Court construes application of policy sub-limits in Covid-19 BI claim

The latest judgment handed down in the spate of recent Covid-19 business interruption (BI) cases is PizzaExpress Group Limited & Ors v Liberty Mutual Insurance Europe SE & another [2023] EWHC 1269 (Comm).

The judgment is in respect of a preliminary issue concerning the construction of provisions relating to policy limits. The Pizza Express restaurant group (together Pizza Express) claimed for around £260 million in business interruption (BI) losses. The Defendant insurers contended that the claim, if covered at all, would give rise to a maximum indemnity of £750,000 (plus £50,000 for Claims Preparation Expenses).

In finding for the Defendant insurers, Justice Richard Jacobs held that Pizza Express’ proposed construction of the Policy “unrealistically dissects what is meant by “limits of liability” … and results in a reading which would surprise any reasonable reader of the policy”.

BACKGROUND

Pizza Express’ claim for BI losses stemmed from closures and restrictions on the use of its restaurants between March and November 2020, introduced by the government in response to the Covid-19 pandemic.

Pizza Express’ policy was underwritten by Liberty Mutual Insurance Company SE and XL Insurance Company SE and was on a standard form Aon Trio Property and Business Interruption wording.

Pizza Express’ claims were made under two extensions in the BI section of the Policy:

(i) Extension 2(a)(i) provided cover in respect of “any occurrence of a Notifiable Human Disease at the Premises …that causes restrictions on the use of the Premises on the order or advice of a statutory, local or other competent authority“; and

(ii) Extension 2(b)(v) provided cover in respect of the “closure or sealing off of the Premises … by the policy, fire brigade or other statutory authority or local or transport authority due to an emergency event at the Premises or within a radius of 1 mile of the Premises … which … prevents or hinders the use of the Premises or access thereto …“.

Insurers denied cover on the basis that both extensions were restricted to “localised cover” which was not intended to extend to central government action which resulted in the closures and restrictions on the use of Pizza Express’ restaurants. While this issue is yet to be determined, the Court in this instance considered a preliminary issue regarding the construction of the Policy’s limits of liability. The issue was determined together with similar issues arising from other Covid-19 BI cases.

Policy terms

The provisions relating to the limits of liability were contained in the Policy Schedule. Section 2 of the Schedule related to BI claims.  Page 4 of Section 2 contained an itemised table including a column providing the “Limit of Liability” per item. The footnote to this table noted: “Additional limits and/or sub-limits apply – these are listed later in the Schedule”.

Page 5 of Section 2 contained a section headed “Sub-limits”, part of which is reproduced below:

“Sub-limits
– Sub-limits form part of the Limit of Liability and do not apply in addition to it;
– all Limits of Liability apply any one Occurrence;
– limits are inclusive of the Excess;
unless otherwise stated. If more than one Sub-limit applies to the same loss, the Insurer’s liability will be limited to the lesser Sub-limit.

…
In respect of Section 2
…

Extended Incident
– Notifiable disease
– Prevention of Access & Loss of Attraction

GBP 250,000
GBP 250,000

…”

Page 6 of Section 2 of the Schedule contained provisions headed “Excess” which provided:

“… Insurance Limits (and Sub-limits) are inclusive of Excesses.
Only one Excess will apply in respect of any one Occurrence. …”

Of relevance was that, neither the term “Limits of Liability” nor “Sub-limits” was defined in the Policy which, as demonstrated below, used different words to describe Policy limits and was not consistent in the use of terminology or capitals.

The parties’ positions

The main point of contention between the parties was whether the Sub-limits set out on page 5 of Section 2 of the Schedule came within the expression “all Limits of Liability apply any one Occurrence” in circumstances where neither “Limit of Liability” nor “Limits of Liability” was defined in the Policy.

Pizza Express ran the argument that, on a natural reading of the Policy terms, there was a clear distinction between “Limits of Liability” and “Sub-limits”. They contended that no reasonable reader would interpret the phrase “Limits of Liability” as having one meaning in the first line on page 5 of Section 2 of the Schedule (expressly distinguishing it from “Sub-limits”), but a different, somewhat contradictory, meaning in the second line (encompassing “Sub-limits”). Amongst other contentions, they submitted that this was even more apparent from the third line on page 5 where the word “limits” was intended to refer to both “Limits of Liability” and “Sub-limits”, and that if this was not the case, the draftsperson would have used “Limits of Liability” and “limits” to convey a single meaning in consecutive lines on the same page. As such, Pizza Express claimed that only the “Limits of Liability” could be aggregated to any one Occurrence; the “Sub-limits” not being subject to such an application. They argued that, had there been such an intention, “Sub-limits” would have been expressly stated to be subject to the any one Occurrence aggregation, which it was not.

The Insurers submitted that, on any reasonable reading of the Schedule, all limits (whether “Limits of Liability” or “Sub-limits”) were subject to the application of “any one Occurrence”, unless otherwise stated (and there was nothing otherwise stated).

DECISION

In accepting the Insurers’ position, Justice Jacobs found that the natural assumption and obvious conclusion was that all of the figures set out on page 5 of Schedule 2 came within the expression “all Limits of Liability apply any one Occurrence“. He found there to be no indication in the Policy that the phrase “all Limits of Liability” (capitalised but not defined) was intended to mean something narrower than its ordinary meaning. In its ordinary meaning, the expression would encompass all limits of liability including the “Sub-limits”.  Excluding sub-limits would lead to a “very odd conclusion“. He held that sub-limits were clearly limits of liability and the phrase “all” was intended to encapsulate all limits. Each of the three bullet points on page 5 were intended to apply to the table that followed and to the Schedule as a whole, with any departure having to be “otherwise stated”. As there was nothing otherwise stated in respect of the sub-limits for notifiable diseases and prevention of access, the “any one Occurrence” wording applied to those particular sub-limits.

COMMENT

The result of the decision is that, even if there is cover for Pizza Express’ losses under the relevant extensions, it will be limited to £250,000, or alternatively a small portion of the claim.

Jacob J appears to have had little difficulty reaching his conclusion, finding that the answer was “clear”. He also refused Pizza Express permission to appeal although it may be that Pizza Express will seek permission from the Court of Appeal.

Subject to the outcome of any such application, and any appeal, the decision potentially has implications for other policyholders on this wording to the extent that such policyholders have relied on the same argument, with the effect of reducing cover for significant claims to a fraction of their value.