COVID-19 cases continued: Court of Appeal addresses construction of denial of access wording

In the latest COVID-19 business interruption matter to reach the Court of Appeal, International Entertainment Holdings¹, the Court again considered the wording of a non-damage denial of access (“NDDA”) clause. 

Background

The claimants were a holding company and its subsidiary companies, who own, operate and manage theatres, cinemas, restaurants and related businesses. Most of these companies operated a single venue, but some operated multiple venues.

The policy was a composite policy which included a clause covering loss arising from specific diseases (not including COVID-19) as well as a non-damage denial of access (“NDDA”) clause which read as follows:

“Any claim resulting from interruption of or interference with the Business as a direct result of an incident likely to endanger human life or property within 1 mile radius of the premises in consequence of which access to or use of the premises is prevented or hindered by any policing authority…. shall be understood to be loss resulting from damage to property used by the Insured at the premises…”

The clause also stated “The liability of the Insurer for any one claim in the aggregate during any one Period of Insurance shall not exceed £500,000”.

At first instance the judge found in favour of insurers on the basis that the Secretary of State was not a policing authority, and that a case of Covid-19 is not an “incident likely to endanger life”.

Judgment of the Court of Appeal

Lord Justice Males gave judgment with which the other judges agreed.

Principles of interpretation

Males LJ set out the proper approach to interpretation of the policy, i.e. that:

• The policy must be interpreted objectively by asking what a reasonable person with all the background knowledge which would reasonably have been available to the parties at the time of the contract would have understood it to mean.  Policies of this type were sold primarily to small and medium size enterprises, and so should not be taken as being addressed to a pedantic lawyer but to an ordinary policyholder who would have read it conscientiously (FCA v Arch).²
• Ordinary policyholders reading this policy would expect claims arising from disease to be covered under the disease clause.  That does not mean disease losses are not also covered under the NDDA clause, but the wording should not be stretched to reach that result.
• Where the policy adopts a pick and mix approach (as in Bellini v Brit) and has not been prepared as a coherent whole, there is little force in an inference that language has been used consistently throughout the policy.

Applying this to the wording the judge held the following:

Meaning of “policing authority”
Males LJ held that a reasonable policyholder would not regard the term “any policing authority” as extending to the Secretary of State or any other embodiment of central government when enacting secondary legislation.  The insureds’ submission that because other bodies besides the police have the power to restrict access to protect public safety, therefore any other body exercising a power for that purpose is a “policing authority” was rejected.  If that was intended then the clause may have read simply “any authority“, and the word “policing” must have been intended to narrow the scope of the authority to those that carry out policing functions. 
 
The Judge did accept that the term is wider than just the police, and would extend to similar bodies performing policing functions in circumstances likely to endanger human life or property, but it was not necessary to decide how much wider in the context of this appeal.  It was only necessary to decide that the clause did not extend to the Secretary of State (and the Court narrowed the declaration of the first instance judge in this regard).
 
As a result of this finding, there was no cover for the insureds’ claims under the NDDA, and the further aspects of the decision were obiter.
 
Meaning of “incident”
Males LJ accepted that in general terms “incident” can be synonymous with “event” or “occurrence” but in ordinary usage generally means something more, dependant on context.  In relation to the NDDA clause, it must be something that endangers human life or property requiring a response from the policing authority.  It is something likely to be worthy of note even if not actually noted by anyone present.  
 
A  case of COVID-19 in the radius was an incident on the basis of this wording (which used incident and occurrence synonymously):  it was an event/occurrence which endangered human life due to its infectious nature; it called for a response together with the other cases;  and would have been detectable had a suitable test been performed.  Males LJ noted however, that the analysis may be different when “incident” is used in other clauses, and he declined to say that the Divisional Court in FCA v Arch had wrongly decided this point when it stated that it was a misnomer to describe someone with the disease in the policy radius as an incident.    
 
Must the incident occur in the radius?
The insured argued that it was the endangering of life or property that must be in the radius specified in the policy and not the location of the incident itself. Males LJ rejected this, holding that such an interpretation of the clause would be less certain and not straightforward to apply.  The reasonable policyholder would understand the clause only to provide cover where the incident itself occurs in the radius.
 
Per premises limit?
The insurer argued that the clause provided cover in respect of any claim arising from interruption of the “Business”, that “Business” was a defined term, each policyholder would have its own business with centralised cost, and it made no sense to speak of the business of the premises. 

Males LJ agreed with the first instance judge.  The insured peril was specific to each premises insured and each prevention of access gave rise to a separate claim.  The policy drew no distinction between those that operate one venue or multiple venues and to interpret the policy limit as applying per policyholder rather than per premises without clear wording would be “somewhat capricious“.
 
Was there an aggregate limit of £500,000?
The judge accepted that something had gone wrong in the wording of the policy in the aggregating clause.  Insurers sought to amend the clause as highlighted: “The liability of the Insurer for any one claim and in the aggregate during any one Period of Insurance shall not exceed £500,000″ .  The Court accepted that the wording did not make sense in a policy with one period of insurance.  However, the solution was not clear.  It was at least as likely the parties intended to apply the limit to one claim as to the aggregate.  The insurer’s solution that the limit was intended to apply “any one claim and in the aggregate“, as this was a classic phrase to be found in policies, was rejected.  Without a mistake with a clear answer, the construction by correction doctrine set out in previous case law³ did not apply.

Conclusion

This is a relatively rare case where insurers have succeeded on a Covid-19 coverage issue.  The clause was, however, considerably more limited than others considered, being restricted to the actions of a policing authority. 

The COVID-19 cases continue before the courts, and in particular the Gatwick v Liberty cases will be heard by the Court of Appeal in January 2025. 

Footnotes

1. IEH v Allianz [2024] EWHC 124 (Comm).
2. Although not elaborated on this judgment, there has been some discussion in other matters as to how to interpret this holding of the Supreme Court , where for example it is assumed that a broker advised the insured, and it has been noted that this should not be taken to mean that an SME would not be familiar with the basics of insurance law.   See, for example Brian Leighton Garages v Allianz.
3. East Pantiles (Plant Hire), Chartbrook v Persimmon Homes and Bellini v Brit.