Headfort Arms Ltd T/A The Headfort Arms Hotel v Zurich Insurance Plc

• Jurisdiction: Ireland
• Judge: Mr. Justice Denis McDonald
• Judgment Date: 24 September 2021
• Neutral Citation: [2021] IEHC 608
• Docket Number: [2021 No. 1364 P.]
• Year: 2021
• Court: High Court

Between

Headfort Arms Limited T/A The Headfort Arms Hotel

Plaintiff

and

Zurich Insurance Plc

Defendant

[2021] IEHC 608

[2021 No. 1364 P.]

THE HIGH COURT

COMMERCIAL

JUDGMENT of Mr. Justice Denis McDonald delivered on 24th September, 2021

Introduction

1 In these proceedings, the plaintiff (“ HAL”) seeks to be indemnified by the defendant (“ Zurich”) under the business interruption section of a Zurich Commercial Combined Policy in respect of financial losses sustained by it as a consequence of the closure of its hotel premises in the wake of the restrictions imposed by the Government in response to the COVID-19 pandemic. The business interruption section does not expressly cover closure of the premises as a consequence of an outbreak of disease or as a consequence of a Government ordered closured. However, HAL maintains that the terms of the business interruption section of the policy are sufficiently broad to provide cover arising from the closure of its premises following the advice given by the Government on 15th March, 2020 that all public houses and bars should close and as a consequence of the further measures introduced by the Government later in March, 2020 which required the closure of all non-essential shops and businesses.

2 Under the business interruption section of the policy, Zurich agreed to cover HAL “[i]f Damage by any cause not excluded occurs at the Premises to property used by the Insured for the purpose of the Business and causes interruption of or interference with the… Business at the premises…” (bold in original). It is acknowledged by HAL that no physical damage occurred at its premises as a consequence of the COVID-19 pandemic or the Government measures introduced in response to it. However, HAL relies on the definition of “Damage” in the policy (where it is defined as meaning “ loss or destruction of or damage to the Property Insured”) in support of an argument that “ Damage” is not confined to physical damage. HAL submits that “loss” has a broader meaning than the word “ damage” and that, in the absence of any relevant exclusion in the policy, “loss” extends to the loss of use of the premises or to other non-physical damage suffered.

3 In contrast, Zurich argues that, when the operative language of the business interruption section of the policy is construed in the context of the policy as a whole, it is clear that the policy only responds in respect of business interruption which arises as a consequence of some physical damage to the property insured. Zurich also relies on the relevant factual context in which the policy was put in place. Zurich highlights, in this context, that HAL did not seek cover under any of the relevant business interruption extensions offered by Zurich in respect of its Commercial Combined Policy including extensions which specifically provided cover for business interruption caused by notifiable diseases. Zurich also draws attention to the fact that, at the time the policy was put in place, there were a number of rival policies available in the market which included extensions (in a variety of forms) which provided cover for business interruption caused by disease (among other things).

4 These proceedings were commenced on 4th March, 2021. HAL initially sought an interlocutory injunction in mandatory terms against Zurich compelling Zurich to provide an indemnity. The proceedings were admitted into the Commercial List on 15th March, 2021. On that occasion, Barniville J. fixed the hearing of the interlocutory application for 18th and 19th May, 2021. However, subsequently, the parties agreed that, instead of spending time on the hearing of an interlocutory application, the court should instead determine the issue of liability on the basis of the facts disclosed in the affidavits exchanged in preparation for the interlocutory hearing. By order of Barniville J. of 30th April, 2021, it was accordingly directed that the hearing of the interlocutory injunction application on 18th and 19th May should be a full and final hearing of coverage liability issues between the parties under the policy on the basis of the existing affidavit evidence. The parties also agreed (and this is reflected in the order of Barniville J.) that the proceedings would be treated as a test case for the purposes of para. 14 of the COVID-19 and Business Interruption Supervisory Framework issued by the Central Bank on 5th August, 2020 (“ the Central Bank Framework”).

