Restaurant chain Wahaca is suing its insurer, QIC Europe Ltd, for allegedly failing to pay out for losses incurred when it was forced to close sites during the COVID-19 pandemic. Oaxaca Ltd, which trades as Wahaca, said in a High Court claim on 24 May 2023 that QIC had refused to provide cover for the losses that came after the UK Government ordered businesses to shut in 2020.
Wahaca claims that the COVID-19 regulations – which included enforced closures and stay-at-home orders – were directly caused by government action, entitling it to cover from QIC Europe under the terms of its insurance policy. Wahaca added that the failure by QIC Europe to pay out such sums also entitles it to damages.
The 2021 FCA test-case
The claim by Wahaca follows the landmark 2021 United Kingdom Supreme Court (UKSC) decision in which the Court confirmed the correct interpretation of a variety of different standard Business Interruption (BI) insurance policy wordings in order to clarify whether they provided cover in principle for COVID-19 related losses (see Financial Conduct Authority v Arch Insurance (UK) Ltd  UKSC 1). In so doing, the UKSC held that insurers must pay out to hundreds of thousands of companies forced to close during the first pandemic lockdown.
In relation to ‘radius’ disease wordings, hybrid clauses and Prevention of Access wordings, the Supreme Court found that individual cases of Covid-19 within the relevant radius of the insured premises were concurrent causes of the closures and restrictions, and consequent business interruption losses, along with all other cases of Covid-19 elsewhere in the UK. However, while some insurers have accepted cover under ‘At the Premises’ (ATP) wordings, many have not. This led to the need for further litigation, which the Commercial Court recognised by listing six expedited test cases for preliminary issue trials in May 2023.
The ’At the Premises’ test cases
In a ruling handed down by Mr Justice Jacobs on 16 June, the Commercial Court found emphatically in favour of the owners of London’s ExCeL Conference Centre in their claim against insurers, including Royal & Sun Alliance, over pandemic-related losses. The test case, which also involved a similar claim brought by Pizza Express, concerned ATP clauses in various insurance policies and whether the closure of businesses was covered.
The central question for ExCeL was whether the terms of their ATP cover justified the same approach to proximate causation as the disease covers considered in the FCA test case. ExCeL argued that the UKSC’s finding on concurrent causation applied in the same way to ATP clauses as to radius clauses. It argued that there was no good basis to distinguish ATP clauses from radius clauses when determining the appropriate test of causation, and if a single occurrence of Covid-19 within one mile of the insured premises was a proximate cause of government action and therefore interruption, the same must be true for a single occurrence at the insured premises themselves.
Conversely, the Insurers argued that ATP clauses were qualitatively different from radius clauses as radius clauses provided coverage for events occurring externally to the insured premises, while ATP clauses concerned matters at (and only at) the premises themselves. It was therefore inappropriate, the insurers argued, to import the Supreme Court’s findings on radius clauses to ATP clauses.
Rejecting each of the insurers’ competing cases on causation, Mr Justice Jacobs agreed with the policyholders on the central causation issue. The Supreme Court finding on concurrent causation was indistinguishable from, and applied equally to, ATP as to radius clauses.
Meanwhile, Pizza Express had its hopes of securing a £200 million-plus pay out extinguished by the High Court earlier this month, which ruled that the restaurant chain wrongly interpreted liability limits in its policy and sided with its insurers’ interpretation of how much Pizza Express could claim under its policy wording.
Pizza Express’ principal claims were made under two BI extensions in the standard Aon Trio policy which extend cover beyond the typical type of business interruption loss arising from physical damage to a policyholder’s premises. For its part, the insurer had denied coverage under both the ‘at the premises’ disease and ‘prevention of access’ BI extensions, arguing that the cover was limited to “localised cover” and did not correspond with BI losses caused by central government action taken in response to a nationwide public health emergency.
Both BI extensions in the Pizza Express policy were subject to a sub-limit of liability of £250,000. The Insurer, Liberty, successfully argued that the sub-limit of liability was a ‘Limit of Liability’ that applied ‘per Occurrence’, meaning that Pizza Express’s losses were to be aggregated and that any indemnity due to Pizza Express would accordingly be limited to £250,000.
What do the test cases mean for future claimants?
These are the latest in a string of judgments relating to Covid-19 business interruption insurance disputes and decisions on the application of causation principles to insurance disputes more widely.
The ExCeL judgment provides some further finality and clarity for issues left unresolved by the FCA test case and is a helpful development for the insurance market. The judgment could potentially affect hundreds of thousands of policyholders based on previous FCA estimates as to the extent to which ATP cover was purchased, and policyholders whose BI losses remain uncompensated.
Insofar as Pizza Express, the case indicates that coronavirus BI claims pursued under similarly-worded policies are likely to be subject to relatively broad aggregation by reference to one ‘source or original cause’, which will limit the amount recoverable, particularly in the case of policyholders with multiple insured premises. However, the Pizza Express ruling turned on a narrow point of construction that was entirely specific to the policy wording in question, and the judge’s decision was influenced not just by the content of the standard policy wording, but by the structure and formatting of the policy schedule, which may vary considerably between policyholders and insurers.
Policyholders whose BI losses remain uncompensated should now revisit their policy documents to consider whether they may now have a valid claim to pursue.