High Court clarifies interpretation of key principles in Covid-19 reinsurance case

Citation: [2024] EWHC 253 (Comm)
Judgment on

Introduction

In the case of Unipolsai Assicurazioni SpA v Covea Insurance PLC, the High Court of Justice Business and Property Courts of England and Wales Commercial Court (KBD) provides a comprehensive analysis of several key legal principles in the context of property catastrophe excess of loss reinsurance contracts. The case consolidates two separate appeals under s.69 of the Arbitration Act 1996, both of which deal with crucial issues relating to the interpretation and application of reinsurance contracts against the backdrop of business interruption losses caused by the Covid-19 pandemic.

Key Facts

The appeals arise from two partial final arbitration awards that centered around the treatment of claims for indemnity under property catastrophe excess of loss reinsurance contracts due to business interruption losses caused by the Covid-19 pandemic. The core issues on appeal included whether Covid-19 losses met the definition of “one catastrophe” and the interpretation of “Hours Clauses” which set temporal boundaries for indemnifiable losses.

Interpretation of “Catastrophe”

The court examined the inherent attributes of a “catastrophe” within reinsurance contracts and rejected the arguments that it must be an event capable of causing physical damage, sudden in onset, or violent. Furthermore, the arbitral tribunals concluded that Covid-19’s outbreak in the UK, culminating in the 18 March 2020 Closure Order, constituted a catastrophe as per the reinsurance contracts. The court affirmed these findings, reinforcing the principled approach that a catastrophe must be capable of directly causing individual losses and reflect a substantial and adverse change from what preceded it. The analysis drew from dictionary definitions and observed that historical context regarding reinsurance market wordings and practices could inform but not conclusively determine the interpretation.

”Hours Clauses”

A significant legal issue resolved in this case pertained to the interpretation of “Hours Clauses” within the reinsurance contracts. The court considered whether these clauses referred to the duration of the catastrophe or the individual losses. For damage-related business interruption, it is accepted that the entire business interruption loss is treated as occurring at the time of property damage. It was held that a similar approach should apply to non-damage business interruption losses, rejecting the argument that losses occur “day by day”. The application was aligned with established principles of direct insurance policy settlement, which consider the net effect of credits and debits over the indemnity period, not on a per diem basis.

Outcomes

The court dismissed the appeal against the Covéa Award in affirming the ruling that the Covid-19 outbreak constituted a single catastrophe and concluding that an individual loss “occurs” when the business interruption begins, not day by day. The appeal against the Markel Award, which concluded losses occurred day by day and thus did not satisfy the “Hours Clause”, was allowed, favoring the interpretation that all individual losses resulting from the catastrophe during the 168-hour “Hours Clause” period were recoverable.

Conclusion

The High Court’s analysis in Unipolsai Assicurazioni SpA v Covea Insurance PLC provides valuable guidance on the interpretation of aggregation and “Hours Clauses” within excess of loss reinsurance contracts in light of Covid-19 business interruption claims. The court’s decision underscores an objective and contextual approach when determining the meaning of “catastrophe” and reinforces the principle that all resultant individual losses from a catastrophe should be treated as occurring at the inception of the underlying event causing loss. This judgment will serve as a key reference point for legal professionals dealing with similar reinsurance disputes in the future.

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