The latest coronavirus (COVID-19) BI judgment to be handed down in the English courts deals with aggregation of losses under the Aon Trio policy wording. The claim was pursued by Pizza Express, whose 475 restaurants were all subject to coronavirus lockdown restrictions in 2020.

The question before the court was not one of coverage but whether, if coverage could be established, the relevant £250,000 sublimit in the Policy applied in the aggregate to all Pizza Express’s losses arising from one source or original cause. On the insurers’ case, this limited the value of Pizza Express’s claim to £250,000, while on Pizza Express’s case the insurer would be liable to indemnify Pizza Express in full to the tune of £178m. The court determined that insurers were right to argue that the aggregating provision contained within the definition of ‘Occurrence’ applied to the clauses in question, meaning that Pizza Express’s covered losses under the Policy would be aggregated by reference to a single source or original cause.

This article by Head of Policyholder Disputes Aaron Le Marquer was first published by LexisNexis on 5 June 2023.

What was the background?

Pizza Express was insured under a policy issued by Liberty Mutual using the Aon Trio wording, a standard policy wording developed by global broker Aon and used by insurers across the market. The policy contained two clauses under which Pizza Express seeks indemnity, both of which Liberty argues do not respond.

Unusually, in this case, the issue of aggregation was determined before it was established whether the either of the clauses was capable of responding to Pizza Express’s losses at all.

The first clause (an ‘At the Premises’ Disease clause) formed part of a series of test case trials led by London International Exhibition Centre v RSA in April–May 2023, in respect of which the judgment is awaited.

The second clause (a Prevention of Access clause) will be tested in a second set of test case trials in October 2023 (the ‘Liberty Proceedings’). The Liberty Proceedings will revisit Corbin & King v Axa [2022] EWHC 409 (Comm) to determine (i) whether it was correctly decided by Mrs Justice Cockerill in 2022; and (ii) whether the reasoning can be read across to other NDDA wordings.

Both clauses in the Pizza Express Policy were subject to a sub-limit of liability of £250,000. The policy schedule further stated that ‘all Limits of Liability apply any one Occurrence’, while Occurrence was defined in the Policy as ‘any one loss or series of losses arising out of and directly resulting from one source or original cause’.

Liberty argued that in the absence of any words to the contrary, the sub-limit of liability was a ‘Limit of Liability’ that applied ‘per Occurrence’, meaning that Pizza Express’s losses were to be aggregated by ‘source or original cause’, and that any indemnity due to Pizza Express would accordingly be limited to £250,000 or alternatively £750,000.

Pizza Express argued that the sub-limit of liability was not captured within the capitalized term ‘Limit of Liability’, and that the £250,000 sub-limit was not therefore subject to the aggregating language found in the Occurrence definition. Rather, Pizza Express argued, the £250,000 applied to each occurrence of an insured peril, allowing it to claim its full losses estimated at £178m.

What did the court decide?

The court confirmed that the established principles of construction set down in Wood v Capita Insurance Services and Arnold v Britton [2017] AC 1173 were applicable, ie that:

• the policy must be construed objectively by asking what a reasonable policyholder would have understood the language of the Policy to mean
• the words must be assessed in the context of the clause in which they appear as well as in the landscape of the document as a whole, and
• commercial common sense should not be invoked retrospectively in an attempt to assist an unwise party or to penalize an astute party

Applying those principles, the court found that ‘as a matter of ordinary language, a sub-limit is just as much a limit of liability as an aggregate or overall limit’.

Considerable weight was also given to the placement and formatting of the words and limits in the relevant parts of the Schedule in order to establish the objectively reasonable meaning. Finding in favour of the insurers, the court determined that the £250,000 sub-limit was a ‘Limit of Liability’ that applied any one Occurrence, and not any one Incident.

As a result, subject to coverage being established, all of Pizza Express’s losses ‘arising out of and directly resulting from one source or original cause’ would be aggregated and subject to a single sub-limit of liability under both the Notifiable Disease and Prevent of Access clauses. The question of to what extent as a matter of fact Pizza Express’s losses arose from or directly resulted from one source or original cause was not, however, decided.

At time of publication, the judgment remains subject to appeal and has yet to become final.

What are the practical implications of the case?

The case indicates that coronavirus BI claims pursued under the Aon Trio policy wording are likely to be subject to relatively broad aggregation by reference to one ‘source or original cause’, which will limit the amount recoverable, particularly in the case of policyholders with multiple insured premises.

However, care should be taken not to extrapolate too widely from the Pizza Express ruling.

First, it should be noted that coverage is in any case subject to judgment in LIEC v RSA and the Liberty Proceedings listed for October 2023. Until those cases are finally resolved, the matter of coverage under the Aon Trio wording remains undetermined.

Secondly, the Pizza Express ruling turned on a narrow point of construction that was entirely specific to the policy wording in question, and the judge’s decision was heavily influenced not just by the content of the standard policy wording, but by the structure and formatting of the policy schedule, which may vary considerably between policyholders and insurers using the Aon Trio wording. For policyholders insured under other policy wordings, the judgment may have limited relevance.

Third, while the court confirmed that the sub-limit of liability applied per ‘Occurrence’ in Pizza Express’s case, there was no argument and no finding as to exactly what that meant in practice. Liberty argues that aggregation by ‘original cause’ leads to either a single Occurrence or at most three Occurrences, whereas Pizza Express argues for a higher number of Occurrences. However, that issue was not determined in the present judgment.

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