On 28 October the Court of Appeal handed down its judgment in International Entertainment Holdings Ltd and others v Allianz Insurance Plc on the scope of cover afforded by a denial of access clause in the context of the COVID-19 pandemic.
It unanimously found, in favour of insurers, that the trial judge was right to dismiss International Entertainment Holdings (IEH)'s claim for business interruption losses brought about by closure of their theatres during national lockdown.
The Court was concerned with the scope of cover afforded by a denial of access clause which was contingent on a policing authority responding to an incident likely to endanger life within 1 mile of a policyholder's premises.
At first instance, Mr Justice Jacobs found for the insurer because:
- The phrase 'any policing authority' refers to the police or other bodies whose function it is to ensure that the law is obeyed and enforced. It does not extend to central government or the Secretary of State for Health and Social Care (who was responsible for laying the Regulations which imposed the first national lockdown before Parliament).
- The presence of a case of COVID-19 does not amount, without more, to an ‘incident likely to endanger human life’ within the meaning of the insuring clause.
IEH appealed.
The Court of Appeal rejected the appeal and IEH's claims were dismissed.
Policing authority
The Court of Appeal's starting point was to focus on the fact that the insuring clause covered business interruption losses which were consequent upon a denial of access 'by any policing authority'.
IEH argued that the term ‘any policing authority’ should be interpreted as referring to any body with the authority to prevent or restrict access to premises. As such, the submission was made that that would include the Secretary of State for Health (or central government), who laid the Regulations before Parliament which imposed the first national lockdown.
The Court of Appeal firmly rejected IEH's submissions, stating that there is "no doubt 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. That would be an unnatural meaning of the term, contrary to the ordinary use of language."
That was enough to dispose of IEH's appeal. But, the Court nevertheless considered, albeit briefly, whether a case of COVID-19, without more, could amount to an 'incident'.
Incident likely to endanger human life
The Court of Appeal accepted the insurer's submissions that while the word ‘incident’ can be used synonymously with ‘event’ or ‘occurrence’, in ordinary usage it generally connotes something more. What more is required must depend on the context in which the word is used.
In the context of this particular denial of access clause, in order to qualify as an 'incident', the event must be something which endangers human life or property so as to call for a response by a policing authority. The Court of Appeal added that such an event is likely to be inherently noteworthy even if not actually noted by anyone present.
Although Lord Justice Males added that, if he had found that a 'policing authority' did encompass the Secretary of State for Health, a case of COVID-19 within the relevant radius could be regarded as an incident since, taken together with all other cases of COVID-19 in the country, it called for a response by the government, he emphasised that that analysis was predicated on the precise wording used in this particular denial of access clause.
The meaning of the word 'incident' is therefore highly clause specific. While in some contexts a case of COVID-19 within the radius could amount to an 'incident', the Court of Appeal declined to accept IEH's invitation to say that the Divisional Court had (in the FCA test case) wrongly decided (in the context of the particular Hiscox denial of access clause there) that "it is a misnomer to describe the presence of someone in the radius with the disease as 'an incident' for the purposes of [that] clause."
Conclusion
Finally, it is worth noting that the policy contained a disease clause (providing cover against business interruption losses caused by specified diseases of which COVID-19 was not one). Accordingly, any claim needed to be brought within the language of the denial of access clause for IEH to have any prospect of succeeding.
The Court of Appeal was clearly alive to the need not to manipulate the wording of the denial of access clause to shoehorn a claim for COVID-19 related business interruption losses into a clause which was clearly not designed to provide such cover.
In a telling opening remark, the Court of Appeal commented that:
"…ordinary policyholders reading conscientiously through this policy would not understand the [denial of access] clause to be concerned, at any rate primarily, with losses caused by their premises having to be closed as a result of disease. They would expect that risk to be dealt with in the Disease clause, which draws a line between specified diseases, where there is cover, and other diseases, where there is not. That is not to say that such losses may not be recoverable under the [denial of access] clause, but there is no justification for stretching the language of the clause in order to achieve this result."
The insurance market should take some comfort that the Court of Appeal's decision does not open the door for every policyholder benefitting from cover under a denial of access clause to ask insurers to reimburse their COVID-19 related business interruption losses. Every clause will turn on its own particular language, such that careful consideration is needed to determine whether any particular denial of access clause might be wide enough to cover disease related losses.
James Deacon (Partner) and Hannah Stanford (Associate) of DAC Beachcroft LLP acted for Allianz in International Entertainment Holdings
