Court of Appeal judgment handed down in Unipolsai Assucurazioni S.p.A -v- Covéa Insurance Plc [2024] EWCA Civ 1110

Property catastrophe excess of loss reinsurance: was the outbreak of Covid-19 a “catastrophe” and aggregation of Covid-19 business interruption losses under hours clause.

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1. Reinsurance disputes come to court only rarely.  And arbitration appeals reach the Court of Appeal infrequently.  This case was, therefore, unusual.  It was an appeal to the Court of Appeal from an Award in a reinsurance arbitration.
2. The reinsured (Covéa) had insured a large number of children’s nurseries and had paid out substantial sums under non-damage business interruption extensions when those nurseries were forced to close on 20 March 2020, as a result of the Covid-19 pandemic, and remained closed until July 2020.
3. Covéa was reinsured under a Property Catastrophe Excess of Loss Reinsurance by which reinsurers agreed to indemnify it for losses in excess of £10m in respect of each and “Loss Occurrence”, defined in the treaty as “all individual losses arising out of and directly occasioned by one catastrophe”. The duration of any “Loss Occurrence” was prescribed by the treaty depending upon the nature of the underlying peril (most obviously hurricane, earthquake or flood for which the relevant period varied from 72 to 504 hours) and it also included a catch-all window of 168 hours for “any Loss Occurrence of whatsoever nature”.
4. Covéa sought to aggregate all of the business interruption losses which it had paid in the period from 20 March to July 2020 and present them as single Loss Occurrence under the reinsurance. Reinsurers declined to pay on two bases.  First, they said that the outbreak of Covid-19 could never have been a “catastrophe” properly so-called because a “catastrophe” was a species of event which was sudden, violent and caused property damage, whereas Covid-19 was merely an ongoing state of affairs,  Secondly, they said that, even if Covid-19 was properly a “catastrophe”, the business interruption losses sustained by policyholders between March and July 2020 were individual losses which occurred on a day-to-day basis such that it was only those business interruption losses which had occurred in the period of 168 hours after the effective date of closure which fell within a single “Loss Occurrence” and were recoverable under the treaty.
5. Foxton J decided both of these issues against reinsurers, [2024] EWHC 253 (Comm), and in a judgment handed down on 30 September 2024 the Court of Appeal, comprising Sir Julian Flaux C, Popplewell and Newey LJJ, has now upheld Foxton J’s decision
6. As to the “catastrophe” issue, the Court of Appeal held that Tribunal’s conclusion was an evaluative conclusion which it was entitled to reach, and one with which the Court could not interfere under s69 of the Arbitration Act 1996 since it did not involve an error of law.  Further, the outbreak of Covid-19 was capable of being a catastrophe by reference to dictionary definitions and the wider contractual and market context including the unchallenged expert evidence that BI cover includes cover for non-damage BI.  It followed that there was no applicable law or market understanding of the term “catastrophe” to prevent such a conclusion and limit the meaning of catastrophe.  Specifically, a “catastrophe” was not limited by a requirement that it is a species of event since neither the word “event” nor “occurrence” appear in the policy, and the Court of Appeal adopted the Judge’s reasoning that there are factors (in the hours clause) pointing to a generous application of the unities test.
7. As to the construction of the hours clause, the Court of Appeal accepted Covéa’s argument that the relevant enquiry is to identify when an “individual loss” “first occurs” and, having regard to an undisputed market practice of treating loss as occurring at the time of property damage in the property damage BI context, this led to the conclusion in the non-damage BI context that the individual loss occurs when the covered peril strikes or affects the premises in relation to non-property damage BI. By contrast, reinsurers’ argument was said to give rise to “considerable practical difficulties” since BI losses might not become clear for some time owing to profit costs and savings being “lumpy” in their effect, and would mean that the treaty (which applied in excess of an ultimate net loss of £10m) would be unlikely to be impacted, since BI losses over a period of 168 hours would rarely exceed such an amount.
8. Aidan Christie KC and Rani Noakes (instructed by DWF) acted for the Appellant. The full judgment can be read here.

Written by Gabriel Barton-Singer.

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Aidan Christie KC

Call 1988 King's Counsel 2008

Rani Noakes

Call 2010

Gabriel Barton-Singer

Call 2023

Related practice areas

Commercial Litigation
Insurance & Reinsurance