The High Court has dismissed the first module of a hotel’s test case against its insurer, ruling that the policy’s business interruption cover required physical damage to property and was not triggered by the COVID-19 closure measures.
Coachhouse Catering Limited, trading as the Old Imperial Hotel, sought an indemnity from Slovenian insurer Zavarovalnica Sava Insurance Company d.d. after the hotel closed on 15 March 2020 following Government advice to public houses and bars to shut. The parties agreed there had been no physical damage to the hotel or property used in its business, and no premises-specific restriction.
Mr Justice Denis McDonald said the case was a modular trial focused on interpreting the policy. The first module did not determine any remaining issues that might be addressed in a second module. Frost Insurances Limited, which handled underwriting and claims on Sava’s behalf, had declined the claim.
The judge held that the words in parentheses in the business interruption section defined “DAMAGE” for that section as loss or destruction of, or damage to, property used at the premises for the business. He rejected the hotel’s argument that “use” extended the definition to loss of use. Although the policy referred to contingencies A to R that were not listed under those labels, he treated this as an obvious drafting mistake and read the reference as covering the 18 contingencies set out in the material damage section.
Because the agreed facts established no physical damage or permanent loss of property, the judge ruled that the COVID-19 measures did not trigger business interruption cover. He said disease-related contamination could potentially support a claim in different circumstances, but there was no evidence of contamination at the hotel.
The hotel also argued that the closure suspended its liquor licence. The judge said cover under the loss of licence extension required forfeiture, suspension or withdrawal. The parties had not sufficiently analysed the licence, governing law and effect of the measures for him to decide whether closure amounted to suspension. However, he concluded that if the extension otherwise applied, the claim would fall within an exclusion for claims resulting from changes in law or statements of policy affecting a licence.
The judgment also considered a prevention-of-access extension, although it had not been pleaded as a basis for indemnity. The court found no evidence that nearby property was infected or that such an infection caused access to the hotel to be prevented or hindered.
The judge said the claims in this module must be dismissed and listed the case for mention on 2 June 2022 so that appropriate orders could be considered. He directed the parties to file written submissions within 28 days of electronic delivery of the judgment.