In this court of appeal judgment the court was required to consider the judgment of the lower court previously discussed here.
The reinsurer’s grounds of appeal were that:
- Primarily, that the judge wrongly concluded that “the outbreak of Covid-19 in the United Kingdom, reflected in an exponential increase in the number of infections during a period up to and including 18 March 2020” was a “catastrophe” within the meaning of Condition 2(1) of the Reinsurance.
- Alternatively, that the judge wrongly concluded that for the purposes of the Hours Clause in Condition 2(2) of the Reinsurance:
- an “individual loss” occurs on the date the covered peril strikes;
- “when the insured peril which strikes the premises is the loss of the ability to use it… the individual loss occurs at the same point”; and
- where the (re)insured first sustains indemnifiable business interruption loss within a nominated 168-hour period, subsequent losses after that period fall to be aggregated with losses sustained within the nominated 168-hours as part of a single “Loss Occurrence”.
The appeal court in a thorough, careful and detailed analysis of the law and the lower court judgment and reasoning dismissed the appeal.
The appeal court said that the judge’s analysis as to the meaning of “catastrophe” within the relevant reinsurance could not be faulted. The relevant reinsurance policy did not contain a definition of “catastrophe” and the dictionary definitions considered by the court within the context of the reinsurance policy did not require that a catastrophe had to be sudden, violent or involve physical damage. The evaluative judgment on the facts by the arbitration tribunal that the outbreak of Covid-19 in the UK was a “catastrophe” within the meaning of the relevant reinsurance, and the judge’s endorsement of that finding, could not be faulted on appeal.
The court also agreed with the judge’s analysis and application of the Hours Clause.
An “individual loss” first occurs when a covered peril strikes or affects insured premises or property and, when the covered peril which strikes the premises is the loss of the ability to use them (whether through damage to other property or premises or through a closure order as was the case) the individual loss occurs at the same point.
The court said it was immaterial for its purposes how the property or premises are affected and by what type of peril.
The undisputed expert evidence was that market practice was and is to treat damage business interruption loss as occurring simultaneously with property damage. The appeal court said there was no basis for treating non-damage business interruption losses differently from damage business interruption losses.
All the cases considered say an “individual loss” only occurs once for the purposes of the Hours Clause irrespective of how long the financial loss suffered continues for. It encompasses the entirety of the loss sustained by the original insured as a result of the relevant catastrophe striking or affecting the premises, irrespective of whether the relevant “individual loss” comprises physical damage losses, business interruption loss or both. There is nothing in the Hours Clause requiring the individual loss to be a portion so that only part of it sustained during the 168 hours was to be indemnified.