CHAPTER FIVE – POLICIES AND CLAUSES
Business Interruption Insurance (“BII”) policies are contractual in nature, and the usual rules of contractual interpretation apply to them but there is nevertheless a substantial body of case-law specific to the subject.
The main contractual documents comprise the policy schedule and the policy wording. Ordinarily, both make reference to each other and are read together as a contractual instrument. It is quite common to find that insurance schedules set out the details specific to the individual business, such as the policy limit, the indemnity period, the optional extras and sometimes specific applicable clauses. Policy wordings are more usually in standard forms published by the main insurers online.
Typically, BII forms one part of the insurance within a policy. Many insurers provide a “Commercial Combined” policy wording or wordings specific to certain industries, such as pubs, restaurants, children’s nurseries, hotels, or manufacturers, for example, each with clauses relevant to that industry. Within policies there will often be clauses providing cover for fire, theft, destruction of property, or (often) pay-outs for key staff who leave when they win the lottery.
Most policies break their BII sections down into subsections dealing with the basic cover for interruption to business, and subsections dealing with extensions to that cover. The basic cover is normally specified to arise solely as a result of physical property damage in a number of defined circumstances. The extensions to cover are ordinarily those circumstances in which the insurer agrees to pay out for interruption to business caused by things other than physical property damage, like devastating global pandemics.
Although most policies comprise a schedule and a policy wording, It is important to check whether additional documents may have been incorporated into the contract of insurance. Sometimes other documents are attached to the policy, or reference is made to them by words which have the effect of incorporating them, rather than just reciting them, as in Wheelton v Hardisty, where a policy proposal was incorporated on the basis of words which indicated that the contract was framed on the proposal1.
In addition to documents which are incorporated, parties may also admit in evidence pre-contractual documents for the purpose of ascertaining the objective intentions of the parties in cases of ambiguity. See, for example, Hordern v Commercial Union Insurance Co2:
“If the question had been one of the construction of the policy alone, it would be for the Court; but when once the evidence disclosed that on that policy there was a latent ambiguity, and that it was necessary to go into the consideration of other documents, and to resort to parol evidence to solve that ambiguity, their Lordships consider that there it ceased to be a question merely of construction of the instrument, and raised a question of fact to be determined by the jury, that question being, as already pointed out, whether the policy covered the goods, that is to say, whether it covered that portion of the premises in which these goods actually were stored at the time of the fire”.
In practice, it is often obvious who the insurer is, especially when the insurer is a large, well-known and singular entity, like Allianz Plc. Confusion sometimes arises, however, when the insurer is described in the policy documents in a number of less specific ways.
Policies vary widely in how they specify the identity of the insurer and there is no standard method of doing so. Sometimes policy schedules include the name of the insurer on the front page or specify different insurers for different sections of the insurance policy. Many policies contain a list of definitions towards the beginning of the policy wording. In that list “the Insurer”, “We/Us”, “the Company” and other variations appear, to describe the identity of the insurer.
Many policies are underwritten by Lloyd’s syndicates and the definition of “Insurer” in the policy may simply provide “Certain Lloyd’s Underwriters”, or “Syndicate 1234 at Lloyd’s”. Lloyd’s of London itself is a corporate society, incorporated under the Lloyd’s Act 1871, which operates an insurance and reinsurance market in London and is under statutory control in the form of the Lloyd’s Acts 1871 to 1982 and the Financial Services and Markets Act 2000. Lloyd’s is not an underwriter with liability to the insured, but rather a society which runs the Lloyd’s insurance market: a collection of individual and corporate underwriters, known as “Names”, or “Members” who group themselves into syndicates3 and subscribe to a particular insurance policy taking on liability to the insured.
A Lloyd’s syndicate is not a legal entity or a partnership, but a group of Names who have joined a particular syndicate for a particular underwriting year. Each policy issued at Lloyd’s consists of individual contracts made on behalf of individual Names4, with each Name being liable to the insured only for his own share of the insurance provided under a policy5 (i.e. the liability is not joint and several).
