Business interruption policy with physical loss trigger did not cover COVID-19 losses 

England and Wales

This was a claim for summary judgment by Allianz, in response to a claim by the Kensington Crêperie, a café in West London. Allianz were the insurer of the café (TKC London Ltd v Allianz Insurance plc [2020] EWHC 2710).

The judgment gives guidance about the interpretation of business interruption insurance policies and loss of business due to the COVID-19 pandemic. Of course, the wording of the policy in each case must be carefully reviewed. In this case, the standard form policy covered losses caused by physical property damage and did not contain a non-damage extension of cover of the type considered in the FCA business interruption test case (see our Law-Now here).

The café had to close temporarily during the nationwide lockdown due to the COVID-19 pandemic and claimed losses they had incurred between 21 March 2020 and 4 July 2020. Kensington were insured under a standard form all-risks policy which included business interruption cover. The business interruption section provided cover for “Business Interruption by any Event”, ‘Business Interruption’ being defined as:

“Loss resulting from interruption or interference with the business carried on by the Insured at the Premises in consequence of an event to property used by the Insured."

‘Event’ was defined as:

‘Accidental loss or destruction of or damage to property used by the Insured at the Premises for the purpose of the Business.’

What the judge decided

The judge concluded that that losses arising from the temporary closure of the café due to COVID-19 were not covered by the policy and found in favour of Allianz, on the basis of the following key points:

• The café had suffered "Business Interruption" as defined in the policy.

• However, the enforced closure of the café did not come within the definition of "Event" which required “loss of property”. The judge accepted Allianz’s argument that physical loss of property was required. The word "loss" in the policy was followed by "or destruction of or damage to", which strongly suggested that "loss" was intended to have a physical aspect.

• The temporary loss of use of the property was not therefore an “Event” triggering cover for business interruption losses.

Take away points

• This case is important to businesses which have had to close because of COVID-19 and mirrors the wording often seen in leases in terms of rent suspension.

• The judgment does provide some welcome clarity on cover under business interruption policies, particularly where the policy doesn’t contain the non-damage BI extensions, in the FCA Test Case.

• The meaning of “loss” will be defined in relation to the immediate context in the policy and will refer to physical loss rather than loss of use of property.