Briefing

Meaning of discovery in business interruption policies – a further COVID-19 claim

The courts have handed down a further COVID-19 related business-interruption insurance coverage judgment in Grimes t/a The Cleveland Arms¹. This time the judgment relates to coverage where the wording requires a “discovery” of notifiable disease at the Premises. It also considers issues of notification.

Background and issues

The judgment relates to a number of cases heard together, where the insureds were hotels, bars, hairdressers and other similar businesses in hospitality.

The court was asked to consider a number of preliminary issues and answer a number of questions in these cases. In each case the BI policy provided cover where there was:

“interruption or interference with the Business in consequence of compulsory closure by a public body authorised to prevent or restrict access to the Premises arising from discovery of a human infectious or contagious disease” at the premises”. [our emphasis]

The claimants argued that the word “discovery” was synonymous with “occurrence” – something that happens at a particular time, at a particular place, in a particular way. Alternatively, they argued that “discovery” in the clause was equivalent to a “manifestation” i.e. requiring either symptoms or a diagnosis. It was then said that the causation element required by the clause should be applied in the same way as in the Court of Appeal decision in LIEC². In that case the Court of Appeal held that the test for causation as set out by the Supreme Court in The FCA Test Case also applied to “at the premises” wordings. In other words, it held that “but for” causation did not apply to policies requiring cases of disease “at the premises” but the causation requirement would be satisfied if the case of COVID-19 at the insured premises was one of a number of causes of the closure of premises by authorities.

The defendant argued that a “discovery” is the start of a causal process by which COVID-19 must be discovered at the premises, followed by its closure, leading to the interruption. “Discovery” should be given its natural and ordinary meaning, which is the making apparent of something that was previously unknown. The defendant sought to distinguish LIEC and said that the discovery of COVID-19 at the premises had to have some causal connection with the loss, because inherent in the word “discovery” was knowledge of the infection, and the public body could not be responding to a discovery unless it was aware of it. Therefore, to trigger cover, the discovery of COVID-19 had to be reported to the relevant public body and in imposing a closure the body had to be acting on that case (although it was said the treatment of causation in the FCA Test Case was still being applied as this was regardless of whether the public body was also acting in response to all other cases of COVID-19).

There was also an issue as to whether the claimants had complied with the notification provisions of the policy.

Judgment

“Discovery” and causation

The judge started with the issue of causation.

It was common ground that government closures were imposed due to both known and “known unknown” cases of COVID-19 at that time. The judge could see no reason why any distinction should be drawn between unknown “occurrences”, “manifestations” or “discoveries”. Where the insured peril is the discovery of a notifiable disease, and what leads to the closure is the notifiable disease, there was no reason to conclude the closing authority had to have known of the particular instance at the premises (and the judge agreed with the Court of Appeal in LIEC on this).

In terms of the meaning of “discovery” in the context of the policy, there was no reason why the normal chain of causation commencing with discovery and leading to closure should apply. If there was a case of COVID -19 at the premises between the date when COVID-19 became notifiable and the date of closure, which together with the other cases of COVID-19 nationwide caused closure, this would be covered, whether it was discovered before or after closure.

This conclusion meant that the meaning of “discovery” was less relevant. However, the court noted that it was not necessary for the discovery to be in any particular way: there may be a diagnosis of an individual with COVID-19 or other evidence that establishes the happening of the relevant event in the relevant period. However, the question of what particular proof might be adequate was not before the court and so was not decided.

Notification

The policies stated:

“It is a condition precedent to the liability of the Company that on the happening of any event which could result in a claim under this Policy the Insured shall (a) immediately advise the Company in writing or by email or by phone to the Claims Manager….”

The claimants argued that this clause should not be construed as a condition precedent. Further, it was submitted that it was not necessary to give insurers any notice since the relevant events (COVID-19 and the closure of premises) were already known to insurers. Alternatively, it was said that the claimants only had the requisite knowledge to trigger the notification requirement following the judgment in the FCA Test Case or alternatively LIEC.

The claimants said that there was ambiguity in relation to the “event” in respect of which insurers required notification: due to the nature of COVID-19 and the insured businesses it was intrinsically difficult for the claimants to establish contemporaneously that a case of COVID-19 had occurred, as members of the public of whom the claimants had no knowledge would have been present on the premises. Further, the nature of the illness, its prevalence, and whether BI insurance would respond were all uncertain. It was only when this was resolved by the FCA Test Case, at the earliest, that the insured could have reasonably considered that the circumstances were such that the events could give rise to a claim. The issues relating to at the premises cover were only finally resolved by the Court of Appeal decision in LIEC.

The court rejected the claimant’s submissions, finding that the clause was a condition precedent. Further, the defendants were correct to say that decisions of the courts were not events that might give rise to a claim, but were matters that made clear, as a matter of law, that earlier events might. The policy condition was directed to factual events, not legal decisions.

However, it was not the case (as the defendant argued) that the last event in time would necessarily have been the relevant closure of the insured premises. The relevant time for notification would be within the requisite period after the insured became aware or discovered that there had been a case of COVID-19 within the relevant period, i.e. between COVID-19 becoming notifiable and the date of the relevant closure. Notification must then take place “immediately”, i.e. must be very rapid.

The court also rejected arguments that the defendant was estopped from relying on the notification provisions. The claimants argued that letters rejecting the policy claims relied on other policy grounds, and had not mentioned breach of the notification provisions, and the defendant was therefore now estopped from raising notification. This was rejected. An estoppel by representation required an unequivocal representation to be made, and this was not fulfilled simply by initially rejecting the claims on some policy grounds and not others.

The court did not go on to apply the findings to the facts, as the judgment was a decision on a number of preliminary issues.

Footnotes

Grimes t/a Cleveland Arms v Liberty [2026] 1195 (Comm)
London International Exhibition Centre v Allianz [2024] EWCA Civ 1026. A briefing on the decision is available here: Court of Appeal decision on “at the premises” wording | HFW