Section 8(2) of the Lloyd’s Act 1982, helps to explain the purpose of underwriting agents:
8.— Insurance business
(2) An underwriting member (not being himself an underwriting agent) shall underwrite contracts of insurance at Lloyd’s only through an underwriting agent.
Underwriting agents not only manage syndicates, winding them down, adding or removing Names, but also advise Names on which syndicates to join, on their allocation of premiums, on the nature of the risk they take on or in practice act in a role combining both advice and management.
Policies frequently make reference to underwriting agents, giving their contact detail within the policy definitions or within the section sometimes entitled “How to Claim”. Such underwriting agents ought not to be confused with brokers, who act not only for the insured, but also on behalf of underwriting agents. Underwriting agents do not themselves take on liability to insureds, despite words apt to confuse which state “This insurance is provided by X Agents on behalf of Y”.
Insurance at Lloyd’s is placed by “Lloyd’s brokers”6, who have access to “The Room”, which means “the principle room or rooms in the Society’s premises in the city of London for the time being designated by the Council for the purposes of underwriting”7. A broker will write down the cover required using abbreviations on a slip and take the slip round underwriters in the Room, who, if they agree to provide cover, will initial a line on the slip confirming their agreement and the percentage of the insurance they agree to underwrite. The broker will continue until 100 per cent of the insurance is subscribed and deposit the slip at the Lloyd’s Policy Signing Office (“LPSO”), which will execute an insurance policy which it certifies is in conformity with the insurance abbreviated on the slip, in the name of the various underwriters8.
Crucially, there is a binding contract of insurance as soon as a particular underwriter has initialled the slip, and the final policy is executed by the LPSO with the authority of the underwriters, evidence by their initials on the slip, as if the underwriters themselves had executed the engrossed policy9.
The position as to legal liability and privity of contract is as explained above. The convention, however, is that a claim for an indemnity by Joe Bloggs against his insurers would be brought for ease in the form “Joe Bloggs v Certain Underwriters at Lloyd’s”. The various underwriters in the relevant syndicate are usually then included in a schedule of defendants on the claim form, as follows:
Claimant(s) name(s) and address(es) including postcode:
Joe Bloggs, 123 Cabbage Road, Walsall WS1 123.
Defendant(s) name and address(es) including postcode:
Certain Underwriters at Lloyd’s subscribing to Policy Number CCOM/1234A,[below]/[as in Schedule of Defendants]:
1. TVA 1991 c/o Wales and Worcester Bathurst Ltd., Insurance House, London E1 123
2. SYNJON c/o David Johnson Syndicates Ltd., 5 Bank House, London E1 345
3. JA 2000 c/o Joanne Evans, 15 Gold Apartments, London SW1X 123
An example10 of the basic BII cover (“RSA 3”) provided by Royal and Sun Alliance Plc is:
In the event of Business Interruption We will pay to You in respect of each item in the Schedule the amount of loss resulting from such interruption or interference provided that at the time of the happening of the loss destruction or Damage there is an insurance in force covering Your interest in the Property at the Premises against such loss destruction or Damage and that:
a) payment shall have been made or liability admitted therefore [sic]; or
b) payment would have been made or liability admitted [sic] but for the operation of a proviso in such insurance excluding liability for losses below a specified amount.”
