Case Update: COVID-19 – TKC London Limited v Allianz Insurance plc.

TKC London Limited. v. Allianz Insurance plc.

On 15th October 2020, the English High Court entered summary judgment in a case brought by a London café, the Kensington Crêperie, against Allianz for losses incurred from a nationwide lockdown due to the COVID-19 pandemic, which forced the business to temporarily close. 

The café had argued that its all-risk policy insured it against "Business Interruption by any Event." "Event" was defined in the policy as "accidental loss ... of ... property used by the Insured at the Premises for the purposes of the Business", which the café argued included the temporary closure due to COVID-19. The Court disagreed and entered judgment for Allianz.

While the judge agreed that what occurred was "Business Interruption" as defined in the policy, the enforced closure could not be said to fit the definition of "Event", as the café had not suffered a "loss of property", which would necessitate a physical loss. Instead, the claimant had only suffered a temporary loss of use of the property. In reaching this conclusion, the judge was influenced by the fact that the word "loss" was followed by "or destruction of or damage to", which strongly suggested that "loss" was intended to have a physical aspect. 

The judge also considered the wider context of the phrase within the Business Interruption section of the policy, which included the requirement in the proviso to the Basis of Settlement clause that there must be "an insurance in force covering the interest of the Insured in the property .. against such Event". As such, the judge found that the "accidental loss or destruction of or damage to property" which has caused the interruption of or interference with the business - must be something against which the insured can (and must) also insure itself." The judge rejected the café's argument that the insurance in question could be provided by the Business Interruption section itself as such an argument would serve no commercial purpose and would, in the context of the Business Interruption section, be entirely circular. 

The judge also dismissed a further argument by the café based on the deterioration of its stock. Here, the café argued: 

1. The deterioration caused relevant interruption or interference to the business. 
2. The deterioration caused relevant interruption or interference to the business because it was unable to sell the stock when it re-opened. 
3. The deterioration was an increased cost of working as the café had to purchase 
4. replacement stock when the business re-opened. 

The court rejected these arguments, finding that: 

1. The first was "wholly unrealistic" as the deterioration begun to occur after the café  was closed and was therefore "a consequence of the interruption or interference, not its cause." 
2. The second "part[ed] company with reality" as if stock deterioration had threatened  to interrupt the business, the café would simply have bought new stock. 
3. The third "confuse[d] cause and effect" as the increased cost of working was not a  cause of the interruption, but a consequence, caused by the closure of the business. 

The decision did not consider any disease clauses or denial of access extensions as examined in the recent FCA test case. However, it is the first UK case to be dismissed due to lack of evidence of "physical loss" to property - a requirement which has already caused several judges to grant motions to dismiss in the US. 

The judgment can be viewed here.