In TKC v Allianz, TKC asserted that the business interruption section of the policy responded to the business interruption losses (deterioration of its stock and the temporary loss of use of its premises) suffered as a result of the closure of its café restaurant in compliance with the 21 March 2020 Health Protection (Coronavirus, Business Closure) (England) Regulations 2020.
The property damage section of the policy responded to “damage to property insured at the premises”, “damage” being defined as “accidental loss or destruction of or damage to property insured”.
The business interruption section of the policy provided cover for “business interruption by any event”, “business interruption” being defined as “loss resulting from interruption of or interference with the business carried on by the insured at the premises in consequence of an event to property used by the insured at the premises for the purpose of the business”.
An “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”.
There were no non-damage extensions of cover as were dealt with in the FCA test case.
The court summarily dismissed the action finding:
- The word ‘loss’ in the property damage section usually (though not invariably) has a physical element.
- Mere temporary loss of use is not “damage” as that expression is defined in the property damage section of the policy and so is not covered under that section.
- The enforced closure of TKC’s premises was a business interruption as defined in the policy. The policy, however, only responded to business interruption by any event and the enforced closure could not properly be said to be an event in that it was not an “accidental loss…of…property”.
- It was wholly unrealistic to suggest that the deterioration in the stock held at the premises during the period of closure caused relevant business interruption. The deterioration in stock was a consequence of, not a cause of, the interruption or interference such that TKC was confusing cause and effect.
- The natural process of the decay or deterioration of unsold stock is not ‘accidental’ in the sense that the word is used in the definition of “event” in the policy.
- The natural process of the decay or deterioration of unsold stock was not ‘accidental’, but was for the purpose of exclusions in the policy an ‘inherent vice’, ‘gradual deterioration’ and/or ‘change in temperature, colour, flavour, texture or finish’.
In Concept Group Limited v FM Insurance, business interruption losses (including from customer’s failure to make payments due and a reduction in new business due to the pandemic) were claimed under an “all risks of physical loss or damage” cover where FM Insurance also agreed to cover various types of business interruption loss resulting from insured property damage. A decision has not yet been handed down in this case, but it is unclear how this claim might fare given the findings in TKC v Allianz.