Unipolsai Assicurazioni SpA v Covea Insurance PLC

On an appeal under section 69 of the Arbitration Act 1996, the court gives appropriate deference to an arbitral tribunal’s evaluative conclusion on a mixed question of fact and law. In property catastrophe excess of loss reinsurance, “catastrophe” is not confined to a sudden, violent event capable of causing physical damage. The term requires a coherent, particular and readily identifiable happening, capable of directly causing the individual losses and involving a significant adverse change. An individual business interruption loss ordinarily occurs when the insured peril first affects the insured premises or the right to use them. The loss is not apportioned day by day merely because its financial consequences continue. The UnipolRe appeal was dismissed, Markel’s appeal was allowed on the Hours Clause, and General Reinsurance’s cross-appeal was dismissed.

Three related appeals under section 69 of the Arbitration Act 1996 concerned arbitral awards on Covid-19 business interruption claims under property catastrophe excess of loss reinsurances. UnipolRe appealed the Covéa Award. Markel appealed the Markel Award, and General Reinsurance cross-appealed.

The arbitrations considered whether the Covid-19 outbreak, or the Government’s 18 March 2020 closure order, constituted one catastrophe, and whether the Hours Clauses confined recovery to business interruption losses suffered during the specified hours. The tribunals reached differing conclusions on the second issue. The central questions were whether those conclusions disclosed an error of law and when an individual business interruption loss occurred for reinsurance purposes.

1. Section 69 approach. The issue must arise out of the award. The court accords some deference where the tribunal’s experience assists its decision. On a mixed question of fact and law, intervention requires an error of law or a conclusion which no reasonable tribunal applying the law could reach. The conclusion must be necessarily inconsistent with the correct legal principle.
2. Meaning of catastrophe. The term was not shown to have a settled market meaning. It is not limited to physical damage, sudden onset, short duration or violence. The contractual and commercial context may permit a catastrophe extending over a substantial period and geographical area. It must, however, be capable of directly causing the individual losses and be a coherent, particular and readily identifiable happening, with an existence, identity and catastrophic character independent of the mere fact that it causes substantial losses. It must involve a significant adverse change from what preceded it.
3. The Covid-19 outbreak found by the Covéa tribunal satisfied those requirements. The tribunal’s conclusion was legally open and the UnipolRe appeal on catastrophe was dismissed.
4. The 18 March 2020 closure order, viewed together with the devastating pandemic to which it was inseparably linked, could also constitute a catastrophe. The Markel tribunal’s conclusion was evaluative and disclosed no error of law. General Reinsurance’s cross-appeal was dismissed.
5. Hours Clauses. The Markel Hours Clause referred to the occurrence of individual losses, not merely to the duration of the catastrophe. An individual business interruption loss ordinarily occurs when the insured peril first strikes or affects the insured premises or the right to use them. Continuing interruption and the subsequent financial assessment do not create separate daily losses for this purpose. This approach coheres with the treatment of damage and non-damage business interruption, the reinsurance wording and the manner in which direct business interruption losses are quantified.
6. The Markel tribunal’s day-by-day construction was wrong. Markel’s appeal on the Hours Clause was allowed. UnipolRe’s appeal concerning the Covéa Hours Clause was dismissed.

This was a first-instance decision on three appeals under section 69 of the Arbitration Act 1996 against partial final arbitration awards. The court dismissed UnipolRe’s appeal, allowed Markel’s appeal on the Hours Clause, and dismissed General Reinsurance’s cross-appeal.