Relevant facts

5 HAL was incorporated on 29th September, 1972. It is a family-owned company incorporated in order to own and manage the long-established and well-known Headfort Arms Hotel in Kells, County Meath. According to the grounding affidavit sworn by Mr. Vincent Duff on behalf of HAL on 3rd March, 2021, the hotel was built in the mid-eighteenth century as a townhouse for the Headfort family who resided there whilst Headfort House was under construction on their nearby country estate. In 2010, the Headfort Arms won the national gold medal award for best three-star hotel in Ireland. It subsequently achieved four-star status. At the time the policy was put in place, the hotel offered 45 bedrooms, a lounge known as the Headfort Lounge, the Café Therese, the Kelltic Bar & Courtyard, the Vanilla Pod Restaurant, the Headfort Spa and the Kenlis Suite Ballroom and Gardens. It is the only hotel in Kells and it offers a social outlet to the local community and also a convenient venue for tourists visiting nearby landmarks such as the Boyne Valley megalithic tombs, Loughcrew Gardens, the ruins of Mellifont Abbey, the Hill of Tara and the site of the Battle of the Boyne. HAL is the largest employer in Kells. At the time of the closure in March, 2020, the hotel employed 139 people.

6 Prior to putting insurance in place with Zurich, HAL had been insured in respect of liability by Aspen Insurance UK Ltd and in respect of material damage by Liberty Mutual. Dolmen Insurance Brokers acted on behalf of HAL in placing insurance with Zurich. The policy (which is described in more detail below) was put in place in respect of the period from 1st October, 2019 to 1st October, 2020. As noted earlier, the policy (reference 01 CCB 4295766) does not contain all of the sections available under the Zurich Commercial Combined Policy document but is confined to five sections, namely “ Material Damage All Risks”, “Business Interruption All Risks”, “Money”, “Glass” and “ Computer All Risks”. There are a number of additional endorsements available from Zurich including endorsements BI073 and BI029 which provide cover in respect of notifiable disease, vermin, defective sanitary arrangements, murder and suicide. These are available at an additional premium. However, HAL did not seek cover under either of these endorsements. The premium paid by HAL was €14,512.07.

7 The first cases of COVID-19 in Ireland occurred in March, 2020. On 13th and 14th March, 2020, the office manager of the hotel became extremely ill. She was subsequently diagnosed with COVID-19 and spent seventeen days in hospital. The outbreak on the premises had an impact on other members of staff who became fearful that they too might be infected.

8 On 15th March, 2020, the Government advised that all public houses and bars should close from the evening of 15th March, 2020 until at least 29th March, 2020. Although Zurich contends that the Government advice of 15th March, 2020 did not extend beyond public house use, HAL maintains that, on foot of this advice, the plaintiff closed its premises on the evening of 15th March. It is, however, acknowledged in the statement of claim that the outbreak on the premises and the reaction of staff were also factors in HAL's decision to close. Subsequently, on 27th March, 2020, the Government imposed a national lockdown. This required the closure of all non-essential shops and businesses. These measures were reinforced by the provisions of the Health Act, 1947 (Section 31A – Temporary Restrictions) (COVID-19) Regulations, 2020 (S.I. No. 121 of 2020) (“ the 2020 Regulations”).

9 Following the closure, HAL did not immediately make a claim to Zurich under the policy. However, on 1st May, 2020, HAL sent an email to Zurich in which it stated that it wished “to give notice that it intends to make a claim for losses due to business disruption as a consequence of covid 19 and the governments (sic) request to close our business on march 15th”. Zurich appointed Thornton's Loss Adjustors to investigate the claims.

10 Curiously, while the claim was still under investigation, HAL's broker emailed Zurich to request that the infectious diseases extension should be applied to the policy. The email stated “ please include Infectious Diseases under the BI Section of the above policy with immediate effect if the extension is not already automatically provided”. Zurich responded by email on the same day stating that “ Infectious Diseases Cover is not covered by this policy and nor is it available as an extension”. It appears that between the emergence of COVID-19 as a pandemic and the date of this email, the infectious disease extensions previously available from Zurich were withdrawn from the market. For the avoidance of doubt, I should make it clear that this post-contract conduct on the part of HAL's brokers cannot be taken into account in so far as the interpretation of the policy is concerned. As evidenced by the Supreme Court decision in Re. Wogans (Drogheda) Ltd. [1993] 1 I.R. 157, it is well established that post-contract conduct is inadmissible as an aid to the interpretation of a contract.

11 Following investigation of the claim by Thorntons, they were instructed to notify HAL's broker on 19th June, 2020 that coverage of the claim was declined. The relevant notification from Thorntons to HAL to that effect stated:-

“…this Business Interruption cover only operates in the event of Damage occurring at...