Unipolsai Assicurazioni SpA v Covea Insurance PLC

The appeal by the Claimant formerly UnipolRe Designated Activity Company (“UnipolRe”) against a Partial Final Arbitration Award of 24 July 2023 (“the Covéa Award”) determining issues of principle regarding the treatment of claims by Covéa under a Property Catastrophe Excess of Loss Reinsurance (“the Covéa Reinsurance”) for indemnity against business interruption losses caused by the Covid-19 pandemic.

The appeal by Markel International Insurance Company Limited (“Markel”) and cross-appeal by General Reinsurance AG (“General Reinsurance”) against a Partial Final Arbitration Award of 27 January 2023 (“the Markel Award”) determining issues of principle regarding the treatment of claims by Markel under a Property Catastrophe Excess of Loss Reinsurance (“the Markel Reinsurance”) for indemnity against business interruption losses caused by the Covid-19 pandemic.

First, whether the Covid-19 losses for which Covéa and Markel sought indemnity under, respectively, the Covéa and Markel Reinsurances, arose out of and were directly occasioned by one catastrophe on the proper construction of the Reinsurances. Both the Covéa and Markel Awards found that they did.

Second, whether the effect of the respective “Hours Clauses” in the Covéa and Markel Reinsurances, which confined the right to indemnity to “individual losses” within a set period, had the effect that the reinsurances only responded to payments in respect of the closure of the insured’s premises during the stipulated period. The Covéa Award found that this was not the effect of the “Hours Clause” in the Covéa Reinsurance. The Markel Award found that this was the effect of the “Hours Clause” in the Markel Reinsurance.

As s.69(1) makes clear, the issue of law must be one “arising out of an award made in the proceedings”.

Where a tribunal’s experience assists it in determining a question of law, “the court will accord some deference to the tribunal’s decision” (Silverburn Shipping (IOM) Ltd v Ark Shipping Co LLC (The Arctic) [2019] EWHC 376 (Comm), [20]).

Where the arbitral tribunal’s decision is one of mixed fact and law, the court cannot interfere unless it is shown that the arbitral tribunal either erred in law or reached a conclusion on the facts which no reasonable person, applying the relevant law, could have reached. It is not enough that the court would or might not itself have reached the same conclusion (Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd (The Sylvia) [2010] EWHC 542 (Comm), [54]). In short, it must be shown that the conclusion reached by the arbitral tribunal is “necessarily inconsistent” with the correct application of the relevant legal principle.

Provided the substance of the point of law remains the same as that for which permission to appeal has been granted (or consented to), the court will permit minor refinements to the formulation of the issue at the hearing which involve no prejudice to the respondent (Cottonex Anstalt v Patriot Spinning Mills Ltd [2014] EWHC 236 (Comm), [20]).

The only admissible documents on the appeal are documents which are referred to in the award and which the court needs to read to determine the issue of law arising out of the award: ibid, [27].

A respondent to an appeal under s.69 of the 1996 Act can seek to uphold the award on grounds not expressed in the award only where those grounds are based on a point or points of law (CTI Group Inc v Transclear SA (The Mary Nour) (No 2) [2008] 1 Lloyd’s Rep 250, [13]).

“in the light of the Stonegate judgment, the Claimant will not advance arguments at the forthcoming hearing in support of an analysis that the relevant ‘Event’ was any given case of COVID-19 or cases of COVID-19 generally” ([26]).

“The core principle [of construction] is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean” (The FCA Test Case [2021] UKSC 1, [47]).

“Evidence about what the parties subjectively intended or understood the contract to mean is not relevant to the court’s task” (ibid).

I was also referred to the summary of the general principles of construction in the judgment of Flaux LJ and Mr Justice Butcher in the Divisional Court decision in The FCA Test Case [2020] EWHC 2448 (Comm), [62]-[70].

In Mann and Holt v Lexington Insurance Co [2001] 1 Lloyd’s Rep 1, Waller LJ stated that the aggregating concept in that case (“occurrence”) had to “take its meaning finally from the surrounding terms of the policy including the object being sought to be achieved by the retrocession”.

Aggregation clauses are to be construed “in a balanced fashion without a predisposition towards a narrow or a broad interpretation”: Stonegate, [80] citing Spire Healthcare Ltd v Royal and Sun Alliance Insurance Ltd [2022] EWCA Civ 17, [19].

The reinsurers referred to following statement by Lord Toulson (in the context of direct insurance) in AIG v Woodman [2017] UKSC 18, [25]:

The reinsureds referred to the statement of Mr Justice Butcher in Stonegate, [84], that “in considering whether there has been a relevant ‘occurrence’ ‘the matter is to be scrutinised from the point of view of an informed observer placed in the position of the insured’”. That was also the conclusion reached by Mr Justice Rix in Kuwait Airways Corporation v Kuwait Insurance Co SAK [ [1996] 1 Lloyd’s Rep 664, 686.

A section from Butler & Merkin’s Reinsurance Law (2022, Looseleaf) tracing the development of the catastrophe reinsurance excess of loss line of business from what were believed to be its origins in the aftermath of the San Francisco earthquake of 1906, through to the LPO 98 and LIRMA wordings.

An extract from RJ Kiln, Reinsurance in Practice (4^th, 2001), 178 (a reinsurance text written by a leading Lloyd’s reinsurance underwriter from the 1960s to the early 1980s).

Netherlands v Deutsche Bank AG [2019] EWCA Civ 771, [11] and [56] and Re Lehman Brothers International (Europe) (in administration) [2016] EWHC 2417 (Ch), [28], in which reference was made to ISDA Guides to the ISDA Master Agreement. To these can be added: The Joint Administrators of Lehman Brothers International (Europe) v Lehman Brothers Finance SA [2013] EWCA Civ 188, [57]-[60]; Lehman Brothers Special Financing Inc. v National Power Corporation, Power Sector Assets and Liabilities Management Corp [2018] EWHC 487 (Comm) and Swiss Marine Corp Ltd v OW Supply and Trading A/S [2015] EWHC 1571 (Comm), in all of which the court had regard to what the User’s Guide had said about the purpose of changes made to the 1992 ISDA Master Agreement form in the 2002 version.

Global Maritime Investments Ltd v STX Pan Ocean Co Ltd [2012] EWHC 2339 (Comm), [14], in which Christopher Clarke J, when interpreting a clause in a charterparty drafted by the Documentary Committee of The Baltic and International Maritime Council, took into account a circular issued by the Committee explaining the thinking behind the clause.

Charter Re Insurance Co Ltd v Fagan [1997] AC 313, in which Mr Justice Mance undertook a detailed review of the market history of the UNL clause in arriving at his conclusion as to the meaning of the words “actually paid”. In the House of Lords, (1996) 5 Re LR 411, 419-420, Lord Hoffmann approved Mr Justice Mance’s judgment (Staughton LJ having found the material of “no assistance”: [1996] 1 Lloyd’s Rep 261, 270). Lord Hoffmann also placed emphasis on the market history of the UNL clause in his judgment, albeit as filtered through decisions of the courts (as was also the position in Insurance Company of Africa v SCOR [1985] 1 Lloyd’s Rep. 312 in relation to the “follow the settlements” clause).

