Covid-19 and business interruption – seconds out, round 2

Specified List Wordings

Many SME businesses in the UK will have some form of “non-damage” infectious disease cover but only if the disease falls within a list of specified diseases (“a Specified List”). Diseases specified in policies can range from anthrax to whooping cough and from cholera to smallpox, with numerous weird and wonderful diseases in between, often including the word “plague”. Specified List clauses were not considered in the Test Case brought by the FCA and recently considered by the Supreme Court.

Many policyholders who hold a BI with a Specified List cover have asked their insurer or broker why they are not covered for the consequences of the pandemic. The answer appears to be fairly simple; Covid-19 does not fall within the list of diseases specified in the policy. Rockliffe Hall Limited (Rockliffe) is one such policyholder but it was not prepared to accept that explanation. It brought proceedings and its claim has now been considered by the court.

Rockliffe runs a 5 star hotel with facilities including a restaurant, golf course and spa which also provided wedding facilities. Long before the pandemic, in July 2019, it took out a policy with Travelers which included a Specified List of infectious diseases.   When it was forced to close it brought proceedings against Travelers who had declined to cover the claim. Travelers applied to have the claim struck out.

The Parties’ Cases

Travelers’ position was that its disease clause only provided cover for loss resulting from one of the diseases on the lengthy list set out in the policy. Covid-19 did not appear so no cover is provided. Rockliffe, on the other hand, argued that the list included a series of “general diseases”, such as plague, which it contended were not attributable to specific causes or pathogens. It claimed that the word “plague” should be read as a general term for an infectious disease with a high mortality rate.

The court’s starting point was that only the diseases on the list count as “Infectious Diseases”, as defined by the policy. The judge thought it would be “fanciful in the extreme” that any reasonable reader would consider that the word “plague” included an “infectious disease which spreads rapidly and has a high mortality rate” as contended by Rockliffe. The reasonable reader would be more likely to think reference was being made to an infectious disease called “plague” which would not include Covid-19. 

Perhaps of more relevance for any policyholders considering the implications of a Specified List wording, was the court’s assessment of the way in which the clause was drafted. The court suggested it would be “a bizarre way of going about it” for an insurer to draft an exhaustive list of diseases which it would cover but to then allow the parties to construe anything on the list as simply being indicative. If that was the intention, words such as “for example” or “including” would be necessary. The point being that what is covered is what is stated on the list. It is not open for a policyholder to subsequently attempt to interpret each of the words in a list as a way for them to mean something else. To do otherwise makes a Specified List virtually redundant.

The court therefore had no hesitation in concluding that on a common sense reading of the Travellers policy, the word “plague” was “obviously intended” to refer to a specific disease known as plague and caused by a particular type of bacteria. The clause was therefore not ambiguous. 

Rockliffe raised various other arguments which were all rejected. Its claim was struck out.

Comment

In my article about the Test Case on 1 February 2021, I commented that we had not seen the end of litigation relating to Covid-19 and BI.  While it has not taken long for that prediction to come to fruition, I would not have predicted the first case to be about a Specified List wording, mainly because the position seems to be obvious. That is clearly what the court in Rockliffe thought too.

Businesses are naturally desperate to look at all options available to manage the significant losses they have suffered at the hands of Covid-19.  However, it would be wise to temper that desperation by considering the risks of litigation with the major downside of losing being the obligation to pay the winner’s costs – certainly on a strike out as was the case here.

I have spoken with many brokers over the last few months whose clients have Specified List wording. Most have been reasonably sure that an insurer’s decision to decline a claim on a specified list wording would be appropriate. While each wording has to be considered on its own merits and there will always be outliers, in general terms this decision will provide some comfort to brokers who have advised their clients that their claims will not be covered if they have a Specified List policy.