In the latest instalment of post-pandemic insurance litigation, the Court of Appeal has confirmed that a case of Covid-19 is an “incident likely to endanger human life”.
Associate Claudia Seeger reviews the recent decision of International Entertainment Holdings Limited & Ors v Allianz Insurance Plc & another [2024] EWHC 124 (Comm) which additionally provides helpful insight on the operation of policy limits on a per-premises basis and the application of the term “policing authority”.
Background
International Entertainment Holdings Limited (“IEH”) and its subsidiaries owned, operated and managed theatres, cinemas, concert halls and a restaurant business. During the Covid-19 pandemic, IEH was required to close its premises in compliance with regulations enacted by the Secretary of State for Health and Social Care.
IEH was insured by Allianz for business interruption losses under a Commercial Select policy (the “Policy”). The Policy was a composite policy, meaning multiple policyholders’ interests are separately insured under a single document. The relevant “‘Non-Damage Denial of Access” (or “NDDA”) clause provided cover for interruption/interference 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” (emphases added) (the “NDDA Clause”). Recovery under the NDDA Clause was limited such that “any one claim in the aggregate during any one Period of Insurance shall not exceed £500,000”.
Appeal
The issues considered by the Court of Appeal were originally tried as preliminary issues by Mr Justice Jacobs (see Gatwick Investment Ltd v Liberty Mutual Insurance Europe SE [2024] EWHC 124 (Comm), as considered in our previous article). However, IEH appealed the judge’s decision on three grounds, with Allianz appealing on two additional grounds. The questions in consideration were:
- Was the Secretary of State for Health and Social Care a policing authority?
- Does the presence of a case of Covid-19 amount, without more, to an “incident likely to endanger human life” within the meaning of the clause?
- If so, must the case of Covid-19 occur within a one-mile radius or can the case occur outside the radius?
- Does the limit of £500,000 apply separately to each insured premises or does it apply separately to each insured claimant?
- Is there, in any event, an aggregate limit of £500,000?
We consider each of these points below.
“Policing authority”
The central issue, and the key barrier to recovery of IEH’s losses, was whether the term “policing authority” incorporated the Secretary of State, who had enacted the regulations by which IEH’s premises were closed. The Court of Appeal agreed with Mr Justice Jacobs, determining that a reasonable policyholder would not regard the term “policing authority” as extending to the Secretary of State.
However, the Court of Appeal accepted that the term extends more widely than covering solely the police themselves. Consequently, restrictions imposed by a similar body performing policing functions in circumstances likely to endanger human life would also be within the scope of the NDDA Clause (and potentially similar wordings). However, the Court of Appeal declined to consider how much more widely the term could extend, so this continues to be a question of policy interpretation.
Therefore, there was no coverage for IEH’s losses under the NDDA Clause as a result of the outcome of the first issue. However, the Court of Appeal went on to consider the additional issues, the outcome of which may provide significant assistance to policyholders seeking to recover under differently worded clauses.
“Incident likely to endanger human life”
The court of first instance had determined that while a case of Covid-19 was likely to endanger human life, such a case could not be considered an “incident”. In the judge’s view, an “incident’” must be something which was apparent at the time, whereas cases of Covid-19 could be undetected both to the carrier and to passersby.
On this issue, the Court of Appeal disagreed with the court of first instance, determining that a case of Covid-19 within the radius amounts to an “incident”, much as it amounts to an “event” or an “occurrence” (as held by the Supreme Court in FCA v Arch). In the context of the NDDA Clause in the Policy, a case of Covid-19 is an “incident” as it is an event which endangers human life or property so as to call for a response by a policing authority. This was further backed up by the use of the word “occurrence” later in the NDDA Clause, suggesting that the words “occurrence” and “incident” were being used interchangeably.
The Court of Appeal also found it immaterial that the case of Covid-19 may not have been apparent as cases would have been detectable had a test been performed.
However, the Court of Appeal clarified that its analysis may be different where “incident” is used in other wordings. The court referred to the Divisional Court’s decision in FCA v Arch, which said, in relation to the Hiscox NDDA clause considered in that case, “it is a misnomer to describe the presence of someone in the radius with the disease as ‘an incident’”. The Court of Appeal declined to overrule (but also did not affirm) the Divisional Court’s reasoning in that case. Consequently, policyholders will need to consider the exact wording of their policies carefully to ascertain whether cover is available for their business interruption losses.
One-mile radius
The Court of Appeal agreed with Mr Justice Jacobs that the clearest interpretation of the NDDA Clause is that the incident must occur within the radius; it was not sufficient to show that an incident occurring outside the radius had an impact on premises within the radius.
Per-premises recovery
The court of first instance had determined that the limit of £500,000 applied separately to each claim, with each closure of premises being a separate claim. Each case of Covid-19 was a separate incident, and nothing in the Policy indicated that the limit must operate on a per-insured basis.
The Court of Appeal agreed with this decision, stating that the insured peril is specific to each premises insured and that each prevention of access gives rise to a separate claim. Lord Justice Males also considered that the Policy draws no distinction between the members of the IEH group that owned or operated only one venue and those that operated multiple. It would, therefore, be fickle to interpret the limit as applying separately to each policyholder rather than each premises absent wording to that effect. As a result, if coverage had been triggered, IEH would have been entitled to claim up to £500,000 for each of its 31 insured theatres.
Aggregate limit
The court of first instance had rejected Allianz’s argument that the phrase “any one claim in the aggregate” should be corrected by corrective interpretation to read “any one claim and in the aggregate”. Allianz argued that this meant that only a single aggregate limit was available to each of the insured entities.
The Court of Appeal applied the principles of corrective interpretation set out in Bellini (N/E) Ltd v Brit UW Limited [2024] EWCA Civ 435 (as considered in our previous articles here and here), finding that there was a mistake in the language but that it was not clear what the correction should be. Consequently, the Court of Appeal rejected Allianz’s case of correction by construction and upheld the first instance decision. There was no aggregate limit.
Conclusion
While the Court of Appeal’s decision will be an unwelcome one for IEH and for policyholders whose policies require action by a “policing authority”, the judgment provides helpful clarification that a case of Covid-19 may well be an “incident” and that policy limits may apply on a per-premises basis, which can make a significant difference to the value of the indemnity to which a policyholder with multiple premises is entitled. However, this is dependent on the exact policy wording, and policyholders should continue to exercise caution when considering whether cover is available for their business interruption losses.
The decision also provides additional authority on the application of the principles of correction by construction set out in Bellini, outlining that a clause will not be corrected where it is not clear what such correction should be. The Court of Appeal also commented on the interpretation of ‘pick and mix’ policies (being those made up of a selection of clauses adopted from other contracts without much consistency). In such circumstances, “the inference of consistent usage has little or no force” and “reference to the same or similar language in other clauses of the policy may shed little light on the meaning of the term in question”.
You can find further information regarding our expertise, experience and team on our Policyholder Disputes page.
If you require assistance from our team, please contact us.
Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.
