LALS HOLDINGS v EMIRATES INSURANCE COMPANY [2024] DIFC CFI 073 — Chief Justice Zaki Azmi grants leave to appeal on pandemic-related "Loss of Attraction" insurance coverage (06 March 2024)

Chief Justice Zaki Azmi has granted a second application for permission to appeal a judgment concerning the interpretation of a "Loss of Attraction" clause in an insurance policy, finding that the appellant demonstrated a realistic prospect of success in challenging the lower court's ruling on pandemic-related business interruption.

What specific insurance coverage dispute between Lals Holdings and Emirates Insurance Company necessitated this Second Permission Application?

The lawsuit centers on a commercial insurance dispute between Lals Holdings Limited and Emirates Insurance Company (PSC), alongside Siaci Insurance Brokers LLC. The core of the conflict involves the interpretation of a "Loss of Attraction" clause within an insurance policy, specifically whether this clause provides coverage for business interruption resulting from national or regional government responses to the global COVID-19 pandemic, or if it is strictly limited to local incidents where authorities seal off specific premises.

The dispute reached a critical juncture regarding eight preliminary issues referred to the court. The current application focuses exclusively on preliminary issue 1.3.1, which asks:

The Appellant is only seeking permission to appeal against the decision on one of the eight preliminary issues. This is preliminary issue 1.3.1.

The stakes involve determining the scope of indemnity for consequential losses arising from pandemic-related government restrictions, a matter of significant financial importance to the parties involved. The claimant seeks to establish that the policy responds to broad, pandemic-driven closures, while the insurer contends for a narrower, localized interpretation.

Which judge presided over the Second Permission Application in the DIFC Court of First Instance?

The Second Permission Application was heard and determined by Chief Justice Zaki Azmi of the DIFC Courts. The order was issued on 6 March 2024, following a review of the initial judgment rendered by Justice Sir Peter Gross on 1 November 2023 and the subsequent refusal of the First Defendant’s initial appeal notice.

What were the primary legal arguments advanced by the parties regarding the interpretation of the Loss of Attraction clause?

The Appellant, Emirates Insurance Company, argued that the lower court erred in its interpretation of the "Loss of Attraction" clause, specifically regarding the scope of "closure or sealing off" by statutory authorities. They contended that the clause should be read narrowly, limiting coverage to specific, localized incidents rather than broad, state-mandated pandemic responses.

Conversely, the Respondent, Lals Holdings Limited, relied upon the reasoning of Justice Sir Peter Gross, who had previously held that the clause was not limited to specific local incidents and was capable of responding to national or regional governmental actions. The Respondent maintained that the lower court’s interpretation correctly aligned with the commercial intent of the policy, citing various international authorities to support the broader application of the clause in the context of global pandemic disruptions.

What was the precise doctrinal issue the court had to resolve in determining whether to grant the Second Permission Application?

The court was tasked with determining whether the Appellant met the threshold for "a real prospect of success" on appeal, as required by the Rules of the DIFC Courts (RDC). The doctrinal question was not whether the lower court’s decision was definitively wrong, but whether the Appellant’s proposed interpretation of the "Loss of Attraction" clause—specifically the limitation of the phrase "closure or sealing off...by the police or statutory authority"—presented a realistic, rather than fanciful, argument for reversal.

The Chief Justice had to evaluate if the lower court’s reliance on conflicting international precedents was sufficiently robust to preclude an appeal, or if the ambiguity of the clause in the context of pandemic-related government action warranted further appellate scrutiny.

How did Chief Justice Zaki Azmi apply the "real prospect of success" test to the interpretation of the Loss of Attraction clause?

Chief Justice Zaki Azmi conducted a review of the lower court’s reasoning, noting that while Justice Sir Peter Gross had carefully weighed the arguments and conflicting authorities, the interpretation of the specific wording of the impugned clause remained open to legitimate debate. The Chief Justice observed that the authorities cited by the lower court were fact-specific and that the wording in the current policy differed from those precedents.