“Where property excess of loss covers are concerned the main function of the ‘any one event’ provision is to serve as an aggregating factor. … [T]he question therefore resolves itself into one of determining what can be said to constitute an ‘event’, within the terms of the reinsurance treaty, to permit the aggregation of losses for the purpose of claiming against the reinsurer. However, while the matter is obviously one of considerable importance, the forms of wording most commonly used up to 1963 simply provided coverage for all losses resulting from ‘any one event’. The uncertainty surrounding the permitted aggregation under such policies came to a head in the severe winter of 1962/1963 in the British Isles, when reinsureds were faced with a large number of water damage claims arising as a result of burst water pipes following the thaw. In these circumstances reinsureds argued against their reinsurers that the severe weather conditions constituted either one or, bearing in mind the partial thaw that took place in January 1963, two ‘events’, thereby entitling them to aggregate together all water damage losses as well as any other weather-related losses for the purpose of claims on excess of loss catastrophe covers. Reinsurers for their part resisted these claims on the basis that bad weather constituted a state of affairs rather than an ‘event’ so that a broad aggregation of losses was not permissible. Eventually, all claims were compromised, but the need for some form of standardised wording was recognised. Ultimately, as a result of the work of various market committees, a standard form of wording - LPO 98 - which contained a standard ‘hours’ clause, came to be widely used. The clause was not universally accepted, but formed the basis for most of the alternative wordings adopted by reinsurers. The essence of the clause as originally drafted was to provide for the aggregation of ‘loss occurrences’ arising out of and directly occasioned by ‘one catastrophe’. ‘Loss occurrences’ were defined in terms of losses occurring within specified periods of time, which were seventy-two hours for listed phenomena and 168 hours for all other catastrophes. It will be noted that the word ‘event’ was abandoned in favour of the word “catastrophe” to make it clear that the intention was to cover happenings that were short, sharp and devastating; this indeed was historically the correct analysis of catastrophe covers, which are commonly believed to have originated after the San Francisco earthquake of 1906. In the result, then, all losses occurring within the relevant periods of hours and stemming from one catastrophe were to be aggregated ….”

“Definition of Loss Occurrence.

The words ‘loss occurrence’ shall mean all individual losses arising out of and directly occasioned by one catastrophe. However, the duration and extent of any ‘loss occurrence’ so defined shall be limited to:-

72 consecutive hours as regards a hurricane, a typhoon, windstorm, rainstorm, hailstorm and/or tornado

72 consecutive hours as regards earthquake, seaquake, tidal wave and/or volcanic eruption.

72 consecutive hours and within the limits of one City, Town or Village as regards riots, civil commotions and malicious damage

72 consecutive hours as regards any ‘loss occurrence’ which includes individual loss or losses from any of the perils mentioned in (a), (b) and (c) above

168 consecutive hours for any ‘loss occurrence’ of whatsoever nature which does not include individual loss or losses from any of the perils mentioned in (a), (b) and (c) above

and no individual loss from whatever Insured peril, which occurs outside these periods or areas, shall be included in that ‘loss occurrence’”.

“It will be interesting to see in the years ahead if arbitrators and the Courts interpret the words in the way in which they were intended.”

“because we felt it was more specific. It implied a violent happening which in itself caused damage. The word ‘event’ we felt might have applied to something which might have been the cause of a catastrophe rather than the catastrophe or disaster itself.”

“The hope that LPO 98 would remove the possibility of disputes over claims as had occurred in 1963 was dashed in the aftermath of the unusually hard winter of 1978/1979, which again witnessed a large number of water damage claims against reinsureds. While it had been difficult for reinsureds to argue in 1962/1963 that the severe weather constituted an ‘event’ for the purposes of a catastrophe cover, it became even more tenuous to allege that severe weather was a ‘catastrophe’ within the meaning of the new wording. Undaunted, reinsureds advanced the alternative theory that, because they had suffered catastrophic losses as a result of the weather, the event which had caused those losses - the cold winter - could itself correctly be described as a ‘catastrophe’. This line of argument neatly reversed the process actually called for by the clause: instead of having to identify a catastrophe out of which losses had arisen for the purpose of aggregating those losses, it was being suggested that the totality of the losses was itself a catastrophe. Apart from this fundamental analytical flaw in the argument in favour of reinsureds, it suffered from the weakness that the losses incurred by reinsureds had not threatened their solvency - irrespective of reinsurance cover - and thus could scarcely be described as catastrophic. Moreover, the causative requirement that losses had to be ‘directly occasioned’ by the catastrophe was hardly met by the cold weather; the direct cause was clearly the thaw, but it is by no means clear that a natural phenomenon which is regarded as beneficial by the community as a whole can be taken to be a catastrophe for reinsurance purposes. However, despite these important considerations, the reinsurers chose to pay. The reaction to all this, compounded by heavy losses in the North American continent, was the introduction of the LPO 98 Amended Hours Clause, which accepted that winter losses were recoverable and provided aggregate extension cover to deal with such losses. Soon afterwards, the wording of LPO 98 as amended was referred to a London market committee for its consideration, and the committee produced in the place of LPO 98 two new articles, based broadly on the old wording. These articles were themselves subsequently revised by the now current LIRMA property catastrophe excess of loss clauses, which read as follows:

The effect of this wording is to define a ‘loss occurrence’ as the aggregate of all individual losses insured by the reinsured and occurring within a period of either 72 or 168 consecutive hours, as the case may be. Thus, in the case of an earthquake, the loss occurrence is damage to all properties in a specified geographical location occurring within a period of 72 consecutive hours. The wording gives the reinsured the right to decide when a loss period is to commence, but the earliest date that may be adopted is the date at which the first individual loss has become manifest. The wording also makes it clear that catastrophe cover is concerned with sudden violent events that cause damage over a period of time, rather than protracted events more accurately described as a state of affairs, such as cold weather. Where a violent event takes place over a prolonged period, such as a hurricane, the “hours” clause has the effect of dividing the resulting individual losses caused into a series of loss occurrences each of which constitutes an aggregating factor. The problem of consequential physical damage is specifically addressed in the clause. The type of problem that could arise is where a natural event, such as an earthquake or a typhoon, causes damage to electrical cable and results in a fire. The second paragraph of the clause specifies that such direct and immediate consequential loss falling within the same period is to be treated as part of the original loss occurrence. Indirect consequential losses, for example where electricity cables are blown down following a storm and a fire results at a later date when an attempt is made to restore the electricity supply, will be excluded from the reinsurance cover on normal causation grounds.”

“When a Reassured wishes to protect his insurance account or his reinsurance account, he has basically three options:

To take out a quota share reinsurance on his business. To do this, he pays a pro rata share of his premiums and receives a pro rata share of premiums and receives a pro rata share of all claims and expenses.

To take out an aggregate reinsurance to protect his business from a series of losses. This costs much less premium.

To take out an excess of loss contract to pay him if he suffers either a large individual loss or a series of losses arising out of some contingency. The contingency being a catastrophe, an accident an event or whatever. For this the premium he pays is much less than the quota share and much less than the aggregate premium (for a comparable limit and deductible). The Reassured has a choice and gets what he paid for.”

“Almost any claim that the Reinsured is liable to pay will fall into the orbit of such a cover, the manner and extent to which more than one individual claim can be added together is specifically defined and this can only be done in those cases where individual claims all form part of ‘a loss’ or ‘a catastrophe’ as defined in the reinsurance contracts. Excess of Loss recoveries can only be made from underwriters in respect of such ‘loss’ or ‘catastrophe’.

Underwriters and Reassureds have over the years always been very careful to draw the vital distinction between ‘a loss’, i.e. ‘a catastrophe’ or ‘a disaster’ in reinsurance terms and ‘catastrophic losses’ or ‘disastrous losses’ as used in normal conversation or as they may appear in reviewing a year’s trading results. Many circumstances and continuing conditions and even a series of related losses may result in a period of unprofitable trading in our Industry and this may cause individuals to refer to such circumstances and conditions as being ‘catastrophic’ or ‘disastrous’. However, the fact that losses in an industry or in a section of an industry turn out to be much heavier than anticipated when the business was originally written does not mean that such losses can be automatically added together and considered as an Excess of Loss recovery under Global covers or LMX general covers”.

“To try to argue otherwise would be to turn all ‘each and every loss contracts’ into ‘stop loss covers’”.

“a loss occurrence shall consist of all individual insured losses which are the direct and immediate result of the sudden violent physical operation of one and the same manifestations of the individual insured peril”.

