The Commercial Court delivered its decision in favour of AXA Insurance in April on a case taken by the Clarence Hotel. The hotel took the case due to AXA’s denial of cover for business interruption losses suffered following the hotel’s closure due to government advice and Covid-19 related regulations.
The hotel sought cover under three specific provisions of its “enterprise” policy incepted in April 2019. The Commercial Court, however, found that the facts could not be brought within any of the relevant clauses of the policy.
The Commercial Court conducted a detailed examination of the policy’s murder, suicide or disease clause (MSDE clause). This clause provided cover for business interruption in the event of a list of “specified human infections or…contagious diseases” and the denial of access clause which responds where there is a loss of business.
The court’s findings
The primary questions addressed by the court were:
Did the MSDE clause provide cover for business interruption losses caused by COVID-19?
The court found that cover under this clause was limited to business interruption caused by an occurrence of one of the specific diseases or conditions. These must have occurred either at the hotel or within a 25-mile radius. As COVID-19 was not a specified disease within the clause, there could be no cover.
Did the MSDE clause provide cover for losses caused as a result of acute encephalitis induced by COVID-19 in a person within a 25-mile radius of the hotel?
The court noted that there had been no reported case of acute encephalitis induced by COVID-19 in Ireland at the time of closure. The hotel was therefore unable to show that the closure was caused by at least one case of acute encephalitis manifested by any resident, or person within a 25-mile radius.
Did COVID-19 constitute a “defect in the drains or sanitary arrangement at the premises” within the meaning of the MSDE clause?
There was no evidence before the court that any defect existed in the sanitary arrangements at the hotel to cause its closure. Therefore, the court found that this clause did not cover the losses claimed.
Did COVID-19 constitute a “danger or disturbance” within the meaning of the denial of access clause? If so, did the outbreak of COVID-19 have to be specific to the premises or to an area within a one-mile radius of it?
The court held that the occurrence of a notifiable disease, other than those specified under the MSDE clause, were, in principle, capable of constituting a requisite “danger”. However, the hotel was unable to satisfy the other requirements of the clause. Specifically, that any of the measures taken by the Government in March 2020 or after were prompted by concerns about any danger or disturbance within the one-mile radius of the hotel. In the court’s view, the language used suggested the clause was intended to respond to localised dangers or disturbances. Not a disease with the characteristics and geographical spread of COVID-19.
This judgment involves another forensic examination of long-established insurance principles. The outcome will certainly be welcomed by insurers who faced increased pressure to confirm cover for COVID-19 business interruption losses following the FBD decision. The decision reiterates that whether a policy responds to losses of this type will be looked at carefully on a case-by-case basis. It seems that this area of law is far from settled yet.
For more information and expert advice on the continuing impact of the pandemic on your business operations, contact a member of our Insurance & Risk team.
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