Wahaca joins attempts to get pandemic BI insurance payout

Mexican-style restaurant chain Wahaca has commenced proceedings against its insurer for allegedly failing to pay out for losses incurred when it was forced to temporarily close its restaurants during the COVID-19 pandemic.

Wahaca joins a list of other businesses seeking payouts from insurers, including Pizza Express, which had its hopes of securing a £260 million payout dashed by the High Court in a judgment which could have significant consequences for UK insurers and claimants alike.

Policyholders backed by Supreme Court in 2021 test case

The claims by Wahaca and Pizza Express follow the landmark 2021 UK Supreme Court decision which held that insurers must pay out to hundreds of thousands of companies forced to close during the first COVID-19 pandemic lockdown (Financial Conduct Authority v Arch Insurance [UK] Ltd [2021] UKSC 1).

The Financial Conduct Authority’s High Court test case, and subsequent appeals, sought legal clarity on the meaning and effect of certain business interruption (BI) insurance policy wordings. The aim of the test case was to resolve contractual uncertainty around the validity of many BI insurance claims related to the COVID-19 pandemic.

The Supreme Court confirmed the correct interpretation of a variety of different standard BI insurance policy wordings in order to clarify whether they provided cover in principle for COVID-19-related losses. The practical effect of that analysis was that all of the insuring clauses put before the Supreme Court for consideration (including in relation to disease and prevention of access clauses) would provide such cover.

Pizza Express v Liberty Mutual

This latest coronavirus BI insurance judgment to be handed down in the English courts dealt with aggregation of losses. The claim was pursued by Pizza Express, whose restaurants were all subject to lockdown restrictions in 2020 intended to hamper the spread of the COVID-19 virus (Pizza Express Group and others v Liberty Mutual Insurance Europe and another [2023] EWHC 1269 [Comm]).

Pizza Express was insured under a policy issued by Liberty Mutual Insurance and XL Insurance, the speciality risk division of AXA, using the Aon Trio wording: a standard policy wording developed by global broker Aon and used by insurers across the market.

In early 2020 Pizza Express operated some 475 restaurants in England, Scotland, Wales, Northern Ireland, the Republic of Ireland and Jersey. Pizza Express claimed for BI losses suffered between March and November 2020 as a result of closures or restrictions on the use of its restaurants, caused by measures introduced in response to the COVID-19 pandemic by the governments in each of the territories in which the restaurants were situated.

Pizza Express’s principal claims were made under two extensions in the BI section of the standard Aon Trio policy wording. Broadly speaking, these extensions extend cover beyond what might be regarded as the ordinary type of BI loss which arises when there is covered physical damage to a policyholder’s premises.

The question before the court was not one of coverage per se but whether, if coverage could be established, the relevant £250,000 sub-limit in the policy applied in the aggregate to all Pizza Express’s losses arising from one source or original cause. Pizza Express maintained that the relevant sub-limits in its policy did not restrict insurance claims to “any one occurrence”.

The insurers, as detailed by Mr Justice Jacobs in his judgment, contended that Pizza Express’s BI losses flowing from the COVID-19 pandemic: “if covered at all, would constitute one or at most three occurrences, giving rise to a maximum indemnity (prior to application of the policy excess) of either £250,000 (for one occurrence) or £750,000 (for three occurrences)”.

The High Court ruled that the restaurant chain had wrongly interpreted liability limits in its policy and sided with its insurers’ interpretation of how much Pizza Express could claim under its policy wording. Liberty had denied insurance coverage under both the “at the premises” disease and “prevention of access” BI extensions, arguing (among other things) that the cover provided by the extensions is “localised cover” which does not respond to BI losses caused by central government action taken in response to a nationwide public health emergency.

The policy schedule further stated that “all limits of liability apply to any one occurrence”, while “occurrence” was defined in the policy as “any one loss or series of losses arising out of and directly resulting from one source or original cause”. The insurer, Liberty, successfully argued that in the absence of any words to the contrary, the sub-limit of liability was a “limit of liability” that applied “per occurrence”, meaning that Pizza Express’s losses were to be aggregated and that any indemnity due to Pizza Express would accordingly be limited to £250,000.

The judge did not consider that Pizza Express’s appeal had any real prospects of success, and therefore refused it permission to appeal. It is possible that the restaurant chain may yet to seek permission to appeal from the Court of Appeal.

What about future claims?

The court confirmed that established principles of construction were applicable, ie, that: (i) the policy must be construed objectively by asking what a reasonable policyholder would have understood the language of the policy to mean; and (ii) the words must be assessed in the context of the clause in which they appear as well as in the landscape of the document as a whole. Applying those principles, the court found that “as a matter of ordinary language, a sub-limit is just as much a limit of liability as an aggregate or overall limit”.