This judgment was handed down remotely at 10.00am on 9 May 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
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HHJ RUSSEN KC
HHJ Russen KC:
Introduction
- This is my judgment determining the Part 8 Claim brought by the claimants against the defendant ("AIG") both in its own right and as representative of Covea Insurance (together, "the Insurers") who underwrote the relevant risk under the 'Commercial Combined' insurance policy ("the Policy") under which the claimants make their claims to recover business interruption losses.
- The remaining question for determination on the claim is whether the Business Interruption section of the Policy ("the BI Cover") extends to covering losses respectively incurred by the claimants from the closure of their businesses between 26 March 2020 (at the latest) and 6 July 2020 as a result of the restrictions imposed by the Government in response to the Coronavirus Covid-19 pandemic ("Covid-19"). That "lockdown" led to loss of custom due to the claimants' hotel and other holiday or business hospitality premises being closed in whole or in part during that period.
- Covid-19 was made a notifiable disease in England (the business premises insured under the Policy are all in Cornwall) on 5 March 2020. That was some 7 months after the inception of the Policy on 2 August 2019.
- The essential question, to which the other issues raised by the Claim were ancillary, is whether Covid-19 falls within the 'Infectious Diseases' extension ("the ID Extension") to the BI Cover.
- The two other issues over the meaning and effect of the Policy identified in the Claim Form have since resulted in agreement between the parties. The Insurers accept for the purpose of these proceedings that the Policy was a composite policy such that each claimant had a separate interest therein. They accept that, if the Policy responds to their claims under the BI Cover, they are each entitled to an indemnity up to £100,000 (subject to proof of loss).
Background
- The background to the claim is set out in the witness statement of Mr Stephen Baker dated 18 October 2023. Mr Baker is a director of each of the claimants who operate businesses in the Carbis Bay area of Cornwall.
- The First Claimant owns and operates from the following premises (each of which is regarded from an accounting and a practical point of view as a separate business):
(1) The Carbis Bay Hotel, St Ives, Cornwall. The hotel provides accommodation, and it also operates a restaurant and bar;
(2) a public house known as the Gannet Inn, which provides a restaurant and bar service as well as hotel accommodation;
(3) The Carbis Bay Beach Spa facility;
(4) The Carbis Bay Beach Front Complex, comprising a restaurant, takeaway food outlet, a beach shop and a spa treatment room;
(5) Ocean Venue Beach Front, comprising suite accommodation, 2 restaurants, 2 bars, a film studio and a delicatessen; and
(6) Self-catering accommodation at various locations in and around Carbis Bay.
- The Second Claimant owns and operates the Atlantic Bay Hotel, St Ives Road, Carbis Bay, St Ives, Cornwall. The hotel provides accommodation, and it also operates a bar, a hairdressing salon and a spa.
- Each of those businesses were affected by the following Covid-19 related events:
(1) on 20 March 2020, the Government advised public houses, restaurants and bars to close the following day;
(2) on 21 March 2021, the Health Protection (Coronavirus, Business Closure) Regulations 2020, SI 2020/327, were passed to give effect to the advice in (1) above and required the closure of such premises (alongside other types);
(3) on 23 March 2020, the Government announced an intention to prevent, inter alia, weddings from taking place;
(4) on 24 March 2020, the Government issued guidance to businesses providing holiday accommodation to close for commercial purposes; and
(5) on 26 March 2020, the Health Protection (Coronavirus, Business Closure) Regulations 2020, SI 2020/350 were introduced. These Regulations replaced SI 2020/327. They required the closure of holiday accommodation, which included all of the accommodation operated by the claimants.
- Those events prevented the claimants from operating their businesses from (at the latest) 26 March 2020 until they were able to re-open on 6 July 2020. Even upon re-opening, the businesses remained subject to interference owing to social distancing regulations and measures, and their earnings and profitability were reduced accordingly.
- The losses suffered by them are said to significantly exceed the £100,000 limit of indemnity (for each of them) provided under the Policy.
- Between 18 May 2020 and 21 May 2020, the claimants' insurance broker, Aston Lark Ltd, submitted a claim on the Policy in respect of their business interruption losses. This claim was addressed to Pen Underwriting, who administered the Policy, as agent for the Insurers.
- On 29 May 2020, Pen Underwriting responded to Aston Lark with the Insurers' decision to decline the claim. The Insurers' position was that Covid-19 was not a disease insured against by the BI Cover.
- The explanation from Pen Underwriting included the following:
"The cover is designed to operate in respect of a specific and defined list of diseases which does not extend to include COVID-19.
Recent changes to legislation added COVID-19 to the list of notifiable infectious diseases, which is the term used to refer to the legal requirement to report certain specific diseases to the relevant authority.
We have had queries from customers as to whether COVID-19 is the same as Severe Acute Respiratory Syndrome (SARS) and can confirm that per the relevant public health regulations COVID-19 is a distinct and separate reportable disease from Severe Acute Respiratory Syndrome (SARS)."
- The Insurers' position has resulted in the formulation in the Part 8 Claim of the following question which remains to be determined by the court.
"On the true construction of the Policy, is the word "Disease" appearing in the phrase "any human infectious or human contagious Disease (excluding Acquired Immune Deficiency Syndrome [AIDS] or an AIDS related condition)" in the Infectious Diseases extension to the Business Interruption section of the Policy to be understood:
(a) as limited to the specific diseases listed in the definition of 'Disease' in the business interruption section (which does not include Covid-19); or
(b) as not so limited but including any kind of human infectious or human contagious disease (including Covid-19)."
- That is not a question upon which the decision of the Supreme Court in the test case of Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, [2021] AC 649 (brought by the FCA to establish the effect of certain business interruption insurance policies in relation to Covid-19) casts any light.
