Blacklisted address colliding with /etc/hosts?

Hello, I'm hoping someone can help me - I'm using NextDNS on my work laptop and most of the time it's great. I've been seeing some weird behaviour however and I think it's related to how my work laptop is setup.

I'm based in Iceland, and so might check out some local news, for example https://www.mbl.is/frettir/. I've attempted to block the ad domains that are in use, by adding *.pulsmedia.is to my denylist, but when I open the front page, Firfox is reporting security issues accessing the hosting domains that should be blocked. The error in the Firefox page reports that they're resolving to a local address that is set in my /etc/hosts for when I'm coding, for example having a loopback address like this:

127.0.0.1 app.local.domain.io

These local addresses have a certificate associated with them, to provide local https based development, but Firefox is reporting (when NextDNS is running) that the supposedly blocked domain is routing to the local address, and giving an SSL_ERROR_BAD_CERT_DOMAIN error.

I've attached a picture showing how the mbl.is site looks with the supposedly blocked domain showing security issue warnings, and the full page in Firefox.