I am not ready to hold that the ruling by the learned Judge on this particular preliminary issue is correct. To be fair to the Judge, he has taken great pains to consider all the authorities cited as well as weighed the arguments and arrived at the conclusion he did. He had also earlier in his Judgement considered how insurance policies are to be interpreted. However, reading through it and the arguments put in by the Appellant, the Appellant may also be right.

The Chief Justice concluded that the Appellant’s position was not merely fanciful, thereby satisfying the threshold for granting permission to appeal.

Applying those authorities, I conclude that in this Second Permission Application, there is a real prospect of success at appeal if permission to appeal is granted and with that I allow this Second Permission Application.

Which specific statutes and rules did the court reference in its order?

The court’s decision was grounded in the Rules of the DIFC Courts (RDC), which govern the procedural requirements for seeking permission to appeal. The Chief Justice also referenced the specific wording of the "Loss of Attraction" clause as reproduced in paragraph 14 of the original Judgment, specifically sub-clauses (d)(i) and (ii), which define the scope of business interruption coverage.

The court also engaged with the judicial interpretation of "real prospect of success," referencing the standards set forth in Tanfern v Cameron-MacDonald (Practice Note) [2001] 1 WLR 1311 CA and Swain v Hillman [2001] 1 AER 91 CA, which establish that the prospect of success need not be probable, only realistic.

How did the court utilize the cited English and international precedents in its reasoning?

The court analyzed the lower judge's reliance on conflicting international authorities to determine if the interpretation of the "Loss of Attraction" clause was settled. The Chief Justice noted that the lower court had considered:

In his grounds of Judgment from paragraph 75 onwards, the learned Judge had considered a few conflicting authorities in interpreting that clause that I cited earlier on.

Specifically, the court examined Brushfield Limited v AXA [2021] IEHC 203, which favored a restrictive interpretation, against the "Mance Variation" discussed in Corbin & King v Axa [2022] EWHC 409 (Comm) and the Australian decision in LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17. The Chief Justice concluded that these authorities were:

These authorities are good for the facts and terms of the agreements relevant those cases. The wording of the impugned clause in the preliminary issue is different.

This distinction was central to the decision to grant the appeal, as it highlighted that the lower court's reliance on these cases might not be dispositive given the unique wording of the Lals Holdings policy.

What was the final disposition of the Second Permission Application and the order regarding costs?

The court granted the Second Permission Application, allowing the Appellant to proceed with its appeal against the decision on preliminary issue 1.3.1. Regarding the costs of the application, the Chief Justice ordered that they follow the outcome of the substantive appeal.

As to costs, I have to order costs to follow the decision at the appeal.

The order explicitly states that costs shall be "costs in the case," meaning the ultimate liability for these costs will be determined by the final appellate decision.

What are the wider implications for DIFC practitioners regarding the interpretation of insurance clauses in pandemic-related litigation?

This ruling signals that the DIFC Courts are prepared to subject the interpretation of pandemic-related insurance clauses to rigorous appellate review, particularly where the policy language deviates from established international precedents. Practitioners should anticipate that "Loss of Attraction" clauses will be interpreted based on their specific, granular wording rather than broad reliance on foreign case law. Litigants must now prepare for the possibility that appellate courts will re-examine whether pandemic-related government restrictions fall within the scope of "police or statutory authority" closures, even where lower courts have previously found such clauses to be broad in scope.

Where can I read the full judgment in Lals Holdings Limited v (1) Emirates Insurance Company (PSC) (2) Siaci Insurance Brokers LLC [2024] DIFC CFI 073?

The full order can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0732022-lals-holdings-limited-v-1-emirates-insurance-company-psc-2-siaci-insurance-brokers-llc

Cases referred to in this judgment:

Legislation referenced:

• Rules of the DIFC Courts (RDC)
• Insurance Policy "Loss of Attraction" Clause (specifically sub-clauses (d)(i) and (ii))