Struck out BI claim proves there is no ‘public policy move’ following test case

There will not be a “public policy move” towards interpreting all business interruption claims in favour of policyholders following the FCA’s test case, said Sarah Prager, barrister at One Chancery Lane.

Speaking at a virtual FOIL roundtable on 9 November, Prager cited the example of the recent TKC Limited v Allianz Insurance case, heard shortly after the High Court published its judgment in September, ruling on the interpretation of specific business interruption (BI) policy wordings from eight different insurers and how these applied to Covid-19-related claims.

In TKC, the insurer – Allianz – applied for a summary judgment regarding a BI claim brought by its policyholder, a Kensington-based creperie.

The business had been forced to close between 21 March and 4 July because of the mandated national lockdown imposed by the government – as a result, its stock deteriorated and was unable to be used. The creperie said that this deterioration caused its business to be interrupted.

However, both Allianz and the court disagreed with the policyholder’s interpretation of policy wordings and the claim was ultimately struck out.

The reason for this lies in the definitions included within the policy wordings – firstly, that an event had to have occurred to the insured property. Although the creperie said its stock deteriorating constituted as an event which caused business interruption, the policy wordings defined an ‘event’ as an accidental loss, destruction or damage to the property. Furthermore, ‘damage’ was also defined as accidental. In this instance, therefore, nothing accidental took place.

The policy small print additionally included an exclusion for BI or property damage that had been caused by or consisting of inherent vice or gradual deterioration, which could, then, be applied to the condition of the creperie’s stock.

The summary judgment, which referenced the FCA’s test case, decided that although the closure of the café did amount to business interruption, it was not caused by an insured event as it was not accidental. It added that any losses to the business were temporary, rather than permanent.

With regards to the deterioration of stock, the judgment said this did not cause the business to be interrupted – rather it was the government-led closure that caused the stock to deteriorate. Notwithstanding this, deterioration of stock fell under the policy’s exclusions anyway.

Prager described the TKC case as a “footnote” to the test case action. She said it demonstrated that a “public policy move” was not afoot following the FCA’s test case judgment and that not all BI cases would reap a favourable result.

She added: “I initially thought these cases, there was going to be a public policy move to try and interpret these clauses in favour of the policyholder and that doesn’t seem to be the case. It was so not in favour, in fact, that the claim was struck out.”

Colleague Richard Collier, a fellow barrister at One Chancery Lane, urged attending legal professionals to “play for time” in order to hear the appeal judgment from the Supreme Court before progressing any further BI-based cases.