High Court: Insurance coverage for Covid-19 losses is not available for Clarence Hotel under AXA policy
The High Court has ruled that a hotel is not covered for losses from the Covid-19 pandemic under a policy of insurance.
About this case:
Citation: IECA 263
Judge:Mr Justice Denis McDonald
The court was asked to interpret an AXA policy which provided certain indemnities for closures resulting from specified diseases and sanitary requirements. The plaintiff also argued that it was entitled to coverage under a “denial of access” clause in the policy.
On Monday, the court determined that coverage was not available to the hotel under the policy. It was held by Mr Justice Denis McDonald that nothing in the insurance policy provided cover for Covid-9 losses, notwithstanding the “ingenuity” of arguments advanced by counsel.
The plaintiff was Brushfield Limited trading as The Clarence Hotel, which had taken out an insurance policy with AXA Insurance DAC using Arachas Corporate Brokers Limited as its broker. The policy provided coverage for a range of insurable losses, including business interruption.
There were two extensions in the policy regarding business interruption coverage. First, there was the “murder, suicide or disease clause” (“the MSDE clause”), which contained a list of specified human diseases that were covered under the policy. The diseases had to occur at or within 25 miles of the premises and cause a disruption to the business. Notably, Covid-19 was not contained in the list of diseases. Further, under paragraph 5 of the MSDE clause, the plaintiff was covered for closures due to “defects in the drains or other sanitary arrangements at the premises.”
The second extension related to denial of access (non-damage) clause, which provided up to €50,000 of cover for losses sustained arising from “the actions taken by the police or any other statutory body in response to a danger or disturbance at your premises or within a 1 mile radius of your premises.”
Relying on these clauses, the plaintiff claimed that it was entitled to be compensated for pandemic losses. In relation to the MSDE clause, the plaintiff accepted that Covid-19 was not on the list of specified disease that provided cover. Instead, the plaintiff attempted to rely on the inclusion of “acute encephalitis” as an insured risk. The plaintiff provided expert evidence which claimed that acute encephalitis was caused by Covid-19 and, as such, the outbreak of Covid-19 was in principle covered under the policy.
Further, the plaintiff submitted that paragraph 5 of the MSDE clause provided coverage for losses because it covered defects in “sanitary arrangements” at the premises. The plaintiff argued that the inability to facilitate social distancing was a sanitary arrangement under the policy. It was said that this defect in social distancing could not be rectified by other measures such as mask use.
Finally, it was argued under the denial of access clause that the plaintiff was entitled to coverage on the basis of the actions taken by the government in forcibly closing the premises.
In defending the case, AXA provided its own expert evidence, stating that there was no verified link between acute encephalitis and Covid-19 and, in any event, Covid-19 was simply not an insured disease under the MSDE clause. It was also submitted that, even if acute encephalitis could apply, the closures were not “as a result” of an occurrence of the disease, but rather Covid-19. The defendants said that the plaintiff was attempting to “shoehorn” Covid-19 into the policy.
The defendants also said that paragraph 5 was inapplicable to social distancing measures and that the plaintiff was giving a wholly artificial meaning to the term “sanitary arrangements.”
On the issue of the denial of access clause, AXA also denied that coverage was available for a number of reasons, including inter alia that the clause was designed to deal with dangerous incidents such as fires or riots, that the actions taken by the government did not constitute “other statutory bodies” to satisfy the clause and that there was no intention to cover notifiable diseases under the clause.
In a 116-page judgment, Mr Justice McDonald rejected each of the plaintiff’s submissions. The court began by reciting the well-established case law regarding the interpretation of insurance contacts, including cases such as Analog Devices BV v. Zurich Insurance Company  1 I.R. 274, Law Society of Ireland v. Motor Insurers Bureau of Ireland  IESC 31 and Financial Conduct Authority v. Arch Insurance (UK) Ltd  UKSC 1.
For the MSDE clause, the court determined that coverage was limited to business interruption caused by one of the listed diseases and, because Covid-19 was not listed, it was not covered per se. The court held that there was no reported link between Covid-19 and acute encephalitis and that the plaintiff had failed to show that the closure was proximately caused by an outbreak of acute encephalitis as required by the MSDE clause.
In respect of coverage for sanitary arrangements, the court held that the plaintiff did not establish that there was any defect within the meaning of paragraph 5 which caused the closure. Lockdowns had never been justified on the basis of defective practices from bar or hotel owners, the court said. After assessing paragraph 5, the court concluded that the clause only applied where there was a specific order from a public authority requiring closure due to a defect in the drains or sanitary arrangements.
The court also observed that the policy was made in April 2019, when the concept of social distancing was not considered to be a sanitary arrangement.
On the issue of denial of access, the court held: “I have concluded that the clause is intended to respond to localised dangers or disturbances which occur within a one-mile radius of the hotel. I do not believe that, as of the date the AXA policy was put in place in April, 2019, a reasonable person would regard a disease having the characteristics and geographic spread of Covid-19 as falling within the ambit of a ‘danger or disturbance’ as those words would be understood in the specific context of the denial of access clause.”
As such, that the plaintiff had not satisfied the requirements of the clause. Further, the denial of access clause only applied where it resulted from the actions of police or a statutory body, the court said. The court was not satisfied that the government’s actions were the actions of police.
However, the court said that “there may be an argument open to the plaintiff that the Regulations made by the Minister for Health in 2020 constitute actions by a statutory body within the meaning of the denial of access clause”. As such, Mr Justice McDonald said that he was prepared to hear further submissions on that issue. However, the court said that the plaintiff would still face difficulties regarding the danger/disturbance point.
The hotel failed to establish that its interpretation of the insurance policy was correct and the court therefore held that Covid-19 was not an insured risk within the meaning of the policy. The court invited the parties to confer with each other in relation to the final orders in the case and the issue of costs.