How many interruptions? How many sums insured?
ABC Sports club had a policy containing the following BI extension:
The Insurance under Section 9 is extended to include loss which results directly from the interruption of or interference with Your Business at the Premises in consequence of the closing of or denial of access to the whole or part of the Premises by the order of a competent Public Authority.
Our liability under this Extension shall be limited to 3 (three) months starting with the date of the order of a competent Public Authority.
. The Insured suffered a loss of business as a result of three lockdowns as follows:
- 23 March 2020 for 90 days (this lockdown finishing 23 June 2020)
- 5 November 2020 for 4 weeks (this lockdown finishing on 2 December 2020)
- 26 December 2020 under Tier 4 followed by the National lockdown commencing on 6 January 2021 and finishing on 12 April 2021
Although the Insured had been pleased that underwriters have responded to its first claim, the losses were quite substantial and the effect on the business had been significant. The Insured was left without any payment for the two periods of interruption. This was explained by the insurer by saying:
Insurers have advised that the cover is subject to the cumulative limitation affecting all extensions as follows:
“Our liability under any extension or combination of extensions shall not exceed in respect of any one event during the period of insurance, 10% of the sum insured under section 2 or £100,000.00, whichever is the lower amount unless otherwise stated on the schedule.”
Insurers therefore consider that the limit is a cumulative total over the policy year and is not applicable to each individual event. As a consequence, Insurers have confirmed that they are unable to provide any financial assistance with regards to the two additional claims.
We had to point out to the insurer that what they had said in their response was contradictory; it simply did not make sense.
It should be noted that the coverage was not dependent on disease and so any general market understanding that disease claims should be treated as one event could not apply. The proximate cause of the Insured’s losses was the closing of premises by order of a competent Public Authority. The cause for such closure was not dependent on anything other than the instruction to close.
We therefore concluded that each time the government ordered premises, such as the Insured’s, to close represented its own event. Underwriters may well not have anticipated a series of such events, but we asserted that the Insured was entitled to take the policy for what it says.
It was difficult to escape the conclusion that any one event during the period of insurance cannot be treated as part of a cumulative total at all; it must apply to each event, and each event is a separate decision taken by the government for certain premises to close. There was simply no basis for underwriters to conclude there is a cumulative limit even though, we are told, this had been based on the advice of lawyers.
Our client was delighted when it received the substantial additional payment that was properly due.
The moral of the story? Each case is unique and we now have some new judgments to consider in addition to the FCA test case. Never say never: these cases are always worth a second look.