Unipolsai Assicurazioni Spa v Covéa Insurance PLC

In property catastrophe excess of loss reinsurance, an undefined “catastrophe” takes its ordinary meaning in its contractual and market context. It need not be synonymous with an event or occurrence, sudden or violent, or capable of causing physical damage. A sufficiently coherent, identifiable and seriously adverse outbreak of disease may qualify.

An hours clause limits which individual losses may be aggregated by reference to when each loss first occurs. An individual business interruption loss occurs once, when the covered peril first strikes or affects the insured premises. If that happens within the selected period, the loss includes the financial consequences continuing afterwards. The clause does not require apportionment into daily losses or restrict recovery to interruption sustained during the specified hours.

Covéa insured children’s nurseries against business interruption, including interruption unconnected with physical damage. Unipol reinsured Covéa under property catastrophe excess of loss cover. Covéa paid losses arising from the closure of nurseries during the first Covid-19 lockdown and obtained an arbitration award holding that the outbreak was one catastrophe and that the 168-hour clause did not confine recovery to interruption sustained within those hours.

Foxton J dismissed Unipol’s appeal under section 69 of the Arbitration Act 1996: Unipolsai Assicurazioni Spa v Covéa Insurance PLC [2024] EWHC 253 (Comm). Unipol appealed on whether the outbreak could constitute a catastrophe and whether business interruption losses occurring after the nominated 168-hour period could be included in the loss occurrence.

1. The appeal was dismissed. The outbreak of Covid-19 in the United Kingdom immediately before the closure of schools and nurseries was capable of constituting one catastrophe under the reinsurance. The tribunal’s conclusion involved no error of law.

2. “Catastrophe” was undefined and had no special market meaning. It therefore bore its ordinary meaning in the contractual and market context. The word was not synonymous with “event” or “occurrence”. The reinsurance deliberately used “catastrophe”, covered all business written within Covéa’s property department, and was written when non-damage business interruption cover was commonplace.

3. A catastrophe need not invariably be sudden or violent. Even if suddenness were required, the tribunal was entitled to find it satisfied by the exponential increase in infections over a relatively short period. Nor must a catastrophe cause or be capable of causing physical damage. Condition 2(2)(vii), covering a loss occurrence “of whatsoever nature”, encompassed catastrophes beyond the listed physical perils. The ejusdem generis argument was therefore rejected.

4. The tribunal was entitled to characterise the outbreak as a coherent and discrete happening. It had an identifiable existence and catastrophic character independent of the amount of loss, and caused a profound disruption of national life. The challenge sought impermissibly to reopen an evaluative factual judgment on an appeal under section 69 of the Arbitration Act 1996.

5. Under the hours clause, an “individual loss” means the loss of the original insured and “occurs” when it first occurs. A business interruption loss first occurs when the covered peril strikes or affects the insured premises. Where the peril is loss of the ability to use the premises, the loss occurs when that inability begins.

6. An individual loss occurs only once for the purposes of the clause. It encompasses the whole loss resulting from the catastrophe, although its financial consequences continue beyond the selected 168 hours. Nothing required apportionment into daily losses or confined indemnity to the financial loss sustained within that period. Such an approach also cohered with the reinstatement and extended-expiration provisions and avoided the artificial division of a net business interruption loss.

Newey and Popplewell LJJ agreed with the judgment of Sir Julian Flaux C.

1. Court of Appeal (Civil Division): Unipol’s appeal was dismissed in [2024] EWCA Civ 1110. The court upheld the conclusions that the outbreak constituted one catastrophe and that an individual business interruption loss first occurring within the 168-hour period included its continuing financial consequences.

2. Commercial Court: Foxton J dismissed Unipol’s appeal under section 69 of the Arbitration Act 1996 in [2024] EWHC 253 (Comm).

3. Arbitration tribunal: The tribunal awarded Covéa an indemnity. It found that the outbreak of Covid-19 in the United Kingdom was one catastrophe and that each individual loss occurred when the covered peril first affected the insured premises.