TKC London v Allianz Insurance Policy
Key Contact: Hugh Hitchcock
In our recent article, we looked at the FCA test case brought in the High Court, which resoundingly found in favour of policyholders, particularly when looking at disease clauses in Business Interruption (BI) insurance policies.
On the 15th October 2020, the High Court delivered a judgement in the case of TKC London Ltd v Allianz Insurance plc with regards to the interpretation of a more traditional BI insurance policy following the effects of COVID-19, considering the question of physical loss. The court found in favour of the defendants, the insurers, highlighting the need for loss to be physical and not merely temporary in its nature in order to rely off the section.
Recent regulations such as the Health Protection (Coronavirus, Business closure) (England) Regulation 2020 meant that many businesses were forced to close in order to remain compliant with COVID-19 governmental regulations. The result of this meant that many businesses suffered significant loss and had to rely on existing insurance policies to indemnify the losses. One such case is TKC London Ltd v Allianz Insurance plc
TKC London Ltd v Allianz Insurance plc  EWHC 2710
The essence of this claim relates to whether TKC could rely on the ‘Business Interruption’ clause under their insurance policy with Allianz with regard to losses that arose given the closure of TKC in compliance with COVID-19 governmental issues.
Given that TKC had to close their business from 21 March to 4 July 2020 resulting in significant loss, the claimant sought to rely on the existing “Commercial Select” policy which included business interruption and damage to property sections to cover for losses sustained following the closure of their business. The claimant argued that unforeseen closure of the business could be classified as an ‘Event’, accidental loss should be taken to mean little more than something which was unlooked for or unintended and ‘loss of property’ should include temporary loss, thus satisfying the business interruption by any event element.
Allianz refused such submissions and responded by submitting an application for summary judgement on the basis that TKC’s policy interpretation was ‘misconceived and bound to fail’. Furthering their argument, the defendants argued ‘accidental loss’ had to relate to a physical loss of property and temporary loss failed to meet the definition.
The court was tasked with interpreting the provision of the policy and provide further clarity as to how accidental loss should be defined under the business interpretation section given the effects of COVID-19.
The court found in favour of the defendants and granted the summary judgement application. The court agreed with the defendants in line with the definition of loss, stating that loss must refer to its immediate context and, in this context, requires a physical aspect to it, not merely a temporary one.
This case confirms that traditional business interruption (BI) policies requiring physical loss are unlikely to cover BI losses relating to the COVID-19 pandemic.
What this judgement means for other policyholders
In essence, whilst the questions raised in the FCA Test Case still provide some hope to policy holders hoping to succeed in Covid-19 related insurance claims (such as those containing disease clauses), policyholders must remain vigilant when reviewing the scope of cover under their policies. In order to satisfy the BI requirements of a traditional BI policy, the policymaker must show that the loss of property includes a physical aspect and the insurers could also insure themselves against that same event causing the BI. This confirms that conventional damage based BI clauses will not encompass “pure” COVID-19 pandemic losses.
Should you require advice in relation to a claim against your insurer under a business interruption insurance policy resulting from COVID-19, please contact our litigation team.