Unipolsai Assicurazioni Spa v Cov�a Insurance Plc

Factual and Procedural Background

This appeal arises from an order of Judge Foxton dated 28 February 2024 dismissing the appeal of the appellant reinsurer ("Unipol") under section 69 of the Arbitration Act 1996 against an arbitration Award in favour of the respondent reinsured ("Covéa"). The dispute concerned the recovery of business interruption losses caused by Covid-19 under a Property Catastrophe Excess of Loss Reinsurance ("the Covéa Reinsurance"). The judgment also dealt with a related appeal by another reinsurer, which was settled before the hearing. Covéa provided cover to policyholders operating children's nurseries and childcare facilities, including under a standard NurseryCare Policy. The policy covered a range of risks, including non-damage business interruption ("non-damage BI"). Covéa sought indemnity for losses amounting to approximately £69.3 million plus loss adjusters’ fees under the Covéa Reinsurance, which Unipol disputed on two main grounds: (1) whether the Covid-19 losses arose out of and were directly occasioned by one catastrophe under the reinsurance; and (2) whether the "Hours Clause" limited indemnity to losses occurring within a specified 168-hour period.

Legal Issues Presented

1. Whether the Covid-19 losses for which indemnity was sought arose out of and were directly occasioned by one catastrophe under the proper construction of the Covéa Reinsurance.
2. Whether the effect of the "Hours Clause" limited the right to indemnity to individual losses occurring within a specified 168-hour period, thereby restricting coverage to business interruption during that period.

Arguments of the Parties

Appellant's Arguments

• The judge conflated the nature of Property Catastrophe XL Reinsurance with stop loss/aggregate XL Reinsurance, failing to recognise that catastrophe XL reinsurance responds only to causative events, not losses themselves.
• The judge wrongly assumed that terms of the underlying direct insurance policies could inform the interpretation of the reinsurance, despite the reinsurance not being "back to back" with the direct insurances.
• The term "catastrophe" in the reinsurance must denote an event or species of event capable of directly causing losses, not a state of affairs such as the Covid-19 outbreak.
• The tribunal’s finding of a "catastrophe" as the Covid-19 outbreak was unsupported by evidence of an exponential increase in infections and improperly treated the outbreak as a discrete event rather than an ongoing state of affairs.
• Reliance on authorities constraining aggregation to events with a strong causal link, emphasizing that a catastrophe must be a unifying event, not a diffuse state of affairs.
• The Hours Clause requires that individual losses be identified on a day-by-day basis within the 168-hour period; losses outside this period cannot be aggregated.
• The judge’s acceptance of an "individual loss" occurring when the peril strikes the premises was incorrect; losses must be allocated according to when actual business interruption loss is sustained.
• Unipol contended that the judge’s construction led to artificial aggregation, ignoring the fundamental principle of indemnity which requires losses to be actual and not hypothetical.
• Condition 18 and ejusdem generis principles support the view that coverage is limited to perils causing physical damage, excluding non-damage BI losses.

Respondent's Arguments

• The judge correctly distinguished Property Catastrophe XL Reinsurance from stop loss/aggregate XL Reinsurance and applied appropriate principles of construction, considering the commercial and contractual context.
• The judge did not improperly rely on underlying policies but considered the general nature of risks typically written in a reinsured property account to inform interpretation.
• The term "catastrophe" is undefined in the reinsurance and has no settled market meaning; ordinary language and contractual context support the tribunal’s finding that the Covid-19 outbreak constituted a catastrophe.
• The outbreak was a coherent, discrete happening with sudden onset and catastrophic character, as found by the tribunal and adopted by the judge.
• The Hours Clause limits the duration and extent of a Loss Occurrence but does not require apportionment of an individual loss over time; an individual loss occurs when the covered peril strikes or affects the insured premises.
• Market practice treats damage BI losses as occurring simultaneously with property damage; non-damage BI losses should be treated similarly.
• Unipol’s day-by-day loss occurrence approach is artificial, creates practical difficulties, and undermines the commercial purpose of the reinsurance.
• Condition 18 is a specialist extension unrelated to non-damage BI losses and does not support narrowing the scope of coverage.
• The judge’s and tribunal’s analysis aligns with established principles, market practice, and relevant jurisprudence, and no error of law has been demonstrated.

Table of Precedents Cited

Court's Reasoning and Analysis

The court commenced by affirming the principles of objective contractual interpretation, considering the commercial and contractual context in which the Covéa Reinsurance was concluded. It rejected the appellant’s contention that the term "catastrophe" must be confined to an event causing physical damage, noting that the reinsurance wording was broad and encompassed non-damage business interruption risks, consistent with modern market practice.

The court accepted the arbitration tribunal’s factual findings that the Covid-19 outbreak in the UK, characterized by an exponential increase in infections during early March 2020, constituted a catastrophe within the meaning of the reinsurance. This was a coherent, discrete happening with a sudden onset and catastrophic character, giving rise to profound disruption.

The court rejected the appellant’s argument that a catastrophe must be a sudden and violent event, noting that many perils identified in the Hours Clause need not be sudden or violent, and that the definitions of catastrophe in dictionaries include broader meanings not limited to suddenness.

Regarding the aggregation of losses under the Hours Clause, the court held that an "individual loss" occurs when the covered peril strikes or affects the insured premises. For business interruption losses, this corresponds to the date of closure or loss of use, not a day-by-day accrual of losses. The court found no basis to apportion individual losses within the 168-hour period, rejecting the appellant’s "day-by-day" approach as artificial and commercially unworkable.

The court further observed that the reinsurance provisions such as the Reinstatement and Extended Expiration clauses supported the interpretation that individual losses are treated as occurring at a single point in time, consistent with market practice. It emphasized that the appellant’s approach would undermine the commercial purpose of the reinsurance and produce uncommercial consequences.

Finally, the court addressed the appellant’s reliance on specific clauses (e.g., Condition 18) and principles such as ejusdem generis, rejecting them as inapplicable or misconceived in the context of the broad wording of the Covéa Reinsurance.

Holding and Implications

The court DISMISSED the appellant’s appeal on both grounds.

The direct effect of this decision is that the arbitration Award in favour of the respondent reinsured ("Covéa") is upheld, confirming that the Covid-19 outbreak constituted a catastrophe under the Covéa Reinsurance and that the Hours Clause does not limit indemnity to losses occurring only within a 168-hour period in a manner that excludes ongoing business interruption losses arising from that catastrophe.

No new legal precedent was established beyond affirming the proper interpretation of the reinsurance wording in this factual and contractual context.