Did business interruption insurance cover financial losses arising from the COVID-19 lockdowns? Few questions have been the subject of more litigation in recent times but, as a High Court ruling showed, there is regrettably no standard answer.
The case concerned a restaurant which, like thousands of others, was required to close its doors during lockdowns. It launched proceedings after its insurer took the view that its losses were not covered by its business interruption policy.
Ruling on the matter, the Court noted that the policy included a term which extended cover to business interruption or interference caused by damage arising from an outbreak of a notifiable contagious human infection or disease manifested by any person on the restaurant’s premises or within a 25-mile radius.
Finding in favour of the insurer, the Court noted that the phrase ‘caused by damage’ was crucial. The ordinary and unambiguous meaning of those words was that no cover was afforded in the absence of ‘damage’ to the premises. The word, which appeared in bold typeface, was defined in the policy as physical loss, physical damage or physical destruction.
The Court noted that a reasonable owner of a small to medium-sized business would have read the policy and understood the meaning of the word ‘damage’. There were at the time significantly more comprehensive insurance products on the market that provided business interruption cover that was not contingent on physical damage.
The Court’s reading of the relevant term did not altogether negate the cover it provided, for which no additional premium was paid. The manifestation of a notifiable infectious disease on the premises would clearly be capable of causing physical damage that would interfere with the business.
The restaurant had taken expert advice from an insurance broker and there was no reason to depart from the clear and workable wording of the policy that it obtained. To do so would require the Court to rewrite elements of the policy in a manner contrary to the parties’ express agreement and the established approach to construing the meaning of contractual wording.