Bellini (N/E) Ltd v Brit UW Limited

A business interruption clause which expressly requires physical loss, damage or destruction does not provide non-damage cover merely because its application to specified perils is narrow or unusual. An insurance policy must be construed objectively, as a whole and at its inception. Clear language prevails over arguments based on commercial common sense, redundancy or the consequences of a later unforeseen event.

A court may correct contractual language by construction only where something has clearly gone wrong with the language and the required correction is clear. Limited cover, repetitive drafting and difficulty identifying likely claims do not themselves establish such a mistake.

The insured operated a restaurant and claimed for business interruption losses caused by the COVID-19 pandemic. Clause 8.2.6 of its licensed premises policy addressed interruption caused by damage arising from disease and other specified perils. “Damage” was defined as physical loss, physical damage and physical destruction. It was common ground that no such damage had occurred.

Following a preliminary issue trial, Clare Ambrose, sitting as a deputy High Court judge, held that clause 8.2.6 provided no cover without physical damage. The insured appealed. The central issue was whether the express damage requirement should nevertheless be disregarded or rewritten because it allegedly made the extension nonsensical.

1. Appeal dismissed. Clause 8.2.6 provided business interruption cover only where interruption was caused by physical loss, physical damage or physical destruction. Its references to interruption “caused by damage” and results affected “in consequence of the damage” had to be given effect.

2. The policy had to be interpreted objectively and as a whole. Clause 8.1 established damage-based business interruption cover, while most extensions in clause 8.2 extended that cover to physical damage occurring in additional places or circumstances. Read in that setting, clause 8.2.6 formed part of a coherent damage-based scheme rather than a separate non-damage extension.

3. The reference to damage “defined in clause 8.1” was not a mistake. Clause 8.1 identified the relevant interruption as interruption caused by damage and supplied further limitations concerning the insured property, business, premises and period of insurance. The cross-reference therefore indicated that clause 8.2 extended the damage-based cover in clause 8.1.

4. The correction-of-mistakes principle in East v Pantiles (Plant Hire) Ltd (1982) 2 EGLR 111 did not apply. Its first condition was unsatisfied because nothing had gone wrong with the language. A clause does not become absurd merely because it supplies limited additional cover, appears repetitive or yields few readily imaginable claims.

5. The policy had to be construed as at its inception in October 2019. It could not be interpreted retrospectively through the consequences of COVID-19. A reasonably informed small-business policyholder, with the available background knowledge, would have understood clause 8.2.6 to provide damage-based cover only.

6. It was unnecessary to decide whether the proposed correction satisfied the second condition in East v Pantiles. The court left open whether an insured might obtain an intended non-damage cover where a clear linguistic error existed but more than one correction could give effect to that intention.

Males and Birss LJJ agreed with the judgment of Sir Geoffrey Vos MR.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the conclusion that clause 8.2.6 required physical damage.

2. High Court, London Circuit Commercial Court: Clare Ambrose, sitting as a deputy High Court judge, determined a preliminary issue on 26 June 2023. She held that clause 8.2.6 provided no cover in the absence of physical loss, damage or destruction. No neutral citation for that decision is stated in the judgment.