However, a different wording again was used in the Covéa and Markel Reinsurances, with no reference to “immediate result” or “sudden violent physical operation”. The connection between the wording in issue on these appeals, and the market debate of the 1960s discussed in Butler & Merkin and Kiln, is simply too tenuous for those materials to be used not simply to assist in identifying in some broad sense the commercial purpose of a provision of this kind, but to ascribe textual limits not apparent from the ordinary meaning of the word in its contractual context to the operation of the word “catastrophe”.

Denial or prevention of access cover of the kind in issue here and in Stonegate, where restrictions imposed by a public authority for one of a number of specific reasons, or damage to nearby property belonging to someone else, prevent or hinder the insured from using their (undamaged) premises, including “Notifiable Disease” cover where the restriction is imposed to control the transmission of a disease satisfying certain legal requirements.

Loss of attraction cover, where property damage to nearby premises reduces the footfall to (and consequently the profits generated by) the insured’s (undamaged) premises. (Footnote: ¹)

“Non-property damage business interruption cover has been a common feature of many combined property/business interruption policies since about the beginning of the 21^st century (Footnote: ²) and is now invariably written by property underwriters alongside the property damage risk, both as business interruption cover consequential upon damage to property and, under an extension, as cover for pure business interruption caused by perils other than damage to property” ([26(ii)]).

“By the time the Reinsurance was bound at the end of 2019, any competent and experienced catastrophe excess of loss underwriter reinsuring a UK property book would or should have known that the business reinsured might well include both business interruption cover consequential upon physical damage to an insured property and cover for interruption of the business carried on at an insured property from a peril other than physical damage to the property” ([26(iii)]).

“The unchallenged evidence … was that since the end of the last century it has become commonplace for the business written in property departments to include cover for business interruption from causes other than physical damage to property. Consequently, any experienced reinsurer underwriting the Reinsurance would know or ought to have known that the ‘Class’ of business written in Covéa’s Property Department and classified as ‘Household and Commercial’ could, and probably would, include cover for non-property damage business interruption as well as for business interruption consequent upon property damage” ([59]).

The Class of business was defined by reference to that “written within the Reinsured’s Property Department and classified as Household and Commercial and all business classified by the Reinsured as Contractors’ All Risks and Engineering All Risks including Motor Own Damage”.

Covéa was “the sole judge as to what is classified as ‘Household’ Business, ‘Commercial’ business and ‘Contractors’ All Risks and ‘Engineering’ All Risks business” (and there was no suggestion that the direct insurances which gave rise to its claims for indemnity were not properly so classified).

The premium payable to UnipolRe was to be calculated by reference to the “gross premiums of the Reinsured in respect of business coming within the Class (excluding Motor) written during the Period” (which would include any premium in respect of non-damage BI cover written in the relevant department).

“Business interruption business is typically written either as part of or as an extension to property business. Under such business interruption business there is no need for physical damage to property” ([44]).

The CLASS OF BUSINESS applied to “all business written on behalf of the Reinsured as detailed below:

It was expressly noted that the cover afforded by the Markel Reinsurance, and the basis on which the premium payable under the Markel Reinsurance would be adjusted, extended to “incidental exposures in addition to those defined as coming within the scope of the account”, not to exceed 5% of overall exposures.

The premium was to be calculated by reference to Markel’s “finally adjusted Nett Premium Income accounted for during the period from 1 January 2020 to 31 December 2020, both days inclusive, on their last three open years of Account, in respect of the business hereby reinsured.”

It is inherent in the meaning of the word “catastrophe” that it is something which had caused or can cause physical damage to property.

A “catastrophe” requires a sudden and violent event or happening.

A “catastrophe” is a species of “occurrence” or “event”, and must satisfy the “unities” of time, place and way which occurrences or events must ordinarily satisfy, applying Axa Reinsurance (UK) Ltd v Field [1996] 1 WLR 1026.

“ < Greek καταστροϕή overturning, sudden turn, conclusion, < κατα-στρέϕειν to overturn, etc., < κατά down + στρέϕειν to turn”.

It then offers the following usages (excluding one obsolete usage of obvious irrelevance):

The dénouement of a play, esp a tragedy; the final resolution of a novel etc.

A disastrous conclusion; overthrow, ruin, calamitous date …

A revolutionary event … (An event causing) a sudden upheaval or discontinuity in the stratigraphic record.

A sudden or widespread or noteworthy disaster; an extreme misfortune”.

The conclusions of the Covéa tribunal that:

The conclusion of the Markel tribunal that, having regard to the class of business reinsured, and the fact that non-damage business interruption insurance was “typically” written as part of property business, coverage for losses caused by catastrophes which did not cause or were not capable of causing physical damage was not “in principle inimical to a catastrophe occurring” for the purposes of “this category of reinsurance” (Markel Award, [45]).

“any [Loss Occurrence/Event] of whatsoever nature that does not include individual loss or losses”.

from the perils identified in (i), 9ii), (iii) or (v) or (a) to (d) (respectively) of the “Hours Clause”.

“[T]he meaning of general words, even ‘whatsoever’, may be limited by the context in which they appear. They may be used to refer to a class or category, a genus (or what Mr Pollock called a tribe) of which some but not necessarily all the members are identified in the clause.”

Clause 18 appears to be directed to cases where the civil authority deliberately destroys property to protect against a peril such as a flood or fire - for example “flood diversions” which deliberately direct water to areas where less damage will be done, the destruction of buildings to create fire-breaks (as in the Great Fire of London) etc.

One can well understand why the parties to the Covéa Reinsurance may have wanted to make it clear beyond doubt that loss and damage caused in this rather unusual way was covered.

However, the argument that the incorporation of a very specialist “extension” to cover into a reinsurance provides a basis for “reading down” the remainder of the reinsurance is not a particularly attractive one – the client whose broker had “obtained” such an extension would be disappointed to learn that the remainder of their cover was narrower than if they had not.

Many insurance and reinsurance contracts are assembled from a patchwork of pre-existing provisions drafted independently of each other, and that requires some care when seeking to determine the ambit of one “pre-packaged” provision from notionally “additional” cover provided by another.

I am not ultimately persuaded that this provision (which is to be found on page 13 of the Covéa Reinsurance wording) provides any real insight into the meaning of the word “catastrophe”.

The Covéa Transmission Exclusion excluded cover for physical damage to electricity transmission equipment save that which was on or within 300m (or 1000 feet) of an insured structure.

The exclusion applied to physical loss or damage and “all business interruption, consequential loss, and/or other contingent losses related to transmission and distribution lines, other than contingent property damage/business interruption losses … arising from loss and/or damage to lines of third parties” (the section from “other than” being a carve-out from the exclusion).

The Covéa tribunal noted the carve out “contemplates cover for loss sustained by an insured in the event of damage to third party transmission or distribution lines within 300 metres of an insured property” and hence “when the insured property has sustained no physical damage” (Covéa Award, [67]).

The Markel Terrorism Exclusion which excluded loss caused by “any act or preparation in respect of action or threat of action” including threats of violence to persons or endangering of life or which creates a risk to the health or safety of the public or a section of it, and loss from “any action in controlling, preventing, suppressing, retaliating against or responding to any act or terrorism”. I agree with the Markel tribunal that these words exclude, amongst other matters, loss which might not have been caused by physical damage (e.g. the closure of a building due to a threat to release a noxious gas). I accept that is capable of providing support for Markel’s argument (as the Markel Award found, [48]). However, the ubiquity of terrorism exclusions, and their all-encompassing nature, makes the argument something of a makeweight.

