Paul Grant discusses what Wahaca’s case against QIC Europe means for insurers in Insurance POST

Mexican-style restaurant chain Wahaca is suing its insurer, QIC Europe Ltd, for allegedly failing to pay out for losses incurred when it was forced to close sites during the COVID-19 pandemic. Oaxaca Ltd, which trades as Wahaca, said in a High Court claim on 24 May 2023 that QIC had refused to provide cover for the losses that came after the UK Government ordered businesses to shut in 2020.

Wahaca claims that the COVID-19 regulations were directly caused by government action, and entitled it to cover from QIC Europe under the terms of its insurance policy. Wahaca added that the failure by QIC Europe to pay out such sums also entitles it to damages.

The claim by Wahaca follow the landmark 2021 UK Supreme Court (UKSC) decision, which held that insurers must pay out to hundreds of thousands of companies forced to close during the first pandemic lockdown (see Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1).

The Financial Conduct Authority's (FCA) High Court test case, and subsequent appeals, sought legal clarity on the meaning and effect of certain business interruption insurance policy wordings. The UKSC confirmed the correct interpretation of a variety of different standard business interruption insurance policy wordings in order to clarify whether they provided cover in principle for COVID-19 related losses. The practical effect of that analysis was that all of the insuring clauses put before the UKSC for consideration (including in relation to disease and prevention of access clauses) would provide such cover.

Pizza Express v Liberty: a cautionary tale

Wahaca joins a list of other businesses seeking pay-outs from insurers. For instance, Pizza Express had its hopes of securing a GBP 260 million pay out dashed after the High Court ruled that the restaurant chain wrongly interpreted liability limits in its policy. The insurer, Liberty, had denied coverage under both the ‘at the premises’ disease and ‘prevention of access’ BI extensions, arguing that the cover provided by the extensions is “localised cover” which does not respond to business interruption losses caused by central government action taken in response to a nationwide public health emergency.

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 successfully argued that absent 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 and any indemnity due would be limited to GBP 250,000.

What does the Pizza Express judgment mean for future claimants?

The Court confirmed that established principles of construction were applicable, including that the policy must be construed objectively by asking what a reasonable policyholder would have understood the language of the policy to mean. 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’.

The case indicates that BI claims pursued under similarly-worded policies 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, the Pizza Express ruling turned on a narrow point of construction specific to the policy wording in question. For policyholders insured under other policy wordings, the judgment may have limited relevance. Going forward, the court is likely to consider matters on a case-specific basis.