RSA 3 provides a number of extensions to that basic property-damage cover:
“Interruption or interference with “the Business” in consequence of “an Incident” at any site not in the occupation of the insured, within the territorial limits of the policy, at which the insured is carrying out a contract [Extension iii, “Contract Sites”];
Interruption or interference with “the Business” carried on at “the Premises” following loss of an employee as a result of the death or injury to the employee or the employee winning a lottery or similar prize in an amount exceeding £100,000 [Extension v, “Essential Employees”];
Interruption or interference with “the Business” “as a result of the accidental failure of supply of” electricity, gas, water or telecommunications services at “the Premises” [Extension vi, “Failure of Supply”];
Interruption or interference with “the Business” as a result of loss, destruction or damage to property in the “Vicinity” of “the Premises” which prevents or hinders the use of or access to “the Premises” or leads to a loss of attraction to the “Business”, or of the actions of a competent Public Authority due to an emergency likely to endanger life or property in the “Vicinity” of “the Premises” [Extensions ix, x and xi, “Prevention of Access”];
Interruption or interference with “the Business” as a result of loss, destruction or damage to property at, broadly, the facilities or premises of public utilities [Extension xii, “Public Utilities”], or of specified customers [Extension xiii, “Specified Customers”], or of specified suppliers [Extension xiv, “Specified Suppliers”], or at sites where the insured’s goods are stored [Extension xv, “Storage Sites”];
Interruption or interference with “the Business” as a result of loss, destruction or damage to the insured’s property whilst in transit in Great Britain or Northern Ireland [Extension xvi, “Transit”].”
In the context of the pandemic, the most relevant extension is Extension vii “Infectious Diseases”:
“We shall indemnify You in respect of interruption or interference with the Business during the Indemnity Period following:
i. occurrence of a Notifiable Disease (as defined below) at the Premises or attributable to food or drink supplied from the Premises;
ii. discovery of an organism at the Premises likely to result in the occurrence of a Notifiable Disease;
iii. occurrence of a Notifiable Disease within a radius of 25 miles of the Premises;
b) the discovery of vermin or pests at the Premises which causes restrictions on the use of the Premises on the order or advice of the competent local authority;
c) any accident causing defects in the drains or other sanitary arrangements at the Premises which causes restrictions on the use of the Premises on the order or advice of the competent local authority; or
d) any occurrence of murder or suicide at the Premises.
Additional Definition in respect of Notifiable Diseases
1. Notifiable Disease shall mean illness sustained by any person resulting from:
i. food or drink poisoning; or
ii. any human infectious or human contagious disease excluding Acquired Immune Deficiency Syndrome (AIDS) or an AIDS related condition an outbreak of which the competent local authority has stipulated shall be notified to them
2. For the purposes of this clause:
Indemnity Period shall mean the period during which the results of the Business shall be affected in consequence of the occurrence discovery or accident beginning:
i. in the case of a) and d) above with the date of the occurrence or discovery; or
ii. in the case of b) and c) above the date from which the restrictions on the Premises applied; and ending not later than the Maximum Indemnity Period thereafter shown below.
Premises shall mean only those locations stated in the Premises definition. In the event that the section includes an extension which deems loss destruction or Damage at other locations to be an Incident such extension shall not apply to this clause.
3. We shall not be liable under this clause for any costs incurred in the cleaning repair replacement recall or checking of Property
4. We shall only be liable for the loss arising at those Premises which are directly affected by the occurrence discovery or accident Maximum Indemnity Period shall mean 3 months”
Most policies provide variations on the above example but it is normally difficult to define more than general principles because policies, like any contract, will always be interpreted based on the contracting parties’ reasonably ascertainable intentions at the time the contract was entered into. The wording of the above clause and similar clauses forms the basis for much of the argument between businesses and insurers in the context of the COVID-19 pandemic.
What arises frequently in discussion of the various types of clauses, however, is reference to “disease clauses”, “denial of access clauses” and “hybrid clauses”. These were summarised helpfully in FCA 2 (see para. 4) as follows:
1 Wheelton v Hardisty (1857) 8 E. & B. 232. at 95.
2 (1887) 56 L.J.P.C. 78.
4 See Society of Lloyd’s v Robinson  1 W.L.R. 756 at 760.
5 Lloyd’s Act 1982, s.8(1).
6 Per Lloyd’s Act 1982, s.2(1): “Lloyd’s broker” means a partnership or body corporate permitted by the Council to describe itself as a Lloyd’s broker”.
8 Eagle Star Insurance Co Ltd v Spratt  2 Lloyd’s Rep. 116
9 General Reinsurance Corporation and Others v Forsakringsaktiebolaget Fennia Patria  Q.B. 856.
10 Categorised as “RSA 3” in FCA 1. Square brackets contain the references used in that case.