- The claimants through Mr Simon Howarth KC argue for meaning "(b)". The Insurers through Mr James Brocklebank KC argue for meaning "(a)". I am grateful to both counsel for their clear and succinct rival arguments upon which meaning is the correct one.
The Policy
- The Policy incepted on 2 August 2019 and was for a period of one year. The BI Cover therefore expired on 1 August 2020.
- An appendix to the section of the Policy addressing BI Cover confirmed the limit of the limit of the indemnity in respect of business interruption through infectious diseases is £100,000.
- That particular risk (within the BI Cover) is addressed by the ID Extension. The ID Extension includes three other causes of business interruption which but for a statement within it would not (or not obviously in the case of the last two) be described as cases of infectious disease. The language of the ID Extension is as follows:
"Infectious Diseases
The insurance by this Section extends to include interruption of or interference with Your Business in consequence of closure of the Premises or part thereof on the order advice or stipulation of any government or local authority as a result of
1) any human infectious or human contagious Disease (excluding Acquired Immune Deficiency Syndrome [AIDS] or an AIDS-related condition) manifested by any person whilst at the Premises or within a 25 mile radius of the Premises
2) murder or suicide occurring at the Premises
3) injury or illness sustained by any visitor arising from or traceable to foreign or injurious matter in food or drink provided on the Premises
4) defects in the drains or other sanitary arrangements at the Premises or the Premises becoming infested with vermin or pests
1) – 4) are stated in the Appendix as Infectious Diseases
For the purpose of this Extension Indemnity Period means the period during which the results of Your Business are affected in consequence of the outbreak or Event beginning with the date when restrictions on the Premises are imposed and ending not later than the Indemnity Period."
- For the purposes of this case, the relevant wording, aside from the heading "Infectious Diseases", is that in paragraph 1) of the ID Extension. The Policy says nothing about the significance or otherwise of headings as an aid to interpretation; and "Infectious Diseases" is not a defined term. As a matter of language, the statement "1) – 4) are stated in the Appendix as Infectious Diseases" holds out the prospect that there might be some elucidation elsewhere in the Policy about the meaning of "Infectious Diseases" but that is not the case. The Appendix simply confirms that the ID Extension has a limit of cover of £100,000 and, therefore, that the other causes in paragraphs 2) to 4) are deemed to be within it.
- The 'About Your Policy' section of the Policy states:
"Each Section may include terms Definitions Conditions and Exclusions unique to the Section which should to be read in conjunction with the Policy Definitions Conditions and Exclusions."
- The definition section which is specific to BI Cover begins with the following:
"Section Definitions
These definitions apply to this Section wherever these words or phrases appear with an upper case letter except where otherwise stated"
- The term 'disease' (both with a lower-case "d" and an upper-case one) is used elsewhere in the Policy (in the Liability Section of the Policy). However, for the ID Extension, the term (by the definition section of the Policy which is specific to BI Cover) is defined as follows:
"Disease
means any of the following diseases sustained by any person acute encephalitis acute infectious hepatitis acute meningitis acute poliomyelitis anthrax botulism brucellosis cholera diphtheria enteric fever (typhoid or paratyphoid) food poisoning haemolytic uraemic syndrome(HUS) infectious bloody diarrhoea invasive group A streptococcal disease legionellosis leprosy malaria measles meningococcal septicaemia mumps plague rabies rubella SARS scarlet fever smallpox tetanus tuberculosis typhus viral haemorrhagic fever (VHF) whooping cough and yellow fever"
- That is a list of 33 diseases. It is not in dispute that it is a closed list: the language is "means" not "includes". Therefore, it encompasses only those listed, and Covid-19 is not one of them.
- It is not suggested by the claimants that it is "otherwise stated" (i.e. expressly, in words) that the defined term 'Disease' does not apply to the ID Extension. The concluding words in the ID Extension quoted in paragraph 20 above provide an example where an 'Indemnity Period' (other than the 48 month period imported by the definition of that term) is "otherwise stated".
AIDS
- As explained below, Mr Howarth KC relied in his alternative submission upon the fact that AIDS is not listed amongst the 33 and yet the ID Extension expressly excludes "Acquired Immune Deficiency Syndrome [AIDS] or an AIDS-related condition." The argument is, therefore, that the exclusion of AIDS, which is not listed in the definitional term 'Disease', shows that the definition cannot be exhaustive when it comes to determining the scope of cover under the ID Extension. The specific focus is upon the words "Acquired Immune Deficiency Syndrome [AIDS] or" (i.e. "AIDS or") as the claimants recognise that the phrase "AIDS-related condition" can be read consistently with the that definition.
- As I readily volunteered in exchanges with counsel, I am not concerned at all with an analysis of the basis or effect of the exclusion per se, by which I mean the justification for it and how it operates as such. There can be no doubt that the exclusion exists and there appears to be little scope for argument (certainly none that I need be troubled with) as to what it means. It is therefore irrelevant to ponder whether or not, in an insurance policy of this type which addresses business interruption through the outbreak of disease, there are any practical or lawful steps which the business owner (caught by the exclusion) might otherwise take to minimise the risk created by the exception. Likewise, speculation about issues of proof, in any case where a business closure was said by the insurer to have arisen out of this excepted risk, is irrelevant.
- Mr Brocklebank KC, who said he offered no observations either way upon justification for the exception from a public policy perspective, observed that it is an exception which appears (using materially the same if not exactly the same language) in many other business interruption insurance policies. That is clear from the terms of other such policies considered in some of the authorities relied upon by the parties and addressed below: see FCA v Arch (where the same wording appeared in the various policies considered by the Supreme Court); Rockliffe Hall, and Bellini. Mr Brocklebank said the language probably derived from the time in the last century when HIV was regarded as a much greater threat to life than the manageable condition which current NHS Guidance, mentioned below, confirms it to be. It is noteworthy that the same language appears as an exception in policies where the cover is written by reference to notifiable diseases (see the policy terms quoted in FCA v Arch at [51] and [83]) even though, as I mention below, AIDS is not a notifiable disease.