The Markel Transmission Exclusion, which contemplates cover where there has been no damage to the original insured’s property in two scenarios: where the equipment is damaged “on or within one mile of the insured’s premises” and “public utilities extension and/or suppliers’ extension and/or contingent business interruption coverage … provided not part of a transmitter’s or distributor’s policy” (the Markel Award, [49]). I have not found these write-backs particularly informative, it being possible to read the clause as assuming the occurrence of a peril which has, or could, cause physical damage to property, albeit not the original insured’s property.

The statements in Butler & Merkin that catastrophes are to be “short, sharp and devastating” ([ 47]) and in Kiln that he had in mind “a violent happening which in itself caused damage” ([50]).

The dictionary definition in the OED, 3(b) and 4, and the SOED 4 (and, for violence, OED 3(b) alone).

Both refer to riot, civil commotion and malicious damage, which can be, but need not necessarily be, “sudden” in their inception (although I accept that they will be violent): riots and civil commotion can build up over time, and while there may many cases where there is a point of “boiling over”, I am not persuaded this need always be the case, nor need they be short in their duration.

Both wordings refer to floods (the Covéa Reinsurance to “flood howsoever caused”). These can incept suddenly and violently – a “flash flood”, the bursting of a dam and so forth – but they can also build up over time, following on from exceptional periods of heavy rain which cause rising levels in bodies of water (cf. the biblical flood in Genesis, chapters 6 to 9 invoked by the Markel tribunal at Markel Award, [41]). They can subsist for long periods.

The “Hours Clause” in the Covéa Reinsurance encompasses “collapse caused by weight of snow or water damage from burst pipes or melted snow”, which would once again seem to encompass happenings which are not necessarily sudden in their inception or short in their duration, nor violent.

“A number of parties submitted that it was not necessary that in order for an event to be characterised as a catastrophe it must involve an element of suddenness. That submission sits quite uncomfortably with the above dictionary definitions and those matters which might ordinarily be regarded as catastrophes: volcanic eruption, substantial explosion, earthquake, conflagration, tidal wave, a major deadly gas leak from a factory, cyclone, or hurricane. These examples support the necessity for a catastrophe to be sudden, or, at the very least, for it to have a commencement which is relatively certain in time and tend to eschew the inclusion of a state of affairs which emerges relatively slowly or progressively over time.”

(emphasis added).

“In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way. I believe that this is how the Court of Appeal understood the word. A cause is to my mind something altogether less constricted. It can be a continuing state of affairs; it can be the absence of something happening. Equally, the word “originating” was in my view consciously chosen to open up the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate. To my mind the one expression has a much wider connotation than the other.”

Both Reinsurances include a “two risk” warranty which requires the catastrophe comprise losses covered by at least two different policies of insurance before the Reinsurance can be engaged. That suggests the catastrophe has a potentially wide field of impact.

The Covéa Reinsurance contemplates that something can have a duration exceeding 504 hours, and still be a catastrophe, and the only geographic limit imposed is a very broad one, for riot etc, of “one country” (and therefore the entirety of the United Kingdom).

The Markel Reinsurance also contemplates that something can have a duration exceeding 504 hours, and still be a catastrophe, and the only geographic limit imposed is a relatively broad one, for riot etc, of “one City, Town or Village”. In the case of London, the city proper is reporting as having an area of 1,572 km², the urban area 1,738 km² and the metropolitan area 8,382 km².

It was common ground that bush fires would constitute a catastrophe, and yet, as the Covéa tribunal notes, “the notorious Australian bush fires developed in a variety of locations over weeks, if not months” (Covéa Award, [47]).

Finally, as Lord Briggs noted in his judgment in The Financial Conduct Authority v Arch Insurance (UK) ltd [2021] UKSC 1, [323]: “a hurricane, a storm or a flood … may take place over a substantial period of time, and over an area which changes over time”.

The catastrophe must be something capable of directly causing individual losses, because that is what both “Hours Clauses” require. That requirement of itself is likely in most if not all foreseeable scenarios to exclude attempts to aggregate by reference to what are often described in aggregation disputes as “states of affairs”.

The catastrophe must be something which, in the context of terms of the Reinsurances in which the term appears, can fairly be regarded as a coherent, particular and readily identifiable happening, with an existence, identity and “catastrophic character” which arise from more than the mere fact that it causes substantial losses.

To that extent, it ought to be possible, in a broad sense, to identify when the catastrophe comes into existence and ceases to be, even if an attempt at a precise temporal delineation would offer scope for legitimate debate and dispute.

A catastrophe will involve an adverse change on a significant scale from that which preceded it.

“the outbreak of Covid-19 in the United Kingdom, reflected in an exponential increase in the number of infections during a period up to and including 18 March 2020, was a ‘catastrophe’ within the meaning of Condition 2(1).”

There has been no suggestion that the catastrophe so identified did not directly occasion the original losses in respect of which indemnity is sought (Covéa Award, [43], [58], [100]-[102]).

In the context of the Covéa Reinsurance, the “outbreak” described by the Covéa tribunal can fairly be regarded as a coherent and discrete happening, with an existence, identity and “catastrophic character” which arise independently of the fact that it causes substantial losses. As the Covéa tribunal noted, “during this relatively short period, the Covid-19 outbreak assumed a certain coherence in its development and effect and gave rise to a profound subversion of the order of life within the UK” ([49]).

The Covéa tribunal identified the relatively short period within which the catastrophe came into existence.

The Covéa tribunal noted the (undisputed) wholesale disruption to our national life which the outbreak occasioned (Covéa Award, [18], [20], [21] and [74]).

In Financial Conduct Authority v Arch (UK) Ltd [2021] UKSC 1, [69], in the context of claims under direct insurance policies, the majority of the Supreme Court held that neither a particular disease or an “outbreak of disease” constituted an occurrence, stating:

In Stonegate Pub Company v MS Amlin Corporate Member Limited [2022] EWHC 2548 (Comm), [179] again in the context of direct insurance, Mr Justice Butcher held that the decision at the COBR meeting on 16 March 2020 to advise the public to avoid pubs, restaurants and clubs was an occurrence:

That led Markel to change its case in the arbitration to advance a primary case that the 18 March 2020 Closure Order was the relevant catastrophe. However, it is clear that the case was advanced on the basis that “the order took flavour from its background which was the catastrophe of COVID” (Markel Award, [31]), describing the 18 March 2020 Closure Order as a “catastrophe-induced law” ([32]), and Markel advanced an alternative case that it could “invoke the background of Covid as giving colour and support to the notion that the order was a catastrophe” ([52]).

The Markel tribunal do not appear to have shared Markel’s concerns as to the effect which the FCA decision in the Supreme Court that the “outbreak” of Covid 19 in the UK was not an occurrence might have on the argument that it did constitute a catastrophe for the purposes of the Markel Reinsurance. Given the nature of the Markel Reinsurance, and the language in it, I can understand the tribunal’s perspective.

However, the Markel tribunal did accept Markel’s alternative argument that the “order as necessitated by the pandemic was to be regarded as a catastrophe”, approving the observation of Allsop CJ in Star Entertainment Group Ltd v Chubb Insurance Australia Ltd [2021] FCA 907, [202] that “the pandemic and the response thereto could not be disentangled” ([55]).

“The various governments’ advice and instructions to close schools and nurseries during the period 18 to 20 March may only be viewed as incidents in an overall catastrophe if they are regarded as essentially indivisible from the underlying catastrophe to which they were a response.”

The Covéa tribunal then inserted a footnote stating “a submission accepted by the court at first instance in Star Entertainment Group Limited v Chubb Insurance Australia [2021] FCA 907 at para 202”: i.e. the very passage cited and adopted in the Markel Award.

There has been no suggestion that the catastrophe so identified did not directly occasion the original losses in respect of which indemnity is sought (Markel Award, [24]).

In the context of the Markel Reinsurance, the 18 March 2020 Closure Order and the “emergency of a devastating pandemic” with which it was “inseparably linked” can fairly be regarded as a coherent and discrete happening, with an existence, identity and “catastrophic character” which arise independently of the fact that it causes substantial losses.

