Court of Appeal rules on various issues relating to a Non-Damage Denial of Access clause in Covid-19 BI claim

In International Entertainment Holdings Ltd v Allianz Insurance Plc [2024] EWCA Civ 1281, the Court of Appeal considered a number of issues relating to a Non-Damage Denial of Access clause.

The Court of Appeal ruled that the Secretary of State for Health and Social Care does not qualify as a 'policing authority' under the terms of a business interruption policy. The term 'policing authority' was interpreted to include bodies performing policing functions, such as the police, but not central government or its ministers. 

Further, the Court held that the limit of indemnity which applied to "any one claim in the aggregate" applied separately to each insured premises and not per insured or as an aggregate for all claims.

BACKGROUND

The policyholder in this case was International Entertainment Holdings Ltd and its subsidiaries, which manage theatres, cinemas, concert halls, and restaurants. The insurer was Allianz Insurance Plc, who provided business interruption cover under a composite policy.

The policyholder claimed for business interruption losses suffered during the Covid-19 pandemic under a Non-Damage Denial of Access (NDDA) clause.  This provided cover for business interruption due to incidents "likely to endanger human life or property within 1 mile radius of the premises", provided access was restricted by a "policing authority".

The insurer’s liability for "any one claim in the aggregate" during the indemnity period was limited to £500,000. At first instance, the judge ruled that the Secretary of State was not a “policing authority", so the NDDA clause did not cover the Covid-19 closures, and the claims were dismissed.

DECISION

The Court of Appeal addressed 5 key issues and the leading judgment was given by Lord Justice Males with whom the other judges agreed:

Does the Secretary of State for Health and Social Care fall under the definition of a 'policing authority'?

The Court of Appeal agreed with the trial judge's decision that the term ‘policing authority’ did not extend to the Secretary of State for Health and Social Care. The trial judge had acknowledged that this term included bodies performing policing functions, but not the central government or ministers. Rather, the term should be interpreted to refer to bodies whose function is to ensure that the law is obeyed and enforced, such as the police, but not central government or its ministers.

LJ Males held that a reasonable policyholder would not interpret ‘any policing authority’ to include the Secretary of State or central government when enacting secondary legislation. Such an interpretation would be contrary to the ordinary use of language.

Does Covid-19 amount to an 'incident likely to endanger human life' within the meaning of the clause?

The Court of Appeal accepted that the word ‘incident’ was synonymous with 'occurrence' but generally connotes something more. The word 'incident' needed to be considered in the context of the clause in which it was used. Here the clause required an event which was likely to endanger human life or property such as to call for a response by a policing authority. The Court of Appeal held that if the Secretary of State had been considered a policing authority (which was not what the Court of Appeal ultimately decided), a case of Covid-19 within the specified radius could be deemed an incident for the purposes of this clause, as it endangered human life and, taken together with all the other cases of Covid-19 necessitated a response by the Secretary of State. LJ Males noted the analysis may be different when the word 'incident' is used in other clauses.

Must the incident occur within the specified radius?

The Court of Appeal held that for an incident to be covered under the policy, it must occur within the one-mile radius specified in the NDDA clause. LJ Males reasoned that this interpretation provides clarity and is straightforward to apply. If incidents could occur anywhere, the specified radius would be meaningless.

The policyholder argued that the key factor should be the endangerment to life or property within the radius, regardless of where the incident occurred. They referenced an arbitration award (the Salon Gold award dated 31st January 2024) that supported this view. However, the Court of Appeal maintained that the clause is clearer and more practical if the incident must occur within the radius. This ensures that the policyholder understands the coverage applies only to incidents within the specified area.

Does the limit of indemnity apply separately to each insured premise?

The Court of Appeal agreed with the trial judge and held that the £500,000 limit which applied to "any one claim in the aggregate" applied separately to each premises insured. Each closure of premises constituted a separate claim, requiring proof of a relevant incident within the one-mile radius of each location. 

The insurer sought to argue that because the clause provided cover in respect of "any claim resulting from interruption of or interruption with the Business" that the limit should apply to the policyholder’s business as a whole, i.e. on a per insured basis.  LJ Males found this interpretation placed too much emphasis on the definition of ‘Business’. The policy did not distinguish between policyholders with single or multiple venues, and it did not specify which subsidiary owned or operated which venue. There was nothing in the clause to indicate that the limit of £500,000 was intended to apply on a per insured basis.

Is there an aggregate limit?

The Court of Appeal found that there was no aggregate limit of £500,000 for all claims combined. The insurer argued that the relevant clause needed to be corrected to include the word "and" so as to read ‘any one claim and in the aggregate’. This was rejected by the Court of Appeal who found no clear mistake in the wording. LJ Males noted that if a mistake had been made, it was not obvious how to correct it. Therefore, the limit of £500,000 applied to each individual claim, not as an aggregate for all claims.

COMMENT

This decision is another in the series of cases relating to Covid-19 business interruption losses that have followed on from the FCA Test Case and clarifies a number of issues.  

The case is also a reminder that the Court will be reluctant to 'correct' a policy wording unless there is an obvious error on the face of the wording, and it is clear what correction ought to be made.