- Instead, I am only concerned with the potential impact of the exclusion so far as the "AIDS or" language is said by the claimants to raise a contradiction with the definition of 'Disease'.
- It is common ground between the parties that AIDS weakens the body's immune system, leaving the sufferer open to what are termed "opportunistic infections", including tuberculosis (which is one of the 33 listed in the definition of 'Disease').
- Their agreement upon that point was the result of the evidence both in support of and in response to the claim exhibiting material about AIDS that would be available to a reasonable policyholder when reading the Policy and considering the implications of the ID Extension. The parties identified three sources of information for this purpose: the online version of the Encyclopaedia Britannica, the online NHS Guidance on Living with HIV and AIDS, and the Oxford English Dictionary. Each of those sources indicate that AIDS renders sufferers vulnerable to (and is therefore often associated with) other diseases and conditions.
- To illustrate, the NHS Guidance says this within one section:
"Opportunistic infections
Infection risk
You'll be at risk of developing infections you would not normally be at risk of if your immune system has been damaged by the HIV virus.
These opportunistic infections, as they're called, happen when you have a very weak immune system.
But if you take your HIV treatment, the likelihood of developing these is low.
The 4 main types of opportunistic infections are:
- bacterial infections, such as pneumonia (Link: www.nhs.uk/conditions/pneumonia/) or tuberculosis (TB) (Link: www.nhs.uk/conditions/tuberculosis-tb/)
- fungal infections, such as oral thrush (Link: www.nhs.uk/conditions/oral-thrush-mouth-thrush/) and pneumocystis pneumonia (PCP)
- parasitic infections, such as toxoplasmosis (Link: www.nhs.uk/conditions/toxoplasmosis/)
- viral infections, such as shingles (Link: www.nhs.uk/conditions/shingles/) herpes zoster)
People with advanced HIV also have a higher risk of developing some forms of cancer, such as cancer of the lymphatic system (lymphoma) (Link: www.nhs.uk/conditions/non-hodgkin-lymphoma/)."
- As also appears from FCA v Arch, addressed below, other business interruption insurance policies may take the form of cover by reference to notifiable diseases, being one that a competent local authority has stipulated shall be notified to them. AIDS is not a notifiable disease: see https://www.gov.uk/guidance/notifiable-diseases-and-how-to-report-them#list-diseases.
- Because it is central to the claimants' alternative argument, I therefore clarified with Mr Howarth KC that it was the claimants' position that AIDS is a "disease", as opposed to a syndrome or condition which, as the parties agree, carries with it a greater risk of other infection or disease for a person with HIV than a person without it. Mr Howarth said the ordinary conscientious policyholder (see below) would read the reference to AIDS, in the context of the language of the ID Extension, as being a reference to a disease.
- Mr Brocklebank KC did not challenge that assertion. He made the common-sense observation that someone with the HIV virus, who sadly died as a result of one or more of the opportunistic infections mentioned above, could be described by one person as having "died from AIDS" and by another person as having died from the particular infection(s) in question. The court was reminded of the daily news reporting 5 years ago, at the height of the Covid-19 pandemic, about the numbers of people who had that day "died from Covid" even though for many, where the victim was often described as having an "underlying condition", a more considered medical diagnosis of cause of death in the particular case may well have revealed matters to be more complicated than that.
The Correct Approach to Interpreting the Policy
- Like the Insurers, the claimants rely upon what the Supreme Court has confirmed to be the approach to adopted in construing the meaning of an insurance policy. In FCA v Arch, Lords Hamblen and Leggatt said:
"[47]. The core principle is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean."
- That is the approach that has been restated by the highest authority over the past decade or so. In Arnold v Britton [2015] UKSC 36, [2015] AC 1619, at [14]-[22], Lord Neuberger went back another 45 years in his consideration of the authorities explaining the correct approach to the interpretation of contracts. Of the points which are made in 6 of his propositions (out of 7) that are relevant here, the following are key ones for present purposes:
(1) The court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean" (i.e. the basic task identified again in FCA v Arch).
(2) In discerning that intention, the court focuses upon the objective meaning of the relevant words, in their documentary, factual and commercial context. That meaning is assessed in the light of (i) their natural and ordinary meaning; (ii) any other relevant provisions of the contract, (iii) the overall purpose of the contract; (iv) the facts and circumstances known or assumed by the parties at the time it was made; and (v) commercial common sense. Commercial common sense cannot be invoked retrospectively. The party's subjective intentions of the parties are of course to be disregarded in this process of interpretation.
(3) It is points (i) and (v), in particular, which require the court to look at what the language of the ID Extension would have conveyed to the mind of the ordinary conscientious policyholder. The clearer the natural ordinary meaning of the words, the more difficult it will be to justify a conclusion that he would have understood them to have had a different meaning. And the court should not embark "on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning."
- So far as point (iv) above is concerned (and also point (v)), the process of interpretation cannot therefore properly be influenced by the "wisdom" of hindsight. "The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed." This is important when an insurance risk of a type expressly contemplated (business closure through infectious disease) manifests itself in a form of disease that was not known about at the date of inception of the policy and which only because a notifiable disease after that date.
- In FCA v Arch, their lordships went on to clarify, at [77], that this approach to discerning what a reasonable and informed person would understand the Policy to mean is one that involves reading it as an ordinary policy holder would, rather than "a pedantic lawyer who will subject the entire policy wording to a minute textual analysis". The policyholder "…. on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting."
