In this recent United Kingdom Supreme Court judgment discussed here, in addition to considering the meaning of “catastrophe” in the context of the Covid-19 losses and the treaty wording, the application of the “hours clause” was also considered. 

The reinsurers argued that even if there was a catastrophe only business interruption that had occurred in the first 168 hours specified in the “hours clause” was recoverable.  That is losses would be suffered on a “day to day basis” rather than all being considered to arise on the day the business was ordered to close.  

The court ruled that the “hours clause” did not have the effect that the reinsurances would only respond to payments in respect of the closure of the insureds’ premises during the stipulated 168 hours period.

The court said there was no clear distinction to be made between damage and non-damage business interruption loss scenarios.  All the losses due to business caused by closure were recoverable.  The hours clauses did not prevent such recovery or restrict it to a set number of days by reference to hours clause terms.

The court referred with approval to the example of a hotel being able to recover all its business interruption losses because of physical damage beyond any hours clause period.  That was because all its losses were taken to have occurred on the day of the property damage suffered.

The court adopted a broad approach to aggregation and reinsurance coverage for Covid-19 losses. 

Under South African law a court is likely to come to the same conclusion ensuring that reinsurers play their part in indemnifying reinsureds for the financial cost of Covid-19 losses.