BACKGROUND

1. In a first, Justice Sir Peter Gross (“Justice Gross”) recently ruled on a dispute concerning a Covid-19 Business Interruption Loss (“BI Losses”) insurance claim in the DIFC.
 

2. The claimants, Lals Holding Limited and others (“Claimants”), are a retail group of companies operating and owning shops, restaurants, fast-moving consumer goods, retail brands and a shopping mall throughout the Gulf Cooperation Council.
 

3. The defendants are Emirates Insurance Company (“EIC”) and SIACI Insurance Brokers LLC.
 

4. Certain disputes arose between the parties relating to three “Property All Risk & Business Interruption” insurance policies which were placed by the Claimants with EIC for the year 2019/2020, on identical terms but covering different companies and territories.
 

5. Justice Gross’s order addressed a number of Preliminary Issues (“PIs”) with respect to the insurance claims made by the Claimants in respect of Covid-19 related BI Losses for one such policy covering the territories of Bahrain, Kuwait, Oman, and the UAE.
 

6. The DIFC Courts dealt with eight PIs – three in relation to the “Closure Clause”; four in relation to the “Customer Extension Clause”; and one in relation to the “Loss of Attraction Clause”.
 

7. This Alert discusses the PIs concerning the Closure Clause and the Loss of Attraction Clause, which Justice Gross analysed in light of the legal framework and contractual interpretation. The PIs concerning the Customer Extension Clause, however, were of limited practical importance.

PARTIES’ SUBMISSIONS
Claimant’s Arguments

8. The Claimants sought an indemnity from EIC in respect of their alleged Covid-19 related BI Losses. In essence, the Claimant alleged that the insurance policy contained three primary coverage clauses covering the BI Losses that were caused to the Claimants due to Covid-19, and that they were entitled to the cover as stipulated in the policies on account of such cover.
 

9. Regarding the Closure Clause, the Claimants submitted that this clause ought to cover closure due to “infectious or contagious diseases”, a term that was in heading of the clause and in the schedule to the policy, but found no mention in the wordings of the clause. The Claimants contended that as a matter of construction, on an entire reading of the clause, the heading, and the schedule, the cover was to be construed as including closure due to “infectious or contagious diseases”. This argument was also reinforced by reference to pre-contractual exchanges and post-contractual conduct.
 

10. Regarding the Loss of Attraction Clause, the Claimants argued that this clause ought to apply not only to specific local incidents but also to a national or a regional government response to a global pandemic. In order to contend this, reliance was placed on the words “closure or sealing off” in sub-clause (d), which provided that the insurance policy would cover “closure or sealing off of the Insured Location(s) or any right of way by the police or other statutory authority”.

Defendants’ Arguments

11. Regarding the Closure Clause, EIC argued that the policy was never intended to cover closure due to “infectious or contagious diseases”, and that the omission of the wordings in the body of the clause was not an error. EIC also claimed that the omission was intentional, which could not be made good by reference to the schedule, the heading, or any pre-contractual exchanges and post-contractual conduct.
 

12. Regarding the Loss of Attraction Clause, EIC submitted that as a matter of ordinary language, sub-clause (d), providing cover for “closure or sealing off” was specifically directed at a “police or other statutory authority” response to a local incident or event. EIC argued that this sub-clause would not be triggered by a generic stay at home, lockdown, or curfew advice or orders. Examples of local triggers offered by EIC was that of “the police putting tape across the doorway of a particular premises or cordoning off the road outside with cones whilst they investigate a burglary”. EIC submitted that construing that this clause as covering orders to close for any reason whatsoever would result in profound incongruence and incoherence.

JUDGMENT
Applicable Legal Framework

13. The insurance policies, being governed by DIFC law, were interpreted under the DIFC Law No. 6 of 2004 (“DIFC Contract Law”), along with English law principles. The court noted that although the DIFC laws are based on common law principles, DIFC Contract Law was codified, and in case of any conflict with common law, the DIFC Contract Law would prevail. The court also observed that Part 5 of the DIFC Contract Law concerning the interpretation of contracts, departed from common law, and was more closely aligned to a UNIDROIT approach.
 

14. On the interpretation of contracts, the court found that the starting point was to adopt an objective approach to arrive at the intention of the parties of the contract. This was pursuant to Articles 49 and 50 of the DIFC Contract Law, and is essentially the same approach to construction under English law. Stating the common law principle on interpretation, the court observed that the core principle 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. A reasonable person for the purposes of an insurance policy was identified with the ordinary policyholder.
 