- The contrast between the pedantic lawyer and the ordinary policyholder was made by reference to the point (addressed at [78]) that it is neither reasonable nor realistic to expect the latter to share the appetite of the former to engage in the exercise of attempting to apply an exclusion of liability which is "buried away" in the middle of a general exclusion within another section of the policy and appearing some 55 pages on from the section dealing with cover for business interruption losses where one would expect it to appear. Adopting the standard of understanding or analysis of the pedantic lawyer would undermine the prohibition in Arnold v Britton (see paragraph 38(3) above) of looking for points (one might say "clever points") which stray too far from the ordinary and natural meaning of the policy.
- For policyholders like the claimants, who have an insurance broker, this approach to interpreting an insurance policy can also involve attributing the policyholder with the understanding of his broker. In Stonegate Pub Company Ltd. v MS Amlin Corporate Member Ltd [2022] EWHC 2548 (Comm), [2023] Lloyd's Rep IR 672, at [54], Butcher J said the reasonable person is also someone "who has been able to consult with well-informed brokers".
- In Brian Leighton (Garages) Ltd v Allianz Insurance plc [2023] EWCA Civ 8; [2023] Lloyd's Rep. IR 380, at [40], Popplewell LJ addressed the interpretation of an exclusion clause in the business interruption policy held by the claimant (an SME) by observing:
"Assureds such as BLG have brokers who can advise them, and brokers are to be taken to be familiar with the basic insurance principle of proximate causation, and language which reflects it or, by contrast, modifies it. Both assured and broker have access to legal advice which would involve no pedantry in advising on the presumptions involved in the use of such language. This is part of "the background knowledge which would reasonably have been available to the parties". I do not take what was said in para 77 of FCA v Arch as suggesting that the reasonable person in an SME's shoes should not be taken to be familiar with the basic principles of insurance law and the meaning which has been put on phrases used in insurance contracts by consistent judicial authority. Many policies of insurance in many fields contain terms of art which have acquired their meaning by consistent use and judicial interpretation, which it is the duty of brokers to understand and, if necessary, advise on."
- I have noted above that Mr Howarth KC accepted that the definition of 'Disease' produces a closed list of 33 diseases. This is in contrast to a policy worded (as many are) by reference to notifiable diseases that might be added to during the life of the policy. In Singapore Airlines v Buck [2011] EWCA Civ 1542, [2012] Pens LR 1, at [19], Arden LJ, addressing the terms of an employer's pension scheme, said:
"Definitions in statutes and deeds can be exhaustive or non-exhaustive. Non-exhaustive definitions are usually prefaced by the word 'include'. More often, however, a definition is intended to be exhaustive, and it will then generally begin with the word 'mean' or 'means'. It is difficult to read a definition which begins with the word 'means' as other than exhaustive."
- The same applies to contracts. In Rockliffe Hall Ltd v Travelers Insurance Co Ltd [2021] EWHC 412 (Comm); [2021] Bus LR 656, at [36]-[37], (involving another claim upon a business interruption policy by reference to Covid-19) Cockerill J applied the above passage in Singapore Airlines in concluding that "[t]he starting point therefore is that there is good reason to posit that only the diseases on the list count as "Infectious Diseases", as defined."
- As I explain below, the claimants' primary argument on the interpretation of the ID Extension relies partly though not exclusively upon its heading: "Infectious Diseases".
- Lewison, The Interpretation of Contracts, 8th ed (2024), para. 5.108, contains the following propositions in relation to the use of headings as an interpretative tool:
"A heading to a clause may be taken into account in construing the clause, but it cannot override clear words in a clause or create an ambiguity where, but for the heading, none would otherwise exist. Where the contract so provides, headings should not be taken into account."
- One of the authorities referenced in support of the first proposition is Navrom v Callitsis Ship Management SA [1987] 2 Lloyd's Rep. 276; [1988] 2 Lloyd's Rep. 416, where the heading 'Force Majeure' had been used in a charterparty as an omnibus description for a variety of different causes of delay. Staughton J and the Court of Appeal held that the heading could not be used to limit the scope of the various hindrances which the following clause specified should not count as laytime. Croom-Johnson LJ said:
"Much has been said about force majeure. Those words are there as a heading to cl. 33. But I do not regard them as more than a label or signpost, and not as contributing to the interpretation of the clause."
- So far as the second proposition in Lewison is concerned, I have already noted that the Policy is silent on the significance or otherwise of headings in the process of its interpretation. Reverting to the first, the nature of the second to fourth causes of business interruption in the ID Extension highlight that the point in Navrom applies here. Those three particular risks (certainly the second and almost as certainly the fourth) cannot, on the natural and ordinary meaning of the words used to describe them, be sensibly equated with the outbreak of an infectious disease. It follows that the heading must be treated as a label, both for those causes and the one now under scrutiny.
- Each side before me accused the other of interpreting the ID Extension in a way that led to certain words becoming redundant (the words "AIDS or" on the Insurers' reading and the defined term 'Disease' on the claimants' case).
- Addressing the "canon of construction" based upon the presumption against redundancy (i.e. that, in interpreting a contract all parts of it must be given effect, where possible, and no part of it should be treated as inoperative or surplus) Lewison, op. cit., para. 7.24 says:
"This principle is sometimes labelled the argument from redundancy. Although this principle was often given weight in earlier cases, its value is much reduced in more modern cases. As Patten LJ put it in Al-Hasawi v Nottingham Forest Football Club Ltd [2019] EWCA Civ 2242 "arguments based on surplusage or redundancy are rarely reliable or sure ground on issues of construction". In ABC Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645; [2021] BLR 97, at [20], Carr LJ said:
"Whilst the redundancy argument has a role to play in the exercise of contractual interpretation, it all depends on the construction issue in question, the effect of the alternative interpretation and the contractual context as a whole. The mere fact that a natural interpretation of a contract could render another term redundant is an insufficient basis for an unnatural construction, especially where a standard form is involved."