The Markel tribunal identified March 2020 as the time when “the pandemic was gathering force around the world” and in which the principal response to the pandemic in the UK occurred ([1]).

The Markel tribunal noted the “subversion of the ordinary or natural course of things”, the “grave infringement of personal liberty” and the adverse consequences which the order and emergency with which it was inextricably linked occasioned ([55]).

Finally, I would note that the view adopted by the Markel tribunal is consistent with the view of Mr Justice Jacobs, in a difference insurance context, in Gatwick Investment Limited v Liberty Mutual Insurance Europe SE [2024] EWHC 124 (Comm). [443]

“[A]lthough UnipolRe disputed that the approach was correct in principle, Mr Coates’ evidence was not disputed that in cases of business interruption consequential upon physical damage to property from a catastrophe, market practice was and is to treat the business interruption loss as occurring simultaneously with the material damage”.

“In the ordinary case of a catastrophe, (e.g. a hurricane) the entire physical damage and BI losses occur on the same day. The duration of the subsequent BI period is a function of and is controlled by the severity of the physical damage. Accordingly even if the physical damage were never to be repaired, the BI loss could still be estimated and assessed from the physical damage which had taken place. In the more usual situation where repairs do occur, the BI loss can be quantified more precisely from the actual experience.”

Even with pure physical damage, the consequences of the initial “strike” by the insured peril may continue to manifest after the loss occurrence period. UnipolRe gave the examples of an “earthquake that damages a dam, where the damage worsens over time eventually leading to its collapse in consequence of the initial structural damage” and “where a flood damages the foundations of a home, causing it to collapse in stages both before and after the end of the relevant Loss Occurrence period” (Covéa Award, [98]). Those continuing manifestations may be contingent on what happens after the loss occurrence period – e.g. how quickly mitigation steps can be taken to prevent further damage; whether a damaged building later falls on a previously undamaged outbuilding may depend on wind direction etc. It is not difficult to conceive of contingencies occurring outside the loss occurrence period which will influence the extent of physical damage which would not break the chain of causation with the original “strike”.

The extent of damage business interruption will depend on how quickly the physical damage can be repaired, which may depend on such “post-strike” contingencies as the length of supply chains, changes in building regulations, how far the ordinary incidents of weather impact the progress of repairs etc. While in some cases, the requisite link with the original “strike” may not exist, it is easy to conceive of cases where the contingencies influencing the period of repair are wholly foreseeable.

There are forms of non-damage business interruption cover – for example denial of access resulting from damage to adjoining property such as an access road or the unsafe state of a neighbouring building – where the extent of the business interruption will depend on essentially the same issues as in a claim for damage business interruption – how long it takes to repair the other road or the other property. Indeed that is true of Loss of Attraction cover, where the business interruption loss will depend on how long it takes to rebuild the “attraction”.

The inability to use premises through “denial of access” (for whatever cause) can readily be regarded as something inherently and immediately detrimental to the user of those premises, just as damage to the premises would be, and therefore as comparable with damage to the property.

“[69] I should, however, clarify that I do not accept Stonegate's case that there would have been multiple ‘triggers’ in the case of an Insured Location which once closed stayed closed but where the closure was enforced by the reiteration, continuation or renewal of regulations which were, materially, to the same effect. The ‘trigger’ is the enforced closure and, in my view, there will be one such ‘trigger’ unless and until the Location opens and is then closed again.

…

[73] I should also add that, in keeping with the submission of Allianz in the VE Action, I consider that the number of Covered Events would be the number of occasions on which there were materially different restrictions imposed or advised by government or a relevant agency which prevented or hindered the use of or access to ‘Insured Locations’. Steps taken or advice given by Government or a relevant agency which merely repeated or renewed an existing prevention or hindrance of access would, in my view, form part of one set of ‘actions or advice’ and thus constitute one Covered Event.”

"[67] … In my view the correct construction of the Policy is that there is a Covered Event when, in the case of Enforced Closure, there is an enforced closure of an Insured Location within the Period of Insurance, ie, if the closure takes place within the Period of Insurance. There could then be recovery for the resulting interruption and interference with the business, and the extent of that interruption or interference would depend on how long the closure lasted, irrespective of whether the whole period of such closure was within or after the Period of Insurance. Similarly in relation to Prevention of Access, if there are actions or advice which have, within the Period of Insurance, the effect of preventing or hindering the use of or access to Insured Locations, then there is cover for any resulting interruption or interference, and the extent of that interruption or interference would depend on how long the prevention or hindrance lasted, and the Clause does not require any period of such prevention or hindrance after the Period of Insurance to be disregarded.

…

[69] I consider that the construction for which Allianz contends would produce uncommercial and unintended consequences. It would mean, for example, that if an Insured Location were the subject of enforced closure on the last day of the Period of Insurance, and remained closed for a week, the only cover under the Policy would be for the consequence of the first day of closure. While on Allianz's contention, the remainder of the period of closure would fall within the next policy year, it would be quite possible, indeed probable, that insurers for the next year would exclude cover for an already subsisting closure / prevention or hindrance. .. More generally, Allianz's construction would mean that these two Insuring Clauses provided cover in a markedly different manner from how other Insuring Clauses would cover similar situations. For example, if there were a fire at an Insured Location during the Period of Insurance, and it led to the closure of an Insured Location for a significant period beyond the end of the Period of Insurance, then the entirety of that closure, up to the end of the MIP, would be relevant interruption or interference. But on Allianz's case, if there was an enforced closure for health reasons before the end of the Period of Insurance, no part of the closure after the end of the Period of Insurance would be relevant interruption or interference. I consider that to be paradoxical, and reinforces me in my view as to how the two Insuring Clauses would reasonably be understood."

“The function of the Insuring Clauses is to identify the Covered Events under the policy. The relevant Covered Event is a Prevention of Access or an enforced closure occurring during the Period of Insurance, that is to say between 29th September 2019 and 28th September 2020. A prevention or enforced closure occurring on 1st September 2020 is such a Covered Event because it occurs during the Period of Insurance. Accordingly VE is entitled to recover the Business Interruption Loss proximately caused by that Covered Event, even if that loss extends beyond the Period of Insurance, subject only to the longstop that the Maximum Indemnity Period in the policy schedule is 12 (or in the case of some restaurants, 24) months.”

[T]he hybrid and prevention of access clauses specify more than one condition which must be satisfied in order to establish that business interruption loss has been caused by an insured peril. Furthermore, the structure of these clauses is that the elements of the clause are required to operate in a causal sequence. A good example is the public authority clause in Hiscox 1–3 (set out more fully at para 111 above), which covers financial losses “ resulting solely and directly from an interruption to your activities caused by … your inability to use the insured premises due to restrictions imposed by a public authority during the period of insurance following … an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority” (our emphasis).

The first of these causal links—between financial losses and an interruption to the policyholder's activities—is of less significance than the others. That is because, although the FCA has suggested otherwise, we think it clear that the interruption is not part of the description of the insured peril. The concept of business interruption in insurance of this kind was in our view correctly analysed by Mr Simon Salzedo QC in his submissions on behalf of Argenta. It is a description of the type of loss or damage covered by the policy, in the same way as the type of loss or damage covered by, for example, a buildings insurance policy is physical destruction or damage. Thus, in a buildings insurance policy, unless the policy otherwise provides, the insurer is liable for the contractual measure of (i) destruction of or physical damage to the insured buildings, which is (ii) proximately caused by (iii) a peril insured against under the policy (such as fire, storm etc). In business interruption insurance an interruption to the policyholder's business or activities is the counterpart of the first of these elements. It describes the nature of the harm to the policyholder's interest in the subject matter of the insurance for which an indemnity is given if it is proximately caused by an insured peril.”

