The High Court rules on Covid-19 business interruption claim by the Clarence Hotel

Introduction

In a recent judgment, the High Court has ruled that a hotel is not covered for losses from the Covid-19 pandemic under their business interruption insurance policy with AXA.

McDonald J. handed down his decision in Brushfield Limited (t/a The Clarence Hotel) -v- Arachas Corporate Brokers Limited and AXA Insurance Designated Company[1], on 19 April 2021.

Case Facts

The plaintiff who trades under the title of “The Clarence Hotel”, entered into an insurance contract with AXA on 1 April 2019 which contained cover with regards to business interruption. The policy comprised of two relevant non-damage business interruption extensions: MSDE clause (murder, suicide, or disease clause) and denial of access non-damage clause. The former clause contained a list of specified human infectious diseases covered under the policy. However, notably Covid-19 was not listed. The latter clause responded where losses are sustained arising from “the actions taken by the police or any other statutory body in response to a danger or disturbance at your premises or within a 1-mile radius of your premises”.

Main Issues

1. Whether the MSDE clause provided cover for business interruption losses caused by Covid-19, even though Covid-19 (or any other variant) was not directly listed in the clause.
2. Whether the MSDE clause provided cover for business interruption losses caused by acute encephalitis which is brought about by Covid-19 and which may have been displayed by any person within a 25-mile radius of the premises.
3. Whether Covid-19 represents a “defect in the drains or other sanitary arrangement at the premises” for the purposes of the MSDE clause.
4. Whether Covid-19 represents a “danger or disturbance” for the purposes of the denial of access clause:

1. Whether it is a requirement for the outbreak of Covid-19 to be specific to the premises or an area within a 1-mile radius of the premises.
2. Whether it is a requirement for actions to be taken by the police or any other statutory body in response to this outbreak either at or within a 1-mile radius of the premises.

5. Whether the Government measures and regulations introduced in response to Covid-19 can represent an action taken by the police or statutory body in response to an outbreak either at or within a 1-mile radius of the premises.

Decision

The High Court held that cover for loss of business income resulting from Government regulations and measures put in place in response to Covid-19, is not available under the specific terms of the AXA policy. Below is a synopsis of the High Court’s conclusions on the points raised above:

1. Cover under the MSDE clause is restricted to business interruption caused by one of the human infectious diseases mentioned either at or within a 25-mile radius of the property. Covid-19 is not listed and is therefore, not covered.
2. There was no reported case of acute encephalitis brought about by Covid-19 in Ireland. The plaintiff cannot rely on this as a cause for the closure of their business.
3. Cover is only available if the plaintiff can prove that the hotel was closed by a public authority in response to a flaw in the insured’s sanitary arrangements. The plaintiff failed to establish any evidence of this.
4. Although a notifiable disease not listed in the MSDE clause is capable of being regarded as a “danger”, this will be of no benefit to the plaintiff if they cannot prove that all other conditions of the clause are fulfilled. The plaintiff did not show that the measures introduced by the Government were in response to a “danger” at or within a 1-mile radius of the property. The court did not believe that, at the time the AXA policy was created, “a reasonable person would regard a disease having the characteristics and geographic spread of Covid-19 as falling within the ambit of a “danger or disturbance” as those words would be understood in the specific context”.
5. The denial of access clause will only cover a business interruption claim where a restriction on access to the premises is proved to be a result of actions by the police or by a statutory body in response to a “danger” at or within a 1-mile radius of the property. The Court was also of the opinion that the measures taken by the Government could not be regarded as actions by the police. Furthermore, no arguments put forward had the effect of demonstrating the measures were actions by a statutory body. (McDonald J. stated he would accept further submissions on the argument that the Minister for Health could be equated to a statutory body, even though he said that the plaintiff would still face difficulties regarding the danger point.)

Conclusion

The Court held that Covid-19 was not an insured risk under the hotel’s policy. The Court was also keen to emphasise that the policy language must always be interpreted in the context of the policy as a whole and in the context of the relevant factual and legal background. McDonald J. also concurred with O’Donnell J.’s observations in the MIBI[2] case that it is wrong to attempt to construe the terms of a contract through the prism of the dispute that currently exists between the parties. Instead, the court must place itself in the position of the parties at the time the policy was put in place and construe its terms by reference to how they would be understood by a reasonable person in the position of the parties at that time.

The Court noted there are other available policies on the Irish market with different disease clauses than the MSDE clause contained in the AXA policy. Any parties looking to pursue claims of a similar nature should keep in mind the conclusions of the Court on each issue and make certain before proceeding that the language used in the clauses of their policy cover such claims in their entirety.