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Business Interruption Insurance and the absence of Damage

07 April 2021 Donald Dinnie, Norton Roe Fulbright
Donald Dinnie, Norton Roe Fulbright

Donald Dinnie, Norton Roe Fulbright

A claim under a business interruption policy generally requires a valid claim under the material damage section of the policy. And the damage must occur during the currency of the policy.

In TKC London Limited v Allianz Insurance PLC [2020] EWHC 27 10 (Comm.), the insured operated a café in London.  Following the Covid-19 outbreak of that year, government regulations required the café to close from 26th March 2020 and to cease selling food or drink for consumption on the premises.

The café later reopened on 4 July 2020 during which time its food stocks had deteriorated and were lost.

The insured’s policy was an All Risks policy covering “Damage to Property Insured at the Premises”. Damage was defined as “Accidental loss or destruction of or damage to Property Insured”.  There was also business interruption cover applicable to “loss resulting from interruption or interference with the Business carried on by the Insured at the Premises in consequence of an event to property used by the Insured at the Premises for the purpose of the Business.”

“Event” was defined as “Accidental loss or destruction of or damage to Property used by the Insured at the Premises for the purposes of the business.” The Business Interruption section contained an extension for “any claim resulting from interruption or interference with the Business in consequence of …. Accidental loss, destruction or damage ….”

Both sections excluded “Loss caused by or consisting of inherent vice, latent defect, gradual deterioration …”

The court held that the policy required physical damage to the insured property as a trigger for the business interruption claim. There was no such event.

The loss of property had not been “accidental”.  It was the result of natural deterioration akin to an inherent vice. The food had not suffered physical “damage” as a result of the insured peril.  There had been a loss of the ability to use it. There was an interruption in consequence of an event to property used at the premises. The interruption was caused by the closure of the premises not by the loss of the food which came later.

First  published by: Financial Institutions Legal Snapshot

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