Member Article

On 25 February 2022, the High Court handed down its judgment in Corbin and King Ltd v AXA Insurance UK Plc [2022] EWHC 409 (Comm), giving further guidance on business interruption (BI) claims resulting from COVID-19 restrictions. However, permission has now been granted to appeal. 

The policyholder friendly judgment gives guidance on aggregation and the application of the Supreme Court’s causation reasoning to non-damage denial of access (NDDA) clauses. The Honourable Mrs Justice Cockerill DBE held that Corbin & King Ltd and its subsidiaries (the “Claimants”), were successful in their claim against AXA Insurance (the “Defendant”) and could recover approximately £4.4 million under their policy.

Mrs Justice Cockerill has now granted permission for the judgment to be appealed. The outcome of the appeal will likely prove significant for insurers and policyholders alike.

For those who missed it, here is a short summary of the recent Corbin and King case together with a reminder of the related NDDA rulings in the FCA test case and the China Taiping arbitration².

Background

Several NDDA clauses were considered in the FCA test case first heard before a Divisional Court and the Divisional Court ultimately determined that many of those NDDA clauses provided a narrow and localised form of cover that would not respond to the disruption caused by the COVID-19 pandemic. The FCA did not appeal the Divisional Court’s decision on those particular clauses.

While the Supreme Court was not, therefore, asked to consider many of the NDDA clauses, its interpretation of the disease and other clauses differed to that of the Divisional Court, finding there was cover under those clauses because of its approach to causation. The Supreme Court held that the usual ‘but for’ test for causation did not apply and that instead every occurrence of COVID-19 could be considered an equal and effective cause of the of the government’s regulations³.

This opened up an opportunity for policyholders to argue that such reasoning should be applied to other NDDA clauses (not considered in the FCA test case) rather than applying the Divisional Court’s approach.

Lord Mance considered this issue in the China Taiping arbitration. His ruling on other matters in that arbitration meant that he did not need to come to a firm view on this point, however he noted that while the Divisional Court decision should be considered highly persuasive (and perhaps binding) on him, he doubted that the Divisional Court would have come to the same conclusion had it had the benefit of the Supreme Court’s decision.

The facts

The Claimants sought coverage for BI losses flowing from the multiple closures and restrictions imposed by the government, which impacted eight restaurants under a NDDA clause.

The NDDA clause covered BI losses where:

“access to your premises is restricted or hindered ... arising directly from:

1. the actions taken by the police or any other statutory body in response to a danger or disturbance at your premises or within a 1 mile radius of your premises.
2. the unlawful occupation of your premises by third parties…”

The Court outlined two key issues in the case:

1. “Whether the NDDA clause provided effective cover for loss resulting from restrictions on access to the Claimants’ premises under government regulations passed in response to the COVID-19 pandemic in the course of 2020.
2. Whether, if the NDDA clause did provide cover, there was a single limit of £250,000 in respect of all premises for any one claim, or whether there was a limit of £250,000 for each set of premises.” [3]

The Claimants drew upon the Supreme Court’s reasoning in the FCA test case (applied to Disease clauses) that every occurrence of COVID-19 could be considered an equal and effective cause of the of the government’s regulations which restricted or hindered access to the premises.

The Defendant refused coverage and argued that the clause only provided a ‘narrow and localised’ form of cover, relying on the approach taken by the Divisional Court on other similar NDDA clauses in the FCA test case and the traditional ‘but for’ test for causation⁴.

The decision

Mrs Justice Cockerill did not consider herself bound by the Divisional Court’s ruling on NDDA clauses as she was able to distinguish the policy wording before her.

She also considered the persuasive decision of Lord Mance in the China Taiping arbitration, in which Lord Mance commented that he thought the Divisional Court would be unlikely to come to the same conclusion regarding NDDAs in light of the Supreme Court’s approach to causation in the FCA test case.

On the first issue, Mrs Justice Cockerill found in favour of the Claimants and concluded that:

“…COVID-19 is capable of being a danger within one mile of the insured premises, which, coupled with other uninsured but not excluded dangers outside, led to the regulations which caused the closure of the businesses and caused the business interruption loss.” [220]

Mrs Justice Cockerill reasoned that the Supreme Court’s approach to causation in the FCA test case had “moved the goalposts and the argument which has emerged is materially different”.

On the second issue of aggregation, the Claimants argued that there was a limit of £250,000 for each premises, while AXA maintained that a single limit of £250,000 applied to all of the premises. The Court found that the policy was a composite policy, and that each policyholder had their own claim.

Mrs Justice Cockerill outlined two key points that supported the Claimants’ argument that there were separate incidents for each premises:

“i) The Policy refers to cover in respect of “interruption and interference with the business where access to your Premises is restricted …”;

ii) The premises were in different locations and could well be differently affected by a danger triggering cover” [239]

She reasoned that the word ‘premises’ pointed to each individual venue which had their own interests and should be seen as separate incidents regardless of the common danger. As a result, separate limits applied and AXA was liable to pay £250,000 to each individual policyholder per closure, amounting to approximately £4.4 million.

Commentary

The decision was welcome news for policyholders pursuing BI claims under NDDA clauses and the decision on aggregation may also prove helpful to insureds who have multiple premises. Although, with the impending appeal, care needs to be taken before placing too much reliance on the decision. Insurers will no doubt wish to keep a close eye on the outcome of appeal. Indeed, having appellate authority on the approach to be taken to NDDA clauses should provide helpful clarity for both insurers and policyholders.

¹ Financial Conduct Authority v Arch Insurance (UK) Ltd and Others [2020] EWHC 2448.
² Business Interruption Insurance Update: Certain Policyholders v China Taiping Insurance (UK) Co Ltd (shoosmiths.co.uk)
³ Business interruption insurance cover: Supreme Court FCA test case decision (shoosmiths.co.uk)
⁴ Financial Conduct Authority v Arch Insurance (UK) Ltd and Others [2020] EWHC 2448 (Comm) and Financial Conduct Authority v Arch Insurance (UK) Ltd and Others [2021] UKSC 1