In the Hiscox clause quoted above the first causal link is therefore concerned with the pecuniary measure of the interruption caused by an insured peril. Nevertheless, the peril covered by the clause is itself a composite one comprising elements that are required to occur in a causal sequence in order to give rise to a right of indemnity. Setting out the elements of the insured peril in their correct causal sequence, they are: (A) an occurrence of a notifiable disease, which causes (B) restrictions imposed by a public authority, which cause (C) an inability to use the insured premises, which causes (D) an interruption to the policyholder's activities that is the sole and direct cause of financial loss. Counsel for Hiscox in their submissions on this issue usefully represented the structure of the clause in a symbolic form as A→B→C→D, where each arrow represents a causal connection.”

an occurrence of a notifiable disease, which causes (B) restrictions imposed by a public authority, which cause (C) an inability to use the insured premises, which causes (D) an interruption to the policyholder's activities that is the sole and direct cause of financial loss.”

a hurricane which causes (B) physical damage to the insured premises, which causes (C) an inability to use the insured premises, which causes (D) an interruption to the policyholder's activities that is the sole and direct cause of financial loss.”

The introductory words of the “Hours Clause” – “the duration and extent of any ‘Event’ so defined shall be limited to” – is more consistent with the view that it is the timing of the individual losses which matter, because that is the leading element of the definition recited in the preceding sentence.

Ms Sabben-Clare KC’s strongest point is the words “the Reinsured may choose the date and time when any such period of consecutive hours commences, and, if any catastrophe is of greater duration than the above period, the Reinsured may divide that catastrophe into two or more ‘Events’” (emphasis added). However, these words can readily be read as referring to the individual losses caused by one catastrophe.

Ms Sabben-Clare KC also relies on the words of the Limits clause, noting that if the word “Event” is replaced with its definition, the limits “GDBP 10,000,000 any one loss and/or series of losses arising out of all individual losses arising out of, and directly occasioned by one catastrophe up to a further GBP 10,00,000 any one loss and/or series of losses arising out of all individual losses arising out of, and directly occasioned by one catastrophe,” the clause becomes something of a mess. I agree that is not particularly felicitous drafting, but I do not find it particularly surprising when a lengthier definition elsewhere in the Markel Reinsurance is set out instead of the defined term elsewhere in the contract. In any event, I do not see how this point assists in the interpretation of the relevant part of the “Hours Clause”.

By contrast, I agree with the Markel tribunal that the words “no individual loss from whatever peril, which occurs outside these periods or areas, shall be included in that ‘Event’” “brook no misunderstanding” (Markel Award, [62]). This is clearly a reference to the date of occurrence of the individual loss not the catastrophe, and the words “included in that ‘Event’” make it impossible to read this phrase as Ms Sabben-Clare KC submitted it should be read:

The fact that Insured Perils operating outside of the relevant period or area cannot be included in an Event is a statement of the utterly obvious, whereas a similar statement about individual losses from an Insured Peril is not. Further, the word “included” contemplates the identification of smaller elements for the purpose making up an Event. That points very strongly to the individual losses which, when they arise out of and are directly occasioned by one catastrophe, make up an Event.

“In the specimen UK business interruption specifications included in the appendices, the definition of the indemnity period reads: ‘[t]he period beginning with the occurrence of the Incident and ending not later than the Maximum Indemnity Period thereafter during which the results of the Business shall be affected in consequence thereof” and is completed by a definition of the maximum indemnity period which simply states the number of months selected. This dual definition is an example of the careful drafting which applies throughout the specification to express the exact intention of the insurers.

It is important to note that the indemnity period does not necessarily end when a business is rehabilitated to the point of being able to resume normal trading activities. Subject to the maximum limit selected and stated in the definition the indemnity period continues until the results of the business are restored to normal (i.e. the results are those that would have been generated but for the incident), which may be many months after the physical damage to buildings, machinery and stock has been made good. Whilst there is no definition of the term ‘results’, this should be taken to mean financial results and thus encompass not just the turnover of the business, but also its costs. Therefore, if the business continues to incur additional expenditure by way of increase in cost of working once turnover returns to pre-incident levels, then the indemnity period will extend as long as that expenditure is being incurred, subject to application of the maximum indemnity period. It is also conceivable that the costs of a business may be reduced, e.g. if a more efficient production process is introduced following an incident. Again, the results of the business are continuing to be affected and thus the indemnity period is extended.

It should further be noted that, should an incident cause an interruption to the business, the indemnity period is not necessarily the same as the maximum period selected and specified in the policy wording. It is the period, measured from the date of the incident up to the point when the results of the business are no longer affected by the incident, subject to this period not exceeding the insured maximum number of months … For example, in the case of an insurance with a maximum indemnity period of 12 months, if an incident should occur and cause an interference with the business for 15 weeks the indemnity period will be 15 weeks.”

“The standard method used in business interruption insurance to quantify the sum payable under the policy takes an earlier period of trading for comparison purposes. In most wordings this is the calendar year preceding the operation of the insured peril. A ‘standard turnover’ or ‘standard revenue’ is derived from the turnover of the business in this period. This figure is then compared with the actual turnover or revenue during the indemnity period. The results of the business in the comparator period are also used to derive a percentage of turnover that represents gross profit. The rate of gross profit is then applied to the reduction in turnover to calculate the recoverable loss. Increase in the cost of working during the indemnity period is also typically covered.

Whilst the basic comparison between the turnover of the business in the prior period and in the indemnity period will produce a rough quantification of the lost revenue, there may be specific reasons why a higher or lower figure would be expected for the indemnity period apart from the operation of the insured peril. For example, the general trend in the business may be such as to make it likely that there would have been increased or decreased turnover during the indemnity period in any case compared with the previous year. Equally, there may be specific reasons why the turnover during the prior year was depressed, such as a strike that affected the business, or why it would be expected to have been depressed anyway during the indemnity period, such as a scheduled strike. The purpose of the trends clause is to provide for adjustments to be made to reflect ‘trends’ or ‘circumstances’ such as these. The aim is to achieve a more accurate figure for the insured loss than would be achieved merely by a comparison with the prior period and to seek to arrive at a figure which, consistently with the indemnity principle, is as representative of the true loss as is possible. The adjustment may work in favour of either the policyholder or the insurer, but it is meant to be in the interests of both.”

The Reinstatement Provision provided “Losses hereunder are applied chronologically by date of loss.” In the case of pure business interruption losses, it is difficult to see how this provision is to operate if there are separate losses day by day (or even hour by hour).

The Extended Expiration provision addresses the position where the Reinsurance expires or terminates “while a Loss Occurrence is in progress”, providing that in such a scenario, UnipolRe are liable “as if the entire loss or damage had occurred prior to the expiration or termination of this Contract provided that no part of that Loss Occurrence is claimed against any renewal or replacement of this Contract.” Ms Sabben-Clare KC placed some reliance on a similar clause in the Markel Insurance, suggesting that the clause meant that “if our period of seven days was ongoing at the time the reinsurance expired …. the whole of the business interruption loss …. Comes into play when it otherwise wouldn’t”. However, the clause does no more than ensure the same treatment applies as in a case where the relevant occurrences all occur within the contract period. I do not accept that the effect of the clause would free claims from the operation of the “Hours Clause” (whatever that might be), to the extent it would have operated if the entire loss had occurred during the policy period. I do accept Ms Sabben-Clare KC’s wider point, that it would be surprising if the Reinsurances responded to physical damage suffered after the expiration date and consequential business interruption caused by a hurricane which had commenced before and continued to operate after that date, but not business interruption loss which continued after the expiration date, caused by a result of denial of access resulting from physical damage to neighbouring property which was complete before the expiration date.

