The elephant in the room: and it’s not the Secretary of State

In this, the latest in a series of recent Covid-19 BI appeals, the Court of Appeal has handed down judgment in International Entertainment Holdings Limited & Ors v Allianz Insurance Plc [2024] EWCA Civ 1281. A copy of the judgment can be found here.

The central issue here turned on whether the restrictions brought in by the government, preventing or hindering access to the claimants’ theatres around the country, were those of a “‘policing authority”.

In concluding that they were not, the Court of Appeal held that, “It is sufficient to say that the term does not extend to the Secretary of State. To adapt Lord Justice Scrutton’s famous remark about the elephant (Merchants Marine Insurance Co Ltd v North of England Protection & Indemnity Association (1926) 26 Ll LR 201, 203), the reasonable policyholder might not be able to define a “policing authority”, but he would know that the Secretary of State was not one.”

That finding notwithstanding, the judgment brings some welcome news for the wider policyholder market with the finding that Covid-19 can be an “incident” and that, in the absence of clear wording to the contrary, cover can be available on a “per premises” basis.

The Underlying Proceedings

The issues on appeal in this matter were first heard by Mr Justice Jacobs as part of a group of cases (see Gatwick Investment Ltd v Liberty Mutual Insurance Europe SE [2024] EWHC 124 (Comm)).

The claim concerned the interpretation of a non-damage denial of access (“NDDA”) clause for losses arising out of the closure of venues, following the 21 March Regulations made by the Secretary for Health and Social Care.

The relevant wording read as follows:

“Denial of Access Endanger Life or Property

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, but excluding any occurrence where the duration of such prevention or hindrance of us [sic.] is less than 4 hours, shall be understood to be loss resulting from damage to property used by the Insured at the premises provided that

i) The Maximum Indemnity Period is limited to 3 months, and

ii) 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 concluded that the Secretary of State was not a “policing authority”, which was sufficient for the policyholders’ claims to be dismissed.

The Appeal

While accepting that the term “policing authority” was not limited to the police, and that it could encompass restrictions imposed by a similar body performing policing functions in circumstances likely to endanger human life or property, the Court of Appeal felt it unnecessary to decide how widely the clause may extent on the basis that it was sufficient to say it did not include the Secretary for State.

That decision was ultimately determinative of whether or not the policyholders in this case were able to claim for losses arising out of the Covid-19 pandemic, however, there were three further issues on appeal which will be of interest to the wider policyholder market: (i) whether or not Covid-19 was capable of being an incident; (ii) whether the extension applied on a “per premises” basis; and (iii) whether policy wording referring to “any one claim in the aggregate” contained a mistake capable of correction.

Can Covid-19 be an “incident”?

The Court of Appeal was asked to consider whether, in the context of the relevant clause, Covid-19 could be an “incident likely to endanger human life.”

The Court of Appeal accepted that the word “incident” can be used synonymously with “event” or “occurrence” but, in ordinary usage, it would generally connote something more dependent on the context in which the word is used. In the context of this wording, “incident” was qualified by something that “endangers human life or property,” so as to require a response from a “policing authority”

It was common ground that “Covid-19 endangered human life because of the infectious nature of the disease; and taken together with all the other cases of Covid-19 in the country, it called for a response by the Secretary of State”.

Further, in this clause, it was clear that the terms “incident” and “occurrence” were being used interchangeably. Therefore, a case of Covid-19 could properly be regarded as an “incident,” and could amount to an “event” or “occurrence”.

Although this analysis differs from that of the Divisional Court in the FCA Test Case, where it was held (in the context of the Hiscox NDDA clause) that “it is a misnomer to describe the presence of someone in the radius with the disease as “an incident” for the purposes of the clause”, the Court of Appeal did not find that the point was wrongly decided by the Divisional Court.  Rather, its decision was based on the wording of the clause before it.

The finding that Covid-19 can be an “incident,” in certain contexts, is a potentially significant outcome for other policyholders with “incident” wordings. There are likely to be a number of claims out there that have been in cold storage due to an “incident” wording, which should now be revisited given this apparent thawing on the issue.

Per premises

The Court of Appeal agreed with the lower court’s finding that this wording provided cover on a per premises basis.

When considering whether the wording provided for cover on a per premises basis, the Court of Appeal focused on the specific wording of the clause, and in particular the fact that the insured peril was specific to each of the premises insured. A prevention or restriction of access to each premises would, therefore, give rise to a separate claim to which a separate limit would apply. The insurer’s focus on the defined term “Business” (i.e. that it would not “make sense to speak of the business of the premises as distinct from the business of the policyholder”) was found to place more weight on the definition that it would bear.

Further, the Court of Appeal noted that the policy drew no distinction between policyholders in the claimant group who owned or operated only one venue, and those who owned or operated multiple venues.  In those circumstances, interpreting the policy limit as applying separately to each policyholder rather than to each premises would be “somewhat capricious”.

This is an important finding for policyholders with more than one premises in circumstances where insurers are frequently seeking to limit losses to a single limit across multiple premises. Close attention should be paid to the specifics of the wording, as the nuance of the drafted wording and the policy as a whole will dictate whether a per premises argument can be sustained.

Correction

The insurer’s attempt to introduce an aggregate limit were unsuccessful in the absence of a clear mistake (or at least a mistake with a clear answer).

The insurer’s had attempted to rework the wording of the extension referring to “any one claim in the aggregate” to provide an annual aggregate limit by inserting the word “any one claim and in the aggregate”. The Court of Appeal found that while it was reasonably clear that something had gone wrong in the language, it was nonetheless far from obvious what solution the parties had intended. It was as likely that the insurer had intended for the limit to apply in the aggregate as it was that the limit was intended to apply to any one claim. The correction proposed by the insurer would result in the words “any one claim” being deprived of any meaning. Accordingly, the judge was correct to have rejected the insurer’s case of construction by correction at first instance.

This decision again confirms the principles in East v Pantiles (Plant Hire) Ltd and Chartbrook Ltd v Persimmon Homes Ltd, which were considered recently in another appellate Covid-19 decision, Bellini N/E Ltd v Brit UW Ltd. It serves as a stark reminder that the courts will usually be reluctant to correct mistakes, and the circumstances in which they might do so are limited to those where there is an obvious definitive answer.

Parting Comments

Despite a disappointing result on the meaning of “policing authority”, this decision has produced renewed hope for policyholders with similar issues in dispute, and it is far from the last word on the various NDDA wordings still out there. Further appeals arising from the Gatwick Investment Ltd v Liberty Mutual Insurance Europe SE group of cases are listed for hearing early next year, in addition to other matters proceeding to trial in the commercial court.

Watch this space.

Authors

Joanna Grant, Managing Partner

Anthony McGeough, Senior Associate