Covid-19 BI Update: TKC London Ltd v Allianz – Covid-19 closure not “accidental loss” of property

Hot on the heels of the FCA Test Case judgment, on 15 October 2020 the Commercial Court granted summary judgment in favour of Allianz Insurance Plc, in a case brought by The Kensington Creperie (‘TKC’) seeking coverage of its BI losses arising from enforced closure in the wake of the Covid-19 pandemic[1].

In contrast to the FCA Test Case which examined coverage under ‘non-damage’ business interruption extensions, but echoing many of the cases currently being pursued in various US jurisdictions, TKC sought to establish coverage on the basis that it had suffered an “accidental loss of property”.

TKC’s Arguments

The Policy provided cover for loss resulting from business interruption “in consequence of an event to property”, “Event” being defined as “Accidental loss or destruction of or damage to property used by the Insured at the Premises for the purpose of the Business.”

Seeking to establish that the mandatory closure of its business from 21 March to 4 July 2020 could amount to an Event within the meaning of the Policy, TKC argued that “accidental” meant nothing more than “unlooked for or unintended”, and that “loss of property” included temporary loss of use. TKC pointed to the use of the words ‘All Risks’ in the titles of the relevant insuring clauses, and various judicial authorities supporting an interpretation of ‘loss’ going beyond pure physical damage.

Additionally and alternatively, TKC argued first that the business interruption cover was triggered by loss of or damage to stock, and secondly that the right to carry on business from the premises could itself amount to intangible property which, by virtue of the Regulations, was lost or damaged.

Allianz’s Position

Allianz, represented by Gavin Kealey QC, submitted that the temporary closure of the premises did not amount to “accidental loss of property”, both because accidental loss referred only to physical loss and because something more than merely transient deprivation was required. The temporary closure of the premises failed on both counts.

Relying on an extensive line of case law considering the meaning of the word “loss” (including, probably uniquely, two different cases concerning lost pearl necklaces), Mr Kealey reminded the Court of Sir Martin Nourse’s memorable comment in Tektrol Ltd v International Ins Co of Hanvover Ltd:

““Loss” is a word whose meaning varies widely with the context in which it is used. If a man said to you: “I have lost my wife”, you would understand him to mean one thing outside the maze at Hampton Court and another outside an undertakers in the high street.”

In the context of the Policy, Allianz submitted that a number of further authorities supported an interpretation of loss limited to physical damage, as well as to circumstances where recovery was at least uncertain (and not therefore temporary). This, Allianz argued, was also the only interpretation of the Policy that made commercial sense of the Policy as a whole, since any other construction would render the proviso and Denial of Access provisions in the policy redundant.

The Judgment

The Court gave TKC’s arguments short shrift. As to what was meant by the word “loss”, the Court found that:

“the immediate context of the word “loss” within the definition of “Event” is that it is followed by the words “or destruction of or damage to”.  I again accept Mr Kealey’s submission that those words strongly suggest that “loss” here is similarly intended to have a physical aspect. … Taking these contextual matters into account as a whole, it therefore seems to me that the expression “loss … of … property” in the definition of “Event” cannot sensibly be interpreted as including mere temporary loss of use of property.”

As to TKC’s alternative submission that the Policy was triggered by damage to TKC’s stock, the Court found that:

“the factual assertion that the deterioration in TKC’s stock caused (proximately or otherwise) any relevant interruption or interference with TKC’s business is one which … I can summarily reject as wholly unrealistic even at this preliminary stage.” 

As a result the Court found that TKC’s action was bound to fail and granted summary judgment in favour of Allianz.

Comment

The case is of general importance to policyholders seeking recovery of their BI losses flowing from Covid-19 related closures.  Whilst the FCA Test Case has established (subject to appeal) that certain ‘non-damage’ business interruption extensions will respond to losses caused by the consequences of the Covid-19 pandemic, a majority of policyholders will not have had the benefit of policies containing such extensions, and those that do are in most cases subject to sublimits of liability that fall far below the main policy limits. A favourable finding in relation to the meaning of “accidental loss of property” could potentially have opened the floodgates to many thousands of additional claims and dramatically increased insurers’ exposure.

The relevance of the present case was recognised by the Court in the Introduction to its judgment:

“The decision in the present case may therefore be of consequence for other potential claimants. To that limited extent, this judgment is therefore something of a footnote to the comprehensive and (subject to any appeal) authoritative statement of the law and exegesis of the various policy provisions in the judgment of Flaux LJ and Butcher J in the FCA test case.”

The Court’s findings are therefore unsurprising, particularly in light of the detailed conclusions reached by the Court in the FCA Test Case. If the Court had found in favour of TKC in this case, the issues determined in the Test Case would largely have become irrelevant, since a majority of policyholders would be covered under the main property damage sections of their policies, and would have no need to turn to the ‘non-damage’ extensions for cover.

Although not on the face of it a positive outcome for policyholders, the Court’s decision is therefore useful in further clarifying the legal position in relation to the cover available to businesses for their Covid-19 business interruption losses.

[1] TKC London Ltd v Allianz Insurance Plc [2020] EWHC 2710 (Comm)