Last week it was publicly reported that on 25 October 2021, well-known UK baker, Greggs PLC, had issued proceedings in England & Wales against Swiss insurer, Zurich Insurance Group, seeking £100million in losses arising from a refusal to pay-out in claims under business interruption policies following the closure of some 2,200 of its stores under Covid-19 restrictions.
Zurich Insurance Plc (“Zurich”) were one of eight insurers who were a party to the test claim before in High Court in July 2020, and which was later appealed to the UKSC and judgment handed down in September earlier this year. That litigation led to directions from the UKSC on how clauses such as Zurich’s should be interpreted when assessing Covid-19 related claims for business interruption. Our short article on the UKSC decision can be found here: Business interruption insurance: what the UKSC say (bpcollins.co.uk).
Of the 21 policies considered by the High Court, two related to Zurich. ‘Zurich 1’, as it was known in the litigation, was a ‘Combined All Risks’ policy sold mainly to mid-market companies with a turnover of £5 million or more; and ‘Zurich 2’ was a ‘Commercial Combined Manufacturing’ policy. Both clauses were largely, but not entirely, used by service businesses and manufacturers, which were noted to be some 84% of all Zurich’s policyholders.
Given the potential impact on a large majority of policyholders, the potential financial impact of a flood of such claims on insurers was expected to be substantial.
In Zurich’s case, the test provisions (discussed at paragraph 477 – 502 of the High Court decision) dealt with a ‘business interruption cover extension’, in the following terms:
“Any loss as insured by this Section resulting from interruption of or interference with the Business in consequence of accidental loss destruction or damage at the under-noted situations or to property as under-noted shall be deemed to be an Incident …”,
and which was subject to an exclusion, such as (but not limited to) this:
“Action of competent authorities
Action by the police or other competent local, civil or military authority following a danger or disturbance in the vicinity of the premises whereby access thereto will be prevented provided there will be no liability under this section of this extension for loss resulting from interruption of the business during the first 3 hours of the indemnity period.
The maximum indemnity period is 12 months.”
Zurich played a more limited role in the appeal before the UKSC, having been one of only two insurers who did not appeal the High Court decision but appeared as respondent in connection with appeals pursued against them (and won) by the FCA.
Summarising what were more detailed discussions than a short article can cover, Zurich’s arguments were largely that “danger” could not refer to a “national infectious disease”, and that “vicinity” required an “immediate locality” rather than anything more general; it also argued the clause should be given a narrow meaning in line with legal commentary, especially when what was really being contemplated was something akin to a bomb scare rather than a nationwide pandemic. However, the UKSC’s resulting directions were that interpretation should be much wider, finding (amongst other factors) that “vicinity” need not be so immediate, and notably directing that the Government’s actions in late March 2020 should not be treated as action triggering the exclusion.
In widening the ambit for claims to be bought against insurers for Covid-related losses falling within coverage, the UKSC decision was expected to lead to a mass of insurance claims, and an uncertain future for many insurers. Greggs’ recent claim appears to be the first post-UKSC scuffle, but likely will not be the last, with many insurers still facing potentially substantial claims affecting a large body of their policyholders.
In the present case, Greggs has reportedly argued that although accepting coverage in principle , Zurich argues that any pay-out for business interruption losses is subject to a cap of £2.5million on the basis that it is treating the Covid pandemic as one long, on-going, event for coverage purposes, and thereby subject to a cap of £2.5million applicable for each such event. Greggs’ position, however, is that each lock-down or set of restrictions or government announcement amounted to a series of separate events, triggering separate coverage.