The Singapore Court of Appeal considers the issue of causation in COVID-19 business interruption claims

In QBE Insurance (Singapore) Pte Ltd and another v Relax Beach Co Ltd [2023] SGCA 45, the Court of Appeal handed down Singapore’s first reported judgment on a COVID-19 related business interruption insurance claim.

The circumstances preceding this judgment are unique as the substantive appeal was withdrawn prior to the scheduled hearing, leaving only the issue of costs to be determined. The Court of Appeal, however, found it appropriate to provide its initial views on the merits of the appeal since they were relevant to the question of costs and also a matter of public interest in the wider insurance market. The Court proceeded to comment on the merits of the appeal, stating that it would likely have found in favour of insurers. Of particular note is the Court’s discussion on the issues of notification, causation involving incidents of disease and the interpretation of composite perils in a hybrid clause.

Background

The Insured (Relax Beach Co Ltd) owns and operates a luxury hotel in Phuket (the “Insured Premises”) and submitted a claim under its policy for apparent business interruption losses resulting from the COVID-19 pandemic. Some pertinent clauses in the policy are:

The Notification Clause

NOTIFICATION OF CLAIMS

On the happening of any loss … the Insured shall forthwith give notice thereof in writing to the Insurer(s) and shall (within thirty (30) days after such loss … or such further time as the Insurer(s) may in writing allow), at the Insured’s own expense, deliver to the Insurer(s) a claim, in writing containing as particular an account as may be reasonably practicable of the several articles or portions of property loss, destroyed or damaged and of the amount of loss, destruction or damage thereto, having regard to their value at the time of the loss, destruction or damage, together with details of any other insurances on any property hereby insured.

The Insured shall use due diligence and do and concur in doing all things reasonably practicable to minimise any interruption of or interference with the Business to avoid or diminish the loss and shall also deliver to the Insurer(s) a statement in writing of any claim certified by the Insured’s auditor, with all particulars and details reasonably practicable of the loss and shall produce and furnish all books of accounts and other business books, invoices, vouchers and all other documents, proofs, information, explanations and other evidence and facilities as may reasonably be required for investigation and verification of the claim together with (if demanded) a statutory declaration of the truth of the claim and of any matters connected therewith. [ie, “Second Condition”]

No claim under this Policy shall be payable unless the Insured has complied with the terms of this condition.

The Infectious Disease Extension (“IDE”):

87. INFECTIOUS DISEASE MURDER AND CLOSURE

Notwithstanding anything contained in the within policy to the contrary including but not limited to the “material damage proviso” the Policy is extended under Section 2 to include loss directly from interruption of or interference with the business carried on by the Insured at the premises in consequence of:

1. Closing of the whole or part of the premises by order of a Public Authority as a result of an outbreak of a notifiable human infectious or contagious disease or consequent upon defects in the drains and/or other sanitary arrangements at the premises.
2. Murder or suicide occurring at the premises.
3. Injury, illness or disease arising from or likely to arise from or traceable to foreign or injurious matter in food or drink provided from or on the premises.
4. Threat of violent damage to the premises and/or injury to person therein.

On 2 April 2020, the Phuket Governor ordered the complete closure of all hotels in Phuket given the increase in COVID-19 cases (the “Closure Order”).

On 7 April 2020, the last guests vacated the Insured Premises, which was then closed until further notice.

On 26 May 2020, the Insured notified Insurers of a claim under the policy. As part of the notice, the Insured confirmed that there had not been any outbreak of COVID-19 at the Insured Premises.

On 29 May 2020, Insurers wrote to the Insured highlighting that since there was no outbreak of COVID-19 at the Insured Premises, cover under the IDE was not triggered. Insurers then requested any further information (within 21 days) to support the claim, failing which the claim would be ‘rejected’. Following the 29 May 2020 letter, Insurers received no further information from the Insured.

On 5 February 2021, the Insured’s lawyers wrote to Insurers requesting that Insurers retract the ‘rejection’ of the claim without providing any additional information in support of their request.

On 31 March 2021, the insured commenced proceedings in the Singapore High Court after Insurers refused to revise their position, seeking a declaration that:

1. They had a valid claim under the policy for business interruption suffered at the premises; and
2. That the insurers were liable to indemnify the insured in respect of such business interruption losses.

It was only in the Insured’s supporting affidavit that it was disclosed for the first time that a hotel employee, Mr. K, had tested positive for COVID-19 around 26 March 2020. An implication of this was that an infection did occur at the Insured Premises, thus potentially triggering liability under the first limb of the IDE (subject to the extension’s other requirements).

Insurers defended the claim on the basis that: (1) the policy’s notification provisions (to which a condition precedent attached) had not been complied with; and (2) not all elements / requirements of the IDE had been established by the Insured.

The High Court judge found in favour of the Insured. In particular, the judge disagreed with Insurers’ objection that the claim had not been validly notified finding that the Insured was only required to give notice of the “happening of any loss, destruction or damage”. Accordingly, the failure to notify the insurers of Mr. K’s infection was immaterial. On the issue of causation, the judge was persuaded that that the lone infection to Mr. K had, “more likely than not,” formed part of the statistics informing the decision of the Governor to impose the Closure Order even though there was no evidence that Mr. K’s infection resulted in the Closure Order being made. In the circumstances, the judge found that Mr. K’s infection was one of the many concurrent causes of the Closure Order. As causation was established, and relying upon the UK Supreme Court’s decision in the FCA test case, the judge held that insurers were liable under the policy; Insurers then appealed.

Key Findings

The Court of Appeal disagreed with the High Court’s reasoning. On the issue of notification, the Court of Appeal highlighted that the Notification Clause in the policy required the insured to provide “all other information, explanations and other evidence as may be reasonably required for investigation and verification of the claim”. In the circumstances, if Mr. K’s infection is to be relied on as constituting an outbreak, Insurers should be notified of that; however, the insured failed to do so. As this obligation to notify was a condition precedent under the policy, the Court considered that this failure to provide proper notification would have been fatal to the Insured’s case.

The Court of Appeal was also doubtful if Mr. K’s lone infection would qualify as an “outbreak” given that, ordinarily, an “outbreak” refers to an infection of more than one person. Additionally, the Court considered it problematic to regard Mr. K’s case as “one of the many concurrent causes” of the Closure Order. In declining to include Mr. K’s case with the general statistics of COVID-19 cases, the Court reasoned that the text of the policy required the outbreak to have occurred “at the premises”. The Court construed the IDE as looking to insure localised perils only. 

Finally, the Court of Appeal observed that when the insurance contract was entered into, it did not occur to the parties that a global pandemic combined with a single infection on the premises would be a covered event under the policy. To find otherwise would be against the parties’ intention. In light of the foregoing, the Court of Appeal was of the view that Insurers’ appeal was not unmeritorious.

Conclusion

Whilst the Court of Appeal was not required to make findings on the liability dispute, the Court’s observations highlight a potentially different approach to causation in COVID-19 business interruption claims than that currently being adopted by the English courts. The Singapore law position on “at the premises” infectious disease cover would seem to be narrower. These issues, however, remain unsettled.   

It remains to be seen whether any other COVID-19 business interruption claims will come before the Singapore courts, and if further judgments / commentary are provided by the courts in such matters.