aggregating feature as will the facts specific to that policyholder’s loss.