Where, however, the rival interpretations each involved some surplusage, the court preferred the interpretation which gave rise to the lesser surplusage."
- The authority cited in the textbook in support of that last proposition is Nord Naphtha Ltd. v New Stream Trading AG [2021] EWCA Civ 1829, [2022] 1 CLC 79, per Whipple LJ at [48]-[49].
- The claimants say, if necessary, they are entitled to succeed in their claim by relying upon the contra proferentem rule. Reference to Lewison, op. cit, at paras. 7.67ff shows that there are "only skeletal, if any, remains of the contra proferentem maxim, or rule of construction, in commercial cases" (per Fraser J in Multiplex Construction Europe Ltd v Dunne [2017] EWHC 3073 (TCC); [2018] B.L.R. 36) and that the rule is "very much a last refuge, almost an admission of defeat, when it comes to construing a document" (per Lord Neuberger in BNY Mellon Corporate Trustee Service Ltd. v LBG Capital No.1 Plc [2016] UKSC 29, [2016] Bus LR 725). The contra proferentem approach therefore only comes into play where, despite the exercise of contractual interpretation summarised in Arnold v Britton, the court is otherwise unable to reach a conclusion upon which of the conflicting meanings is the correct one.
- It is therefore clear that the contra proferentem rule carries even less weight than the presumption against redundancy. It only operates to tip the balance in what must inevitably be the very rare case where the court remains flummoxed by the contractual wording despite working through the approach set by Arnold v Britton and related authorities.
The Claimants' Case
- Mr Howarth KC advanced two main arguments in support of the case that the business losses arising out of the matters summarised in paragraph 9 above are covered by the ID Extension.
- Firstly, Mr Howarth said the definition of 'Disease' does not govern the scope of cover under the ID Extension because the relevant words instead are "Infectious Diseases". That is the heading to the ID Extension and it is that phrase and the words which follow (with his emphasis underlined) – "any human infectious or human contagious Disease" – that would form the basis of a reasonable understanding on the part of a policyholder as to the scope of this part of the BI Cover. The capitalisation of "Disease" in the language of the ID Extension is therefore an irrelevance.
- Mr Howarth correctly noted that "Infectious Diseases" is not a defined term in the Policy. He said the concept of infectious disease has to be approached as a matter of ordinary speech. There can be no doubt that Covid-19 is, as a matter of ordinary speech, an infectious disease. Thus, closure of the claimants' premises as a result of Government order, in response to the pandemic, engages the cover.
- Mr Howarth said neither the ordinary conscientious policyholder nor his broker would have appreciated that the definition of 'Disease' might be argued to be exclusive. Instead, they would reasonably have focused instead upon cover arising in the event of closure of the insured premises by the "order, advice or stipulation" of a government or local authority, made by reference to the outbreak of an infectious (lower case "d") disease. Reading the ID Extension, the policy holder would have understood that "any" such human infectious or human contagious disease was covered, with the exception of AIDS or AIDS related Conditions. As noted above, he said the policyholder would have regarded AIDS as a contagious or infectious "disease" itself (and not purely a syndrome or condition)
- Mr Howarth's second, alternative submission, also flagged above, was that the wording of the ID Extension is not coherent. He said the problem arises from a conflict between the definition of the word 'Disease' (which does not refer either to AIDS or to an AIDS related condition), and the exclusion contained in the ID Extension. The latter refers to AIDS and AIDS-related illness. If the definition of 'Disease' was exhaustive then there would be no need to have excluded AIDS or an AIDS-related condition from cover under the ID Extension. This was, he said, "a bit of a dog's breakfast".
- It was not a case, he said, of the claimants saying "because we are not covered for Risk X (i.e. AIDS) we must be covered for Risk Y (i.e. Covid-19, specifically), even though we would not be covered for Y if X had not been mentioned", as Mr Brocklebank KC had summarised the claimants' argument. Instead, Mr Howarth said it was a case where the express exception for AIDS shows that it would otherwise be an insured risk (of government ordained business interruption) as it is a "human infectious or human contagious disease". Covid-19 is just such a disease and is not the subject of an exception to cover.
- As already noted, Mr Howarth recognised that the language of the definition of 'Disease' (what the word "means") is such that it would otherwise be treated as exhaustive: see Singapore Airlines. However, he pointed to the suggested incoherence in the wording of the ID Extension to say that this is a case where the phrase "any human infectious or human contagious Disease" should not be restricted by that definition. An ordinary policyholder is not to be taken to be a lawyer and would not be aware of Singapore Airlines; and the incoherence means the claimants should not be held to any presumption that the definition is exhaustive.
- In support of the argument that the court should not be constrained by the definitional term in its interpretation of the ID Extension, Mr Howarth relied upon the following observation by Popplewell J, as he then was, in Europa Plus v Anthracite Investments [2016] EWHC 437, at [30]:
"These principles apply to the interpretation of contractual provisions using defined terms. As is well known, the use of defined terms in commercial contracts is a commonplace; they are a convenient drafting technique as shorthand labels to express a concept or meaning more fully set out in the defined term (cf Chartbrook at [17]). Where the Court is interpreting a contractual provision which uses a defined term, the starting point for a textual analysis will often be the defined meaning, because the fact that the parties have chosen to use it in the provision being interpreted is often an indication that they intended it to bear its defined meaning when so used. Often, but not always. It is a common experience that defined terms are not always used consistently by contractual draftsmen throughout a commercial contract. Where a defined term is used inconsistently within a contract, so as sometimes to bear the defined meaning and sometimes a different meaning, the potency of the inference that the parties intended it to bear its defined meaning in a particular provision is much diminished. The question becomes whether they intended to use it in its defined meaning, as in some other clauses, or as meaning something other than its defined meaning, as in different other clauses. Even where there is no inconsistency of use within the contract outside the provision being interpreted, it does not follow that effect must always be given to the defined meaning. If, as is well known, parties sometimes use defined terms inappropriately, it follows that they may have done so only once, in the provision which is being interpreted. The process of interpretation remains the iterative process in which the language used must be tested against the commercial consequences and the background facts reasonably available to the parties at the time of contracting. Such an exercise may lead to the conclusion that the parties did not intend the defined term to bear the defined meaning in the provision in question. That is no different from the Court concluding that the parties intended a word or phrase to have a different meaning from what would at first sight seem to be its ordinary or natural meaning."