That reflects the position at the direct level, to which the words “individual loss” naturally direct attention and, as the Covéa tribunal noted at Covéa Award, [97], “there is nothing in the Reinsurance wording to support an apportionment of an ‘individual loss’”.

Not only am I not persuaded that there is any sufficient basis to distinguish between the treatment of damage business interruption, business interruption following damage to other property owned by another and “pure” business interruption losses in this regard, but there are obvious parallels between the impairment of the rights of those entitled to property resulting from damage and that resulting from the inability to use the property: [120].

That analysis is consistent with the approach of Mr Justice Butcher in Stonegate and Various Eateries and the Court of Appeal in the latter case ([121]-[125]) and the Supreme Court in FCA v Arch [131]-[132]). It is also consistent with the reasons which the Markel tribunal gave for concluding that catastrophes which were not capable of causing physical damage were covered by the Markel Reinsurance (Markel Award, [44]):

This construction better coheres with the provisions dealing with the timing of the individual losses in the Reinsurances: [144] and [146].

It avoids the uncommercial consequences of the “day-by-day” construction as outlined at [138]-[142] and [145]-[146] above and [150]-[151] below, and in that respect derives some limited support from the provisions of the Reinsurances quoted at [145]-[146] above.

First, he posited the example of a closure order being made in respect of premises where the occupier was on holiday at the time when the closure order took effect (e.g. a cotton factory during “Whit week”), such that there was no impact on the business until the factory reopened.

However, the interference with the owner’s right to use the factory occurs when the order comes into effect, whatever use the owner wishes to make of the factory at that point in time. Lord Halsbury’s celebrated observation in The Mediana [1900] AC 113, 117 is in point:

The “Whit week” closure would no doubt be factored into the calculation of loss during the indemnity period (as would the reverse position, where the first week involved the most profitable contract of the year).

The same issue could equally arise when there is physical damage during a period of holiday.

Indeed, this argument rather points to the difficulties of UnipolRe’s construction, confining cover to the position over 7 days, when profits, costs and savings are likely to be “lumpy” in their effect, rather than play themselves out on a linear basis over time. What is to happen, for example, where the insured premises experience an initial saving in costs over the first seven days (for example because the bulk of children were not due to return for another week after the date the closure order came into force), but a significant net loss over the indemnity period as a whole? On UnipolRe’s approach, it is not clear whether this precludes an indemnity under the Reinsurance in respect of that claim, nor what the position would be in the reverse cases, where the adverse effects on the insured business are “front-loaded”.

This is also true of the provisions in the Covéa and Markel Reinsurances allowing a “Loss Occurrence” or catastrophe which is “greater than the above periods” to be divided into two or more “Loss Occurrences” or “Events”: it would involve “slicing and dicing” what, at the direct insurance level, is a net loss arrived at taking account of debits and credits over the indemnity period into account, so as to place constituent parts of that calculation into separate periods.

I dismiss UnipolRe’s appeal against the conclusion of the Covéa tribunal on the issue of “one catastrophe” and as to the operation of the “Hours Clause” in the Covéa Reinsurance.

I allow Markel’s appeal against the conclusion of the Markel tribunal as to the operation of the “Hours Clause” in the Markel Reinsurance.

I dismiss General Reinsurance’s cross-appeal against the conclusion of the Markel tribunal on the issue of “one catastrophe”.

“This Contract shall indemnify the Reinsured in respect of all business written within the Reinsured’s Property Department and classified as Household and Commercial and all business classified by the Reinsured as Contractors’ All Risks and Engineering All Risks including Motor Own Damage.”

“losses occurring in the United Kingdom of Great Britain and Northern Ireland (including the Channel Islands and the Isle of Man), including incidental extensions thereto.”

“Limit(s) Deductible(s)

Layer 1 GBP 20,000.000 in excess of GBP 10,000,000

Layer 2 GBP 40,000,000 in excess of GBP 30,000,000

Layer 3 GBP 80,000,000 in excess of GBP 70,000,000

Ultimate Net Loss each and every Loss Occurrence, inclusive of costs”

“In the event of loss or losses occurring under this Contract, it is hereby mutually agreed to reinstate this Contract to its full amount from the time of such loss or losses until the expiry of this Contract. However, limited to the number of reinstatements and at an additional premium as follows:

Layer 1 Two full reinstatements, one at 100% additional premium as to time but pro rata as to amount reinstated and one at nil additional premium.

Layer 2 Two full reinstatements at 100% additional premium as to time but pro rata as to amount reinstated.

Layer 3 One full reinstatement at 100% additional premium as to time but pro rate as to amount reinstated.

Such additional premium shall be paid by the Reinsured when any loss or losses arising hereunder are settled …

Losses hereunder are applied chronologically by date of loss. Notwithstanding the foregoing, the Reinsured may make collections in respect of losses which fall due for recovery on a settled basis, which may ultimately not be recoverable hereon when all losses are considered in chronological order.”

“Layer 1 2.098%

Layer 2 1.389%

Layer 3 1.159%

applied to [Covéa’s] Premium Income” subject to certain minimum payments.

“The term ‘Premium Income’ shall be understood to mean gross premiums of the Reinsureds in respect of business coming within the Class (excluding Motor) written during the Period less cancellations and return premiums, all commissions, profit commissions, deductions and allowances under the original business, cessations to Flood Re and premiums given off by way of reinsurance which inures to the benefit of the Reinsurers hereon.”

“The Reinsured shall be the sole judge of what is classified as ‘Household’ Business, ‘Commercial’ business and ‘Contractors’ All Risks and ‘Engineering’ All Risks business.”

“Reinsuring Condition

In consideration of the payment of the premium and subject to the terms and conditions of this Contract, the Reinsurers agree to indemnify the Reinsured up to the Limit(s) in excess of the Deductible(s) on account of each and every Loss Occurrence, which the Reinsured may sustain under the business specified in Class of Business, as stated in the Risk Details during the Period [of the Covéa Reinsurance] …”

The term ‘Loss Occurrence’ shall mean all individual losses arising out of and directly occasioned by one catastrophe.

The duration and extent of any ‘Loss Occurrence’ so defined shall be limited to:

Notwithstanding 1) and 2) above:

“If this Contract should expire or be terminated while a Loss Occurrence is in progress, it is understood and agreed that, subject to the other terms and conditions of this Contract, the Reinsurers hereon are responsible as if the entire loss or damage had occurred prior to the expiration or termination of the Contract provided that no part of that Loss Occurrence is claimed against any renewal or replacement of this Contract.”

“The term ‘Ultimate Net Loss’ shall mean the sum actually paid by the Reinsured in respect of any Loss Occurrence including in-house assessors fees and/or other salaried officials or employees diverted from their normal duties, all legal costs and expenses of litigation, if any, and all other loss expenses of the Reinsured …

All salvages, recoveries or payments recovered or received subsequent to any loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto. Nothing in this Condition shall be construed to mean that losses under this Reinsurance are not recoverable until the Reinsured’s Ultimate Net Loss has been ascertained … .

“All loss settlements made by the Reinsured, provided same are within the terms and conditions of the original policies in respect of business covered hereunder and within the terms and conditions of this Contract, shall be unconditionally binding upon the Reinsurers and amounts falling to the share of the Reinsurers shall be payable by the Reinsurers within 15 days upon receipt of such evidence of the amounts being paid being provided by the Reinsured ….”

“Destruction by Civil Authority

This Contract is extended to include direct loss and damage arising from the action or actions taken when complying with an order of a duly constituted Civil Authority at the time of and only during a conflagration, flood or similar insured peril, and only when necessary for the purposes of restricting the loss or damage of other property from the respective insured peril, subject however, to the terms and conditions of this Contract.”

Exclusion (f):

Exclusion (g), which “excludes loss, damage, destruction, distortion, erasure, unavailability, corruption or alteration of ELECTRONIC DATA”, but with a write-back

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT.

