{"id":1513,"date":"2024-12-09T16:49:12","date_gmt":"2024-12-09T16:49:12","guid":{"rendered":"https:\/\/fenchurchlaw.com\/en-uk\/?p=1513"},"modified":"2024-12-09T16:49:12","modified_gmt":"2024-12-09T16:49:12","slug":"reinsurance-cover-for-covid-bi-losses-upheld-on-appeal","status":"publish","type":"post","link":"https:\/\/fenchurchlaw.com\/en-uk\/reinsurance-cover-for-covid-bi-losses-upheld-on-appeal\/","title":{"rendered":"Reinsurance Cover for Covid BI Losses Upheld on Appeal"},"content":{"rendered":"

In UnipolSai Assicurazioni SPA v Covea Insurance PLC <\/em>[2024] EWCA Civ 110<\/a>, <\/em>the Court of Appeal has upheld the first instance finding that the reinsured (Covea), having paid out substantial sums in respect of Covid business interruption (BI) losses, were entitled to indemnity under property catastrophe excess of loss policies with reinsurers. The decision provides clarification on the operation of aggregation clauses and the proper interpretation of a \u201ccatastrophe\u201d in treaty reinsurance arrangements.<\/p>\n

Covea provided cover for a large number of children\u2019s nurseries which were forced to close between 20 March 2020 and July 2020, as a result of the pandemic. The factual background and outcome at first instance are explained in detail in our earlier article<\/a>. The decision was appealed by reinsurers and the following questions arose for re-evaluation:<\/p>\n

1. Whether Covid-19 losses arose out of, and were directly occasioned by, a \u201ccatastrophe\u201d; and<\/p>\n

2. Whether the \u201cHours Clause\u201d – by which the duration of any \u201cLoss Occurrence\u201d was prescribed depending on the nature of the underlying peril – meant that:<\/p>\n

(i) an \u201cindividual loss\u201d occurs on the date the covered peril strikes, including where the insured peril is the loss of ability to use premises; and<\/p>\n

(ii) where the (re)insured first sustains indemnifiable BI loss within a nominated 168-hour period, subsequent losses after that period fall to be aggregated as part of a single \u201cLoss Occurrence\u201d.<\/p>\n

Meaning of Catastrophe<\/u><\/p>\n

At first instance, Mr Justice Foxton held that Covid-19 did amount to a \u201ccatastrophe,\u201d as required under the reinsurance wording. On appeal, the reinsurers argued that a catastrophe must be a sudden or violent event, capable of causing physical damage, whereas the pandemic was an ongoing state of affairs.<\/p>\n

The Court of Appeal rejected these submissions, highlighting the absence of any reference to an \u201cevent\u201d within the policy wording, and noting that the unities test in Axa v Field<\/em> [1996] is merely an aid to be used with broad application. Their Lordships also rejected the argument that \u201csuddenness\u201d was a pre-requisite for all catastrophes, and, in any event, the \u201cexponential increase in Covid 19 infections in the UK [\u2026] did amount to a disaster of sudden onset<\/em>.\u201d The attempt by reinsurers to rely on an ejusdem generis<\/em> argument, in relation to the alleged need for physical damage, was flawed, as the types of catastrophes mentioned in the policy were not intended to be a prescribed class. The expert evidence that BI cover may include cover for non-damage BI was unchallenged.<\/p>\n

Operation of the Hours Clause<\/u><\/p>\n

The central question for consideration under the Hours Clause was when the relevant loss occurred. If it fell outside the period stipulated, then it would not be recoverable. It was also noted that the term \u201cLoss Occurrence\u201d was defined in the policy to mean \u201cindividual losses\u201d. Discussing this further, the Court of Appeal emphasised that the term \u201coccur\u201d means when a loss first happens during a period of time. In relation to BI specifically, it was held that when the covered peril is the loss of an ability to use the premises, the individual loss occurs at the same time, regardless of how long the financial loss continues – consistent with the approach taken by Mr Justice Butcher in Stonegate<\/em> and Various Eateries<\/em>. Provided the individual loss occurs within the indemnity period, the totality of that loss is covered and all of its financial consequences. An apportionment of financial loss would give rise to considerable practical difficulties and was deemed to be incorrect.<\/p>\n

Implications for Policyholders<\/u><\/p>\n

The decision is welcomed by cedants with the benefit of similarly worded reinsurance policies. The implications are far-reaching, with total payouts for Covid BI claims estimated in the region of \u00a32 billion, according to the Association of British Insurers. This policyholder-friendly precedent is particularly helpful, since most reinsurance disputes are resolved in confidential arbitrations.<\/p>\n

Authors:<\/strong><\/p>\n

Amy Lacey, Partner<\/a><\/p>\n

Pawinder Manak, Trainee Solicitor<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

In UnipolSai Assicurazioni SPA v Covea Insurance PLC [2024] EWCA Civ 110, the Court of Appeal has upheld the first […]<\/p>\n","protected":false},"author":70,"featured_media":366,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[3],"tags":[296],"class_list":["post-1513","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-property-risks"],"acf":[],"yoast_head":"\nReinsurance Cover for Covid BI Losses Upheld on Appeal - Fenchurch Law UK<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fenchurchlaw.com\/en-uk\/reinsurance-cover-for-covid-bi-losses-upheld-on-appeal\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Reinsurance Cover for Covid BI Losses Upheld on Appeal - 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