China Taiping Insurance (UK) Co Ltd (“China Taiping”) has successfully defended a COVID-19 Business Interruption arbitration claim brought by a large group of insureds, comprising restaurants, cafes, bars and public houses, seeking coverage for COVID-related losses under a business interruption policy.

In an arbitration award published on 10 September 2021, Lord Mance as sole arbitrator in this non-confidential, non-appealable arbitration, funded by insurers, declared that “in so far as the Policyholders claim to have suffered recoverable loss in consequence of the alleged instructions, actions or advice… such claim fails in that the instructions, actions or advice alleged were not issued by or of “the Police or other competent local authority”” (see [109] of the award).

This arbitration is an important victory for insurers in the legal landscape of COVID BI decisions following the conclusion of the FCA test case.  Lord Mance accepted the submissions of Gavin Kealey QC and Sushma Ananda, acting for China Taiping, that the UK Government was not a “competent local authority”.  As a result, he held that the instructions, actions or advice of the UK Government taken in response to the COVID-19 pandemic, and which caused the policyholders’ loss, were outside the scope of a denial of access extension to business interruption cover which circumscribed cover to the instructions, actions or advice of “the Police or other competent local authority”.

Significantly, the arbitrator refused to give the words “competent local authority” the same broad meaning given to them by the Divisional Court in the FCA test case ([2020] Lloyd’s Rep IR 527 at [352]-[376]).

• The Divisional Court considered the meaning of that phrase in an exclusion to a Prevention of Access clause in a policy issued by Ecclesiastical Insurance Office (“Ecclesiastical”).
• In light of the specific wording of the Prevention of Access clause in that policy, and the context in which the phrase “competent local authority” was used elsewhere in the Ecclesiastical policy, the same 7KBW team that acted for China Taiping in this arbitration, and acted for Ecclesiastical before the Divisional Court, successfully argued that “competent local authority” encompassed (and thus excluded cover for) the actions of central Government.
• Lord Mance held that the issue that arose and the wording in the Ecclesiastical policies were different in material respects from the China Taiping policies before him. As a result, the decision of the Divisional Court could be, and ought to be, distinguished in favour of giving “competent local authority” in the China Taiping policies their natural and ordinary meaning (see award, [89]-[101]).

This decision emphasises the importance of context. The temptation – particularly in the COVID-19 BI context – to extrapolate from the decisions on one wording to other wordings must be resisted. Instead, it is necessary to consider each wording on its own terms and construe it against its own relevant factual and legal background.

This case note has been prepared by Gavin Kealey QC and Sushma Ananda who were instructed by DAC Beachcroft LLP on behalf of China Taiping (and on behalf of Ecclesiastical in the FCA test case).

A copy of the arbitration award can be found here.

A copy of the Divisional Court decision in the FCA test case in which Gavin Kealey QC and Sushma Ananda successfully represented Ecclesiastical can be found here.