- Although the claimants' case therefore involves marginalising the definitional term 'Disease', they say this is justified when the Insurers should not be permitted to ignore the "AIDS or" words and cannot offer a satisfactory explanation of their meaning which avoids the forensically damaging conclusion that they are redundant words.
- As to the contra proferentem principle, Mr Howarth recognised that this represented the last-ditch from which to argue this point. However, he said it was one which, if necessary, the claimants were entitled to adopt and succeed in defeating the Insurers' interpretation of their own Policy wording.
- Anticipating the Insurers' reliance on decisions by the Financial Ombudsman Service ("FOS") involving AIG, where the same ID Extension was considered, Mr Howarth said those decisions did not necessarily reflect the objective interpretation of the relevant policy required by FCA v Arch but, instead, "by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case" (per section 228(2) of the Financial Services and Markets Act 2000 ("FSMA")). Such decisions are obviously not binding upon the court but Mr Howarth said they should not even be regarded as persuasive.
- On this aspect, he drew my attention to the observation of Ms Clare Ambrose, sitting as a deputy High Court judge, in Bellini (N/E) Ltd v Brit UW Ltd [2023] EWHC 1545 (Comm); [2023] Lloyd's Rep. IR 573. Bellini also concerned an insurance claim in respect of loss incurred by reason of business interruption caused by the Covid-19 pandemic. The issue for the court was whether those losses constituted "damage" within the meaning of the policy. The defendant insurer had relied upon decisions of the FOS in support of its argument that they did not. The judge addressed them as follows:
"[28] The defendant referred to decisions of the Financial Ombudsman Service addressing a similar question based on what appeared to be an identical wording and declining to treat it as a non-damage clause. I gave these rulings limited weight since they go to what is fair and reasonable rather than legal entitlement. They were of some reassurance in supporting the agreed factual matrix, and showing that clause 8.2.6 is not an anomalous, erroneous or outlier wording."
- Mr Howarth KC also made passing reference to the decision of Stanley Burnton J in R. (on the application of IFG Financial v Services Limited v Financial Ombudsman Services Limited [2005 EWHC 1153 (Admin) who, at [13] and [74], recognised that the ombudsman (who in that case was said to have ignored what was then the law under SAAMCO in relation to scope of duty) is free to make an award that he considers to be fair and reasonable, even if that differs from English law or what would be the result applying that law, provided it is a reasonable view in all the circumstances and not susceptible to challenge by way of judicial review on the ground it is perverse or irrational.
The Insurers' Case
- Mr Brocklebank KC responded by saying the claimants' approach to the interpretation of the ID Extension is not a legitimate one. He said the claimants' argument, particularly their alternative one based on the two words "AIDS or", unjustifiably complicates what is the obvious and straightforward interpretation of the provision.
- Mr Brocklebank said the claimants' case involves the suggestion that a reasonable policyholder would ignore the defined term, 'Disease', which appears in the Policy only three pages before the ID Extension. That suggestion rests upon a convoluted analysis of the relationship between the specific diseases identified in that definition and the exception for AIDS or AIDS-related conditions when that carve-out in the ID Extension plainly and simply makes it clear to the reader that those will not be covered.
- The claimants' approach, Mr Brocklebank submitted, falls foul of the embargo upon an interpretation which rests upon legal pedantry. The fact that the claimants were essentially relying upon two words – "AIDS or" – to effect a radical change in the scope of cover from that indicated by the defined term 'Disease' should set alarm bells ringing. All the more so, he said, when those two words appear in an exception to cover. On that point he cited Tesco Stores Ltd. v Constable [2008] EWCA Civ 362, [2008] Lloyd's Rep IR 636 where the Court of Appeal rejected an argument that the scope of the relevant insuring clause must extend to pure economic loss because otherwise an exception clause (for liability in respect of, inter alia, liquidated damages in any contract or agreement) would have been unnecessary.
- In relation to the carve-out for AIDS, Mr Brocklebank observed that, when the language of the exception can be seen to be common to many policies, it is notable that the claimants' argument based upon the same language had not been deployed in other cases where it might have made a difference to the outcome. For example, in London International Exhibition Centre plc v Royal & Sun Alliance plc [2023] EWHC 1481 (Comm); [2023] Bus LR 1513, one of the issues was whether cases of Covid-19 occurring before it was made a notifiable disease were capable of falling within the cover under some of the policies (see the language of two of the policies quoted in the judgment at [77] and [85]). He submitted that the absence of any reliance upon the language of the exception including on appeal (see [2024] EWCA Civ 1026; [2025] Lloyd's Rep. IR 1), to support an argument that it was not necessary for Covid-19 to have been notifiable disease, when AIDS was not, illustrated the strained and artificial meaning now attributed to it by the claimants.
- At the core of Mr Brocklebank's comprehensive submissions was the fundamental point that nothing the Supreme Court said in FCA v Arch can justify jettisoning the defined term 'Disease' so that it has no place at all in determining the scope of the BI Cover. Putting the pedantic lawyer to one side in the process of interpreting a policy does not mean the exercise becomes free of any legal discipline. He referred to the judgment of Popplewell LJ in Brian Leighton Garages (paragraph 43 above) and drew attention to his extensive citation of authority in relation to the concept of proximate cause, at [23]-[27], which still remained relevant to discerning the presumed intention of the parties.