15. In addition, Articles 51(a) and 51(c) of the DIFC Contract Law state that regard shall be had to both the preliminary negotiations between the parties as well as the conduct of the parties subsequent to the conclusion of the contract. This is where the DIFC Contract Law, which follows the UNIDRIOT principles, differs from common law principles. While common law does not generally take into account the preliminary negotiations or the post-contract conduct of the parties, the DIFC Contract Law, in line with the UNIDROIT principles, permits these to be taken into account while ascertaining the intention of the parties.
 

16. In order to ascertain the objective meaning of the language used in the contract, the court must resort to a unitary exercise, which is based on English common law, and also provided for in Articles 52 and 53 of the DIFC Contract Law.  This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. With regard to rival constructions, the court observed that it would take a view based on which construction is more consistent with business common sense.
 

17. The court observed that the policy document along with the schedules and headings should be read as a whole. On the issue of schedules, referring to judgment of the UK Court,^[i] the court said that the schedule must be read along with the main body of the policy document, and that in an insurance policy, the schedule gains primacy over the policy wordings. The court also found that headings cannot prevail over the express wording of the clause, or create ambiguity in its reading.
 

18. This is the background of the legal framework and applicable principles in which the court analysed the PIs.

Closure Clause

19. The PI relating to the Closure Clause was “Whether the Closure Clause provides cover for closure as a result of infectious or contagious disease”.
 

20. While the heading of the Closure Clause and the schedule to the policy contained the words “infectious or contagious diseases”, the policy wording omitted any mention of it. To this extent, there was inconsistency in the policy regarding the terms of the Closure Clause.

21. Starting with the perspective of the reasonable policyholder, the court here opined that in an insurance policy, primacy was to be given to the schedule, as the schedule is where the policyholder would primarily look to identify the nature of the policy cover. It further reasoned that a reasonable policyholder would not necessarily notice any omission in the policy wording, and even if he/she did notice it, it would be assumed that the schedule would prevail over the policy wording. It also pointed to various instances in the policy where there were obvious inconsistencies between the schedule and the policy wordings, and where it was clear that the schedule prevailed over the policy. It said that a cover that was so clearly mentioned in the schedule could merely not be excluded by an omission in the policy wordings. Any omission would have to be explicitly stated. To be able to arrive at the intention of the parties, the court read the policy as a whole, including the policy wording on business interruption clause, read along with the schedule, and reinforced by the heading to the Closure Clause.
 

22. Taking these into account and accepting the submission that the Schedule is to be found at the top of this notional pyramid and it is the Schedule to which primacy is to be given, the court ruled “The cover for infectious or contagious disease was an insured peril provided the other requirements of the Closure Clause were met.”

Loss of Attraction Clause

23. The PI relating to the Loss of Attraction Clause was “Whether it provides cover limited only to a specific local incident where the police or a statutory authority seal or close up a particular premises, or whether it responds to a national or regional governmental response to a global pandemic”.
 

24. The court observed that sub-clause (d) cannot be said to have only local applicability.  This was held on the basis that sub-clause (d) began with the word “closure”, which was not an incidental add-on to the words “sealing off”, thereby making it wide enough to grant a wider cover than only a localised one. The court also referred to various decisions of the UK Courts,^[ii] to differentiate between a limited localised coverage as against a wider national coverage on the issue of interpretation of such a clause. The court concluded that the wording of the clause is results-based rather than focused on the reasons for, or the nature of, the order or action resulting in the closure.
 

25. For these reasons, the court ruled that the Loss of Attraction Clause was not limited to a specific local incident where the police or a statutory authority seal or close up a particular premises. It was capable of responding to a national or regional governmental response to a global pandemic.

ANALYSIS AND CONCLUSION

26. This case is noteworthy since it is the first Covid-19 Business Interruption Loss insurance claim to be considered by the DIFC Courts, thus paving the way for other such claims in the future. The court’s approach in analysing the DIFC Contract Law framework, equating it to the UNIDRIOT principles, is a reminder that while the DIFC Courts follow the common law system, it is important to keep in mind codified statutes that depart from common law principles.
 

27. Moreover, it is also interesting to note that the court adopted the approach taken by Cockerill J in Brushfield Ltd v Axa,^[iii] thus allowing for a wider interpretation of the Loss of Attraction clause, in benefit of policyholders.
 

28. This is decision lays down the framework that the courts will likely follow in future BI Losses claims, and is a positive step towards protecting business interests in unforeseeable circumstances. This is yet another example of DIFC Courts taking a pro-business approach, achieving the objective of creating an environment conducive to growth, progress, and economic development.
 

Authors– Rohit Bhattacharya, Sanchit Suri and Nandita Gopalan.