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    Covid-19 and Business Interruption Insurance: A plague on anyone’s house?

    Dispute Resolution Solicitor Richard Raban-Williams discusses an example of the impact that Covid-19 has had on insurance coverage.

    As the vaccine rollout in the UK continues, it seems that there is light at the end of the tunnel in terms of a return to some form of normality in day-to-day life. However, the impact of the Covid-19 pandemic on insurance coverage appears likely to continue for some time into the future.

    In this regard, a significant amount of welcome clarity was provided in January 2021 when the Supreme Court handed down its decision in the Covid-19 Business Interruption insurance test case. That judgment has been widely lauded by policyholders as it confirmed once and for all that certain clauses in insurance policies afford cover for the disruption caused to businesses by the Covid-19 pandemic.

    One issue that the Supreme Court did not determine however was the situation regarding so called ‘disease clauses’ (that is, a clause in an insurance policy which lists specific diseases) that make no reference to Covid-19. Guidance on the interpretation of such clauses recently arrived however in the case of Rockliffe Hall Limited -v- Travelers Insurance Company Ltd.

    Background

    Rockliffe Hall (“Rockliffe”) is a luxury spa hotel and golf course located in County Durham whose business, like so many others, has been devastated by the Covid-19 pandemic. It had an insurance policy with Travelers which included an extension for cover in the case of Business Interruption caused by an ‘Infectious Disease’. The term ‘Infectious Disease’ was defined in the policy by reference to a list of 34 individually named diseases. Notably, this list excluded Covid-19 (and SARS) but did include ‘Plague’.

    Rockliffe claimed an indemnity of £250,000 from Travelers under its policy for the losses it suffered following its closure due to the effects of the pandemic. Travelers applied for strike out of Rockliffe’s claim on the basis that the policy, when properly construed, did not provide cover against losses resulting from Covid-19.

    The main points advanced by Rockliffe in trying to substantiate its claim were as follows:

    1. That losses arising from Covid-19 were covered under the word ‘Plague’ in the list of Infectious Diseases;
    2. That cover for Covid-19 was available to Rockliffe as there is evidence that Covid-19 is associated with and/or causes encephalitis/meningitis (both of which were listed as Infectious Diseases); and
    3. That, despite the list of 34 Infectious Diseases, Rockliffe and Travelers had not intended to limit cover to a number of pre-defined diseases. Rather, the parties intended to cover highly contagious or infectious diseases even if they were not listed and were newly occurring.

    The Court’s Decision

    The court applied the usual rules on contractual interpretation which, unsurprisingly, led to it finding in Travelers’ favour and striking out Rockliffe’s claim.

    Rockliffe’s first argument, put simply, was that plague has more than one meaning and should be interpreted widely as ‘an infectious disease which spreads rapidly and has a high mortality rate; an epidemic of such a disease’ (which would include Covid-19). Further, Rockliffe said that if Travelers had intended for the word plague to refer to a specific disease (such as bubonic plague) then the policy would have named that specific disease in the list of Infectious Diseases.

    The court disagreed, finding that this was a ‘a clever lawyer’s construct and not a credible suggestion’. It was held that, considering the entire wording of the policy, it was clear that the word ‘Plague’ was a reference to a specific disease, and not to any disease which rapidly spreads. Further, the court noted that the definition of ‘Plague’, as advanced by Rockliffe, was not a disease or a condition whatsoever. It was in fact the ‘description of the macro effects of more than one possible disease’ and Rockliffe’s purported definition of the word plague was ‘essentially descriptive’.

    Rockliffe’s second argument was dismissed with even more disdain; the judge describing it as an ‘Alice in Wonderland approach’. It was held that a reasonable person would not understand the reference to encephalitis or meningitis to be a reference to Covid-19. This was especially the case where at the time the policy came into existence Covid-19 had yet to be discovered. In addition, cover under the policy required an outbreak of the Infectious Disease within a 10-mile radius of Rockliffe Hall. The only disease which had brought Rockliffe’s business to a standstill was the outbreak of Covid-19, not encephalitis or meningitis.

    Likewise, the court was not impressed with Rockliffe’s third argument that the policy responded following the occurrence of highly contagious or infectious diseases, even if they fell outside the list of Infectious Diseases and were newly occurring. It was noted that Rockliffe’s policy included a static list of specific diseases known to the parties (and which could not be updated in the future). This was entirely different to the ‘Notifiable Disease’ clauses considered by the Supreme Court in the test case – where the cover provided by the policies referred to a dynamic list of diseases regularly updated by the government.

    Analysis

    Whilst the decision in Rockliffe is not surprising given the well-established rules of contractual interpretation, it is nevertheless a blow to insureds who have policies which refer to a list of specified diseases that exclude Covid-19.

    It also offers a stark warning to policy holders (and solicitors) seeking to construct novel arguments in an effort to extract payment from insurance companies. The judge made it clear that she was not prepared to let Rockliffe continue with its claim and incur further costs by obtaining expert evidence on the link between Covid-19 and encephalitis/meningitis when it was bound to fail. The decision reinforces the need for policy holders to carefully consider the wording of their policies  before deciding to take any legal action.

    If you have any questions regarding the above information, or need dispute resolution related advice, please contact Richard Raban-Williams on richard.raban-williams@seddons.co.uk or 020 7725 8061.

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