The Court of Appeal recently handed down judgement in LEIC v Allianz, clarifying aspects of policies that cover disease ‘at the Premises.’  Whilst the decision could be subject to further appeals, this case should pave the way for the settlement of many ‘at the Premises’ Business Interruption policies, granting relief to many businesses with failed claims.

Whilst COVID–19 no longer dominates the news as a global issue, in the insurance industry, many claims are ongoing as a result of the March 2020 lockdown. The September 2024 judgement reminds policyholders to review their ‘At the Premises’ policies. The clock is ticking, and potential claimants will have less than two years to pursue claims arising from this lockdown period.   

Issues in Dispute

At the core of LEIC v Allianz was the question of proving that a COVID-19 outbreak manifested at the insured premises was the reason for government restrictions or whether showing an occurrence of disease at the premises was sufficient proof to grant coverage.

The Insurer’s Position

This position, predictably, argued for a strict causation test, requiring policyholders to show the government knew about a specific case at the premises when imposing restrictions.

The Policyholder’s Position

The policyholders advocated for a looser interpretation, meaning they only needed to show at least one manifestation of the disease at the insured premises, disregarding the need to prove that the occurrence of COVID was the only trigger for the government restrictions imposed on the premises. Further, claiming it was unnecessary to establish local government knowledge of the occurrence as a reason for the restrictions.

The Judgement

The Court favoured the policyholders’ interpretation, rejecting a strict ‘but for’ interpretation that would require a direct link between the occurrence and government restrictions. The Court understood that notifiable diseases like COVID-19 spread rapidly, unlike other localised risks of infestations. The rapid spread of COVID-19, therefore, justified a flexible approach to causation.

Drawing on previous ‘FCA Test Case’ rationale, the Court applied the same logic as previously applied to ‘radius policies’, which only allowed cover for disease outbreaks within a specified distance. This suggested that “each of the individual cases of illness resulting from COVID-19 which had occurred by the date of a restriction was a separate and equally effective cause of that action.” Therefore, neither wording limits the coverage to interruptions caused only by disease within the premises or a radius.

Practical Understanding

The judgement can be simplified into a contextual understanding, using the example of a high street full of barbers.

If the local government ordered the closure of all the barbershops on a high street after realising some had reported cases of COVID-19, two questions would arise about which barbers should be granted cover for business interruption.

1. Should BI insurance cover the losses for all closed barbershops on the highstreet regardless of confirmed cases?
2. Should BI insurance only cover the losses for barbershops with confirmed cases of COVID?

It is worth noting that all barbershops in this example experienced interruptions to their trade due to the restrictions imposed to control the outbreak. The closure was also a result of confirmed cases on the street. Therefore, blanket government restrictions are imposed to limit known and potential cases of COVID as a preventative measure for the whole high street. It may be later found that COVID had occurred in all the barbershops on the street, including the barbers who had not presented confirmed cases of COVID.

Implications of the Decision

If this decision is not appealed, this judgment will fast-track the settlement of many outstanding claims. However, it provides a challenging avenue for potential claimants.

Although policyholders no longer need to show that the COVID occurrence at their premises was the specific, primary cause of government restrictions or that the government knew about cases on their premises, they must show at least one occurrence of COVID at the premises in advance of the restrictions. For many claimants, this is a challenging area, especially when pre-March 2020 testing was scarcely conducted.

Other Unresolved Issues

Proving Loss – Policyholders must present accurate financial accounts to confirm the income they would have earned but for the interruption. Beyond this, they must prove the loss is directly linked to COVID and not due to the business being a loss-making entity. Suppose your business was already in a financial downturn before the pandemic. In that case, it cannot be argued that the pandemic was the only cause of this economic downturn.

Proving Loss: Furlough and Government Support—Businesses will need to account for government support. In Gatwick Investment v Liberty Mutual, the High Court held that furlough payments should reduce the net loss claimed from insurers.

This judgement will be reviewed by the Court of Appeal in 2025. Be sure to check our blog for updates as they arise.