TKC London Ltd v Allianz Insurance PLC

Standard-form business interruption cover responding to interruption caused by an insured event does not ordinarily extend to temporary loss of use of premises caused by governmental restrictions. In the context of a property policy, “loss” takes its meaning from the surrounding words “destruction” and “damage”, and generally requires a physical element. Temporary deprivation, where the property remains recoverable and physically unchanged, is insufficient.

Business interruption requires causal connection between the insured event and the interruption. Deterioration of stock during an already imposed closure is a consequence of the interruption, not its cause. Natural decay of perishable stock is neither accidental nor covered where the policy excludes inherent vice, gradual deterioration and specified changes in condition. A material damage proviso also requires separate insurance covering the underlying property event; the business interruption section cannot satisfy that requirement itself.

TKC operated a café restaurant which closed when the Coronavirus Regulations required businesses of that kind to cease trading. It claimed under Allianz’s standard-form Commercial Select policy for business interruption losses, temporary loss of use of the premises, and deterioration of perishable stock.

Allianz applied under CPR 3.4(2) and CPR 24.2 to strike out the claim or obtain summary judgment. The principal questions were whether the closure constituted accidental loss of property or an event to property, whether stock deterioration caused covered business interruption, and whether the policy’s material damage proviso could be satisfied by the policy’s own business interruption cover.

1. Summary disposal. The court held that the issues were short points of policy construction, that the parties had had an adequate opportunity to address them, and that summary determination was consistent with the overriding objective. The claim was not unsuitable merely because the wording was standard-form or had wider significance.
2. Stock deterioration. The deterioration of stock occurred after the business had already been closed by the Coronavirus Regulations. It was therefore a consequence of the interruption, not its proximate cause. The alleged loss was also not accidental: it resulted from the natural decay of perishable stock and fell within exclusions for inherent vice, gradual deterioration and changes in temperature, colour, flavour, texture or finish. The same reasoning defeated any claim under the Property Damage Section.
3. Meaning of loss. In the context of the Property Damage and Business Interruption Sections, “loss” took its colour from the accompanying words “destruction” and “damage”, and from the reinstatement and replacement wording. It therefore had a physical aspect. Mere temporary loss of use was not accidental loss of property. The insured had not been physically deprived of its premises or property in circumstances making recovery uncertain.
4. Business interruption and causation. The closure was an interruption of or interference with the business and was in consequence of an event to property in the broad, uncapped sense used in the definition of Business Interruption. It was not, however, Business Interruption “by any Event”, because the capitalised definition required accidental loss, destruction or damage to property. The closure did not satisfy that requirement.
5. Material damage proviso. The proviso required insurance covering the insured’s interest in the property against the relevant event, with payment made or liability admitted. The Business Interruption Section could not itself satisfy the proviso, since that would serve no commercial purpose and would make the requirement circular. The Denial of Access extension did not alter the conclusion; in cases where the insured lacked an insurable interest in the relevant property, the proviso was necessarily inapplicable.
6. Disposition. TKC had abandoned its separate licence-loss argument. Its remaining grounds were bound to fail. Allianz’s application succeeded and the action was summarily brought to an end. Consequential matters and any application for permission to appeal were adjourned for determination following the parties’ proposed Minute of Order.

First-instance decision. The judgment records no earlier decision in the same litigation.