[co-author: Niharika Parshurampuria]

The Commercial Court has ruled that temporary loss of use of premises as a result of COVID-19 lockdown measures will not trigger cover under a standard business interruption policy that requires property damage to trigger cover.

1. Facts in the case

The claimant was TKC London Ltd, the owner of a café restaurant, which was closed earlier this year due to Government restrictions during the COVID-19 pandemic. TKC made a claim for business interruption losses under a policy issued by Allianz Insurance Plc, which covered all risks property damage and business interruption losses.

The policy covered business interruption caused by “accidental loss or destruction of or damage to property” used by TKC at its premises.

TKC's primary argument was that loss of use of its premises amounted to "loss of property", so as to trigger cover.

2. What did the court decide?

Giving summary judgment in favour of the insurer, the Commercial Court held that temporary loss of use of premises as a result of COVID-19 lockdown measures did not trigger cover under the policy.

The Court found the meaning of the word “loss” in property damage insurance usually has a physical element attached to it, particularly where, as here, the word "loss" appears in conjunction with the words “destruction” and “damage”. On this basis, the court found the policy was intended to cover business interruption arising from physical rather than solely economic loss.

TKC's secondary claim was that it should be entitled to recover business interruption losses consequent upon deterioration of its food stock during lockdown. The Court found that any such damage was not accidental and was not the cause of the interruption to TKC’s business, but rather the effect of it. Alternatively, any such damage was caused by or consisted of inherent vice, gradual deterioration and/or change in temperature, colour, flavour, texture or finish, all of which were excluded.

3. Effect of the decision

The decision provides welcome clarity on standard BI wordings. It demonstrates that, despite the pressures of the pandemic, the court is not prepared to unduly strain the policy language to admit COVID-19 claims where that is inconsistent with the property-damage foundations of such policies.

(For the position on the non-damage extensions considered by the FCA test case see our Engage article on the test case, related herein).

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