LALS HOLDING v EMIRATES INSURANCE COMPANY [2022] DIFC CFI 073 — Construction of COVID-19 business interruption clauses (14 November 2023)

This judgment provides the first authoritative interpretation under DIFC law of "Customer Extension," "Closure," and "Loss of Attraction" clauses within the context of COVID-19-related business interruption insurance claims.

What is the specific nature of the dispute between Lals Holding and Emirates Insurance Company regarding the AED 70 million claim?

The dispute arises from the Claimants’ attempt to recover business interruption losses sustained during the COVID-19 pandemic under "Property All Risk & Business Interruption" policies underwritten by the First Defendant, Emirates Insurance Company (EIC). The Claimants, a retail group operating across the GCC, argue that their losses fall within the scope of specific coverage extensions. The litigation is significant as it represents the first instance of the DIFC Courts addressing COVID-19-related business interruption insurance claims.

The financial stakes are substantial, with the Claimants asserting that their losses exceed the policy limits. As noted in the judgment:

Accordingly, the claim is limited to AED 70 million (plus Claims Preparation Costs of about AED 1 million and exclusive of interest and costs), amounting to the relevant limits of indemnity.

Beyond the primary claim against EIC, the Claimants have also initiated proceedings against the Second Defendant, Siaci Insurance Brokers, alleging negligent breach of duty in the placement of the insurance policies. The current judgment focuses exclusively on the construction of three specific coverage clauses—the Customer Extension Clause, the Closure Clause, and the Loss of Attraction Clause—which will dictate the viability of the indemnity claim.

Which judge presided over the trial of preliminary issues in Lals Holding v Emirates Insurance Company in the DIFC Court of First Instance?

The trial of the preliminary issues was presided over by Justice Sir Peter Gross, sitting in the DIFC Court of First Instance. The trial took place over three days, from 11 September 2023 to 13 September 2023, with the final amended judgment issued on 14 November 2023.

What were the primary legal arguments advanced by Lals Holding and Emirates Insurance Company regarding the interpretation of the policy wording?

The Claimants, represented by Mr. Charles Dougherty KC and Mr. Timothy Killen, argued for a broad interpretation of the coverage clauses, contending that the policy language should be construed to provide indemnity for the widespread economic disruption caused by the pandemic. They emphasized the primacy of the Schedule in interpreting the policy’s scope, arguing that the Schedule provided the necessary context to trigger coverage for the losses incurred across their retail operations.

Conversely, the First Defendant, EIC, represented by Mr. David Walsh, advocated for a restrictive reading of the clauses. EIC argued that the policy wording must be read in isolation, suggesting that the coverage was intended for localized incidents rather than global or regional events like a pandemic. Justice Sir Peter Gross rejected the Defendant’s approach to the policy structure, noting:

To the contrary, with respect, it is Mr Walsh’s submission which hinges – wrongly in my view – on reading the policy wording in isolation and without regard to either the Schedule or the Heading.

The Second Defendant, Siaci Insurance Brokers, represented by Mr. Neil Hext KC and Mr. Lucas Fear-Segal, also participated in the arguments, specifically focusing on the construction of the Closure Clause to limit the scope of potential liability.

What was the precise doctrinal issue the Court had to resolve regarding the interpretation of the Closure and Loss of Attraction clauses?

The Court was tasked with determining whether the insurance policies, which were drafted in standard property and business interruption terms, were intended to respond to the systemic, non-localized impact of a global pandemic. The doctrinal challenge lay in reconciling the specific, often localized language of the clauses—such as references to "police or statutory authority" sealing premises or "local incidents"—with the reality of government-mandated lockdowns and the broader loss of consumer footfall.

The Court had to decide if the "Loss of Attraction" clause was inherently limited to a specific local incident or if it could encompass the regional and national governmental responses to COVID-19. Furthermore, the Court had to clarify the evidentiary burden on the Claimants to prove the presence of an infectious disease within a specific 2-kilometer radius of the insured premises to trigger the Closure Clause.

How did Justice Sir Peter Gross apply the principles of contractual construction to the policy wording?