- In the present case, reading the policy though the eyes of the reasonable and conscientious policy holder, the definition appeared not only just three pages before the wording of the ID Extension but on the same page where the reader is informed the definition is specifically to apply to the BI Cover. In fact, the only place where the term 'Disease' appears in that section of the Policy is in the ID Extension. The claimants' reading of it, as if the defined term is irrelevant, falls foul of the approach in FCA v Arch.
- Mr Brocklebank said the heading to the ID Extension - "Infectious Diseases" - is evidently just a label, as I have observed and as is illustrated by murder and suicide being covered by it. Just as was the case in in Navrom (see paragraph 48 above) it clearly cannot be relied upon in interpreting the wording which follows. The error in the claimants' contrary approach is revealed by their suggestion (in Mr Howarth's skeleton argument) that the policyholder would have focused upon the fact that he was obtaining cover against the closure of his premises owing to the "order, advice or stipulation" of a government or local authority by reason of an infectious disease. Yet paragraphs 2) to 4) of the ID Extension contain three other grounds by reference to which such closure might come about.
- As to the following words in paragraph 1) of the ID Extension, Mr Brocklebank, said the claimants were also simply wrong to say (as it had been put in Mr Howarth's skeleton argument) that the formal definition of 'Disease' does not govern because the ID Extension "does not use the defined term 'Disease' but speaks of "infectious diseases", which is not a defined term." The phrase "human infectious or human contagious" is incomplete and meaningless unless completed (as it is in the ID Extension) by incorporating the defined term.
- Engaging with Mr Howarth's reliance upon Europa Plus, Mr Brocklebank said there was no inconsistency in the use of the term 'Disease' (it being only used the once) and neither was its use inappropriate. As to the third possible reason, flagged in that case, for perhaps not giving effect to it, here there was no factual matrix against which its use and application fell to be tested.
- So far as the presumption against redundant words is concerned, to the extent it carries much weight at all in the modern approach to contractual interpretation, Mr Brocklebank said there was no inconsistency between "AIDS-related condition" and the defined term 'Disease'. That part of the exception can readily be understood as excluding from the potential trigger of the ID Extension any of the 33 diseases that is AIDS-related. He said the suggested inconsistency between the words "AIDS or" and the defined term was a contrived one. Those words reflected the fact that AIDS can be used as a general term to describe both the specific condition resulting from HIV and the wider risks (including morbidity) associated with the virus. Therefore, and as is commonly seen in contractual drafting, the phrase "AIDS or an AIDS-related condition" is essentially saying the same thing in two different ways. Even if the first two words are redundant then, for the purposes of the reasoning in Nord Naphtha, they constitute significantly less surplusage than is involved by the claimant treating the list of 33 diseases as immaterial.
- So far as the contra proferentem rule is concerned, he said nothing in the language of the ID Extension brought the court anywhere close to the position where, but for the presumption, it would have to admit defeat (per Lord Neuberger in BNY Mellon) in construing the ID Extension.
- Mr Brocklebank drew my attention to a number of decisions by the FOS on complaints made by other policyholders against AIG in respect of its refusal to recognise cover for Covid-19 under the ID Extension. These were in fact conclusions by an FOS case-hander (often referred to as an 'adjudicator' in distinction to the more senior position of ombudsman) and took the form of letters containing the case-hander's provisional assessment of the case. In each case the conclusion was against the policyholder. Although each letter ended with a reference to the policyholder's right to seek a review and a final decision by an ombudsman, it appears that none of them took it further.
- In some of these complaints to the FOS, the policyholder sought to argue that Covid-19 was a form of SARS (included within the definition of 'Disease') on that basis and in others that the risk was covered by the separate 'Denial of Access' extension in the BI Cover. Those arguments failed. All six provisional assessments by the FOS in the trial bundle show that the policyholder also sought to argue that the exception for AIDS meant that Covid-19 was covered.
- In each case, that argument too was rejected by the case-handler. For example, one said:
"The other main point which [complainant's name redacted] raised is the policy extension's reference to AIDS. I understand they feel this creates ambiguity because they think it wouldn't need excluding if the policy referred to a specific list of diseases. However, I don't think it results in ambiguity or a reading where the list of diseases is effectively disregarded. As mentioned, the word "Disease" is capitalised in the extension, which means it has a specific definition in the policy and in this case there is the list which sets out what is covered. I think the reference to AIDS was so that AIG could make clear that the specified diseases aren't covered where they're related to AIDS."
Another said:
"This doesn't mean that any human infectious or human contagious disease that isn't AIDS or an AIDS-related condition is covered. Instead, it clarifies that the specified diseases wouldn't be covered where AIDS is the primary cause."
- The Insurers say these conclusions, made by reference to what in the opinion of the FOS is fair and reasonable in all the circumstances of the case (per section 228(2) of FSMA) are closely aligned with the aim identified in FCA v Arch, which is to arrive at a meaning that reflects the understanding of the reasonable, conscientious policyholder. They say the reasoning set out in the previous paragraph provides an analogue for the understanding that would be reached by that policyholder reading the ID Extension.
- Mr Brocklebank drew my attention to a remark in one of the FOS letters:
"AIG have told us that the list of diseases has not been amended since the policy wording was first developed. AIG said that to add a new disease in the policy it would have to consider the rationale for adding the disease to the policy wording, internal guidelines, consult underwriters and re-consider premium."
Decision and Reasons
- I have decided that the Insurers' interpretation of the ID Extension is the correct one.
- My reasoning in support of that decision, which is based on the essential foundations of Mr Brocklebank's argument, is as follows:
(1) The claimants' case has the effect of transforming a closed-list basis of infectious disease cover into an entirely open one. Indeed, it results in the ID Extension being more open than if the cover was written on the basis that it extended to notifiable diseases (from time to time). That is a significantly different underwriting proposition than the one to which the Insurers apparently agreed.