“All business written on behalf of the Reinsured as detailed below:

- All Material Damage and Business Interruption business, being Fire, Allied Perils and All Risks business written by Markel (UK) Ltd.;

- Property business written under the Equine and Livestock Binders; - Property business written by Markel International Deutschland;

- Property business, including property risks covered under Contractor’s All Risks business, written by EC Insurance Company Limited (ECICL/ECIC); and as detailed in the Reinsured’s 2020 Property Reinsurance Placing Information, seen and noted by Reinsurers hereon.

‘All business’ shall be understood to include all policies and/or contracts of insurance and/or reinsurance including certificates and business accepted under Lineslips, Covers and Binding Authorities (hereinafter referred to as ‘Facilities’) and shall embrace all declarations made thereon. Where certain business allocated to this account includes incidental exposures in addition to those defined as coming within the scope of the account, it is agreed that this Reinsurance extends to cover such additional exposures provided that the whole premium for such business has been credited to the account protected hereunder. For the above purposes, incidental shall be defined as no greater than 5.00% of overall exposures.”

“Loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organisation(s) or government(s) de jure or de facto, and which: (i) involves violence against one or more persons; or (ii) involves damage to property; or (iii) endangers life other than that of the person committing the action; or (iv) creates a risk to health or safety of the public or a section of the public; or (v) is designed to interfere with or to disrupt an electronic system. This Reinsurance also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any act of terrorism.

“All losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within one statute mile of an insured premises. It is understood and agreed that public utilities extension and/or suppliers’ extension and/or contingent business interruption coverages are not subject to this exclusion, provided that these are not part of a transmitter's or distributor's policy and/or contract”

“In respect of business written by Markel (UK) and by EC Insurance Company Limited (ECICL/ ECIC) only Losses occurring in the United Kingdom of Great Britain and Northern Ireland including the Channel Islands and the Isle of Man, and incidental exposures overseas. In respect of business written by Markel (UK) under the Equine and Livestock Binders only Losses occurring in the United Kingdom of Great Britain and Northern Ireland including the Channel Islands and the Isle of Man and the Netherlands, and incidental exposures overseas. In respect of business written by Markel International Deutschland only Losses occurring in Germany, Austria, Switzerland and Luxembourg and incidental exposures overseas. LIMITS (FOR 100%): To pay that part of each Ultimate Nett Loss to the Reinsured in excess of GBP10,000,000 any one loss and/or series of losses arising out of one Event. Up to a further GBP10,000,000 any one loss and/or series of losses arising out of one Event.”

“In the event of a loss or losses being paid under this Reinsurance, it is agreed to reinstate this Reinsurance up to 1 full reinstatement of the limit of indemnity (as expressed in the "Limits") from the time of commencement of the occurrence of such loss or losses until the expiry of this Reinsurance on payment of an additional premium by the Reinsured, calculated at pro-rata of 100% of the finally adjusted premium, when any loss or losses (or part thereof) requiring such reinstatement hereunder are settled. Nevertheless, Reinsurers shall never be liable for more than the limit of indemnity, as expressed in the "Limits", nor for more than GBP20,000,000 in all hereunder. For the purpose of the foregoing; (a) The term "pro-rata" shall mean pro-rata only as to the fraction of the limit of indemnity hereby reinstated. (b) The finally adjusted premium hereon shall be computed in accordance with the "Premium". (c) If any loss settlement requiring payment of reinstatement premium is made prior to the relevant finally adjusted premium being computed, then the reinstatement premium shall be provisionally calculated on the latest adjusted premium or the Deposit Premium, if no adjustment has been made and subsequently adjusted if, and as necessary.”

“The premium payable hereunder shall be calculated at the rate of 1.7535% applied to Reinsured's finally adjusted Nett Premium Income accounted for during the period from 1 January 2020 to 31 December 2020, both days inclusive, on their last three open years of Account, in respect of the business hereby reinsured. Adjustment to be made as soon as possible after 28 February 2021. Furthermore, a Minimum and Deposit Premium of GBP192,000 shall be payable in two equal instalments, in account, on 1 March 2020 and 1 September 2020. For the purposes of the foregoing adjustment(s), original premiums in currencies other than Pounds Sterling shall be converted into Pounds Sterling at the rates of exchange as used in the books of the Reinsured. The term "Nett Premium Income" shall mean gross premiums less all commissions, brokerage, discounts, profit commissions, taxes if any, cancellations, returns of premiums and less premiums given off by way of reinsurance, recoveries under which inure to the benefit of Reinsurers hereon.”

“The words ‘Event’ shall mean all individual losses arising out of, and directly occasioned by one catastrophe. However, the duration and extent of any "Event" so defined shall be limited to:

168 consecutive hours as regards a hurricane, typhoon, windstorm, rainstorm, hailstorm and/or tornado,

72 consecutive hours as regards earthquake, seaquake, tidal wave and/or volcanic eruption,

72 consecutive hours and within the limits of one City, Town or Village as regards riots, civil commotion and malicious damage,

504 consecutive hours as regards flood,

72 consecutive hours as regards any "Event" which includes individual losses or losses any of the perils mentioned in (a), (b) and (c) above,

168 consecutive hours for any "Event" of whatsoever nature that does not include individual loss or losses from any perils mentioned in (a), (b), (c) and (d) above, and no individual loss from whatever Insured peril, which occurs outside these periods or areas, shall be included in that ‘Event’.

The Reinsured may choose the date and time when any such period of consecutive hours commences and, if any catastrophe is of greater duration than the above periods, the Reinsured may divide that catastrophe into two or more ‘Events’, provided that no two periods overlap and provided no such period commences earlier than the date and time of the first recorded individual loss to the Reinsured in respect of the catastrophe in question ...”

“It is agreed that for all purposes hereunder losses shall be considered in chronological loss date order of occurrence but this shall not preclude the Reinsured from making provisional collections hereunder in respect of claims which may ultimately not be recoverable hereon”

“The term ‘Ultimate Nett Loss’ shall mean the sum actually paid or agreed to be paid by the Reinsured in settlement of losses or liability after making deductions for all recoveries, all salvages, and all claims payable under other reinsurances, whether collected or not, and shall include all costs and expenses forming part of loss settlements as more fully detailed in the Loss Settlements Clause. All salvages, recoveries or payments recovered or received subsequent to a loss settlement under this Reinsurance shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto. Provided always that nothing in this Clause shall be construed to mean that losses under this Reinsurance are not recoverable until the Reinsured’s Ultimate Nett Loss has been ascertained. Notwithstanding anything contained herein to the contrary, it is agreed that underlying recoveries on other excess of loss reinsurances (as far as applicable) are for the sole benefit of the Reinsured and shall not be taken into account in computing the Ultimate Nett Loss nor in any way prejudice the Reinsured’s right of recovery hereunder.”

“If this Reinsurance should expire whilst any loss covered hereunder is in progress it is agreed that, subject to the other terms and conditions of this Reinsurance, the Reinsurers hereon shall be liable for their share of the entire loss or damage as if the entire loss or damage had occurred prior to the expiration of this Reinsurance, provided that no part of that loss is claimed against any renewal of this Reinsurance.”

“All loss payments and settlements (including compromise settlements) made by the Reinsured, save those outside the terms of this Reinsurance, shall be binding upon the Reinsurers to the extent of their share hereunder. All expenses (excluding salaries of all employees and office expenses of the Reinsured) incurred by the Reinsured (a) in the investigation, defence and settlement of claims or suits or in connection with any salvage or subrogation when attributable to a loss covered hereunder (“Loss Adjustment Expenses”), and (b) in declaratory judgment or similar actions to determine coverage specifically under the business reinsured for a loss actually or allegedly covered hereunder or for rescission or voidance of the business reinsured hereunder (“Declaratory Judgment Expenses”), shall form part of such loss settlements.”