Justice Sir Peter Gross adopted a rigorous approach to contractual interpretation, emphasizing that the policy must be read as a whole, including the Schedule and the Headings. He rejected attempts to isolate specific clauses from the broader context of the policy. In determining the hierarchy of the documents, the Court held:

For my part, I accept 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 further utilized a results-based test for the Closure Clause, focusing on the factual reality of the premises being closed by authority. Regarding the "Loss of Attraction" clause, the Court determined that the language was not restricted to localized events. Justice Sir Peter Gross also addressed the potential for correcting mistakes in the contract, noting:

The first question is whether (on this hypothesis) there was a clear and obvious mistake; if there was, the second question is whether it is clear what correction ought to be made to correct that mistake.

This analytical framework ensured that the interpretation remained grounded in the specific text of the policy while allowing for a commercial interpretation of the parties' intentions.

Which DIFC and English authorities were applied by the Court to interpret the insurance policies?

The Court relied heavily on established principles of contractual construction, citing both DIFC and English authorities. The primary DIFC authority referenced was The Industrial Group Limited v Abdelazim Hamid [2022] DIFC CA 005 and 006, which affirmed that the DIFC Courts’ jurisdiction is statutory.

In terms of contractual interpretation, the Court applied the principles set out in Wood v Capita [2017] UKSC 24 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, which emphasize the importance of the natural and ordinary meaning of words in their commercial context. The Court also drew upon the specific context of business interruption insurance, referencing FCA v Arch Insurance (UK) Ltd [2021] UKSC 1 and Corbin & King v Axa [2022] EWHC 409 (Comm), which were instrumental in navigating the complexities of pandemic-related coverage.

How did the Court utilize the cited English precedents to reach its decision?

The Court utilized the cited precedents to navigate the tension between literal interpretation and commercial common sense. Wood v Capita and Chartbrook were used to establish the framework for interpreting the policy as a coherent whole, ensuring that the Schedule and the policy wording were read in harmony.

FCA v Arch Insurance and Corbin & King v Axa were particularly significant in the Court’s analysis of the "Closure" and "Loss of Attraction" clauses. These cases provided the Court with a roadmap for how to treat pandemic-related losses under policies that did not explicitly mention COVID-19. Justice Sir Peter Gross used these authorities to justify a purposive interpretation, noting:

(2) Approach to construction: When considering the authorities, it is necessary to keep in mind that each was a decision on the wording of a particular clause or clauses in the fact specific context of the case in question.

By distinguishing the specific wording of the Lals Holding policies from the precedents, the Court was able to provide a tailored interpretation that respected the unique contractual arrangement between the parties.

What was the final disposition of the preliminary issues and the specific orders made by the Court?

The Court provided definitive answers to the preliminary issues, which will now govern the progression of the substantive claim. The Court ruled that the Closure Clause does indeed provide cover for closure resulting from an infectious or contagious disease, provided the Claimants can prove the presence of the disease within the specified 2-kilometer radius of the affected premises.

Regarding the Loss of Attraction Clause, the Court ruled that it is not limited to a specific local incident and is capable of responding to national or regional governmental responses to the pandemic. The Court also clarified that the term "Customer" in the Customer Extension Clause extends to retail customers, provided there is an extant trading relationship. The burden of proof for these elements remains on the Claimants on the balance of probabilities. No specific monetary award was made at this stage, as the judgment was limited to the construction of the policy clauses.

What are the wider implications of this judgment for future insurance litigation in the DIFC?

This judgment establishes a critical precedent for business interruption claims within the DIFC, particularly those arising from the COVID-19 pandemic. By confirming that "Loss of Attraction" clauses are not strictly limited to localized incidents, the Court has opened a pathway for policyholders to claim for broader regional or national disruptions.

Practitioners must now anticipate that the DIFC Courts will prioritize the Schedule and the overall structure of the policy over isolated clause readings. Future litigants should be prepared for a fact-intensive inquiry into the specific location of infectious diseases and the nature of the trading relationships involved. The ruling serves as a reminder that while English precedents are highly persuasive, the specific wording of the policy and the hierarchy of the contract documents remain the primary drivers of judicial interpretation in the DIFC.

Where can I read the full judgment in Lals Holding Limited & The Companies Identified In Schedules 1-3 Of The Claim Form V (1) Emirates Insurance Company (PSC) (2) Siaci Insurance Brokers LLC [2022] DIFC CFI 073?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/lals-holding-limited-companies-identified-schedules-1-3-claim-form-v-1-emirates-insurance-company-psc-2-siaci-insurance-brokers-1

The judgment can also be accessed via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-073-2022_20231114.txt

Cases referred to in this judgment:

Legislation referenced:

• DIFC Contract Law, DIFC Law No. 6 of 2004, Part 5