(2) The reason I have included the quote in paragraph 83 above is not because I can properly be influenced by any subjective intention on the part of the Insurers as to what the Policy should mean. As Mr Brocklebank readily volunteered, any such objective intention is irrelevant to the process of contractual interpretation. Instead, the quote reveals the self-evident truth that, as matter of commercial common sense, the claimants' construction results in a materially different underwriting proposition. Commercial common sense is one of the five key considerations by which the court tests the objective interpretation of the contractual provision under scrutiny: see paragraph 38 above. The fourth consideration (the facts and circumstances known by the parties at the time the Policy was incepted) is also material here when the parties would not in August 2019 have been alive to the potential need to include Covid-19, specifically, as a potential risk.
(3) The first and second of those considerations require the court to look at the language of the ID Extension within the Policy (specifically the BI Cover): the text and its documentary context. The first is the paramount consideration in the sense that the meaning of a contractual provision is "most obviously to be gleaned from the language of the provision" (per Lord Neuberger in Arnold v Britton at [17]) and the court may find that to be sufficiently clear to dispose of the argument over its interpretation. That is the conclusion I have reached in relation to the ID Extension.
(4) By the language of the ID Extension the parties appear to have agreed upon the inclusion of a defined term which exhaustively defines the diseases covered by it. Some quite compelling reason or reasons would need to emerge from the exercise of contractual interpretation to justify the material change in the nature of the underwriting risk contended for by the claimants. In my judgment, interpreting the ID Extension in accordance with objective standard required of the reasonable, conscientious policyholder identified in FCA v Arch, no such reason emerges. The claimants have not identified any incoherency in its language which displaces the ordinary and natural meaning to be attributed to its inclusion of the definitional term 'Disease'.
(5) As the single deployment (within the ID Extension) of the definitional term 'Disease' highlights, the 33 diseases could just as well (though far less conveniently) have been individually named within the text of the ID Extension. The claimants' argument, in effect, treats them as not having been so set out and (allowing for the fact that, alongside Covid-19, each would be apt to qualify as a human infectious or contagious disease) the naming of them to be immaterial. Yet there is nothing inapt in the Europa Plus sense (or, despite my observation in (7) below, materially inept) about the deployment of the definition, so, without something more to support it, that outcome would be completely at odds with the expectation that the reasonable policyholder is to be taken to have conscientiously read through his policy. No legal pedantry is involved in encountering a capitalised and defined term and turning back a few pages to see what it means. In Singapore Airlines, Arden LJ expressed the difficulty involved in a suggestion that the effect of an exhaustive definition has been misunderstood by reference to the exercise of reading it ("it is difficult to read") rather than any in-depth legal analysis (pedantic or otherwise).
(6) The claimants suggest there is something more, in the form of the words "AIDS or", and that their inclusion is significant enough to compel a departure from what would otherwise be the ordinary and natural meaning of the provision. I am not persuaded by that argument. In my judgment it involves placing far too much weight upon those two words in a way that is difficult to reconcile with the need to avoid searching for and still less constructing drafting infelicities to justify the departure. The Insurers are correct in my judgment to describe it as a contrived inconsistency.
(7) As Mr Brocklebank KC recognised, the drafting of the exception is not the most felicitous. The "AIDS or" language does appear to be a bit of formulaic "over-drafting" when all that appears to be required for the carve-out from cover against the 33 named diseases is the phrase "or an AIDS-related condition". In my judgment, on the true construction of the ID Extension, those two words are redundant and do not materially or (when read in the context of an outbreak of one or more specified infectious disease within a 25-mile radius) sensibly add to the further words in the exception which follow them. But any presumption against the redundancy of those two indifferent words cannot justify making redundant the key definitional term (the 33 carefully chosen words) and the much greater violence to what would otherwise be the natural and ordinary meaning of the ID Extension which results.
(8) As Mr Brocklebank KC summarised the claimants' argument on this point, the cure is much worse than the disease. I agree with that. The consequence of the argument is that the language of an exception to insurance cover would prevail in determining the scope of that cover in just the same way the Court of Appeal indicated in Tesco Stores should not be permitted. The claimants' interpretation is a clever legal one which (if I am right about the draftsman committing a minor sin through the inclusion of two unnecessary words) probably should be categorised as pedantry. It is not how a reasonable policyholder, assisted by a broker who is familiar with basic insurance principles, would understand the impact of the carve-out. The argument based upon the carve-out was clearly and succinctly and, in my judgment, correctly addressed by the decisions of the FOS case handlers quoted in paragraph 81 above.
(9) Agreeing with their wider conclusion, in my judgment the ordinary and natural meaning of the language of the ID Extension is that it does not extend to cover in respect of Covid-19. There is no justification for the court to make a last desperate reach for the contra proferentem principle to support the opposite conclusion.
Disposal
- I therefore answer the question raised by the Part 8 Claim as follows:
"On the true construction of the Policy, the word "Disease" appearing in the phrase "any human infectious or human contagious Disease (excluding Acquired Immune Deficiency Syndrome [AIDS] or an AIDS-related condition)" in the Infectious Disease extension to the Business Interruption section of the Policy is to be understood as limited to the specific diseases listed in the definition of "Disease" in the business interruption section (which does not include Covid-19)."
- This judgment will be handed down remotely by email to the parties' legal representatives and its uploading to The National Archives. For the purpose of preserving the time for filing any appellant's notice under CPR 52.12 only, the handing down is adjourned. If the claimants do seek permission to appeal then (whether permission is granted or refused by me) I will make a direction in relation to the time for filing any such notice in an order following the determination, at a hearing or on paper, of consequential matters under this judgment. I invite the parties to endeavour to reach agreement on such consequential matters as they are able to agree in advance of that determination.
