On 25 February 2022 the High Court delivered its judgment in the multi-million-pound claim pursued by the restaurant group Corbin & King against its Insurer AXA, for COVID-19 business interruption losses.
Proceedings were commenced by Corbin & King in April 2021. The trial of the claim was expedited by the High Court due to its importance and significant general application to many other policyholders who have similar Denial of Access clauses.
Importantly, whilst each claim will turn on its own facts, the High Court's judgment (delivered by Mrs Justice Cockerill) confirms that policyholders who have "denial of access" wordings within their policy can, in principle, recover COVID-19 business interruption losses from their insurer. This is a significant development for those policyholders, who are yet to be provided with an indemnity.
In September 2020 and in January 2021 the Divisional and Supreme Courts handed down their judgments in the FCA Test Case which found in favour of many policyholders.
Whilst the judgments resolved what the policy response would be for certain wordings, it did not address the position in respect of all business interruption policy wordings. As a result, some insurers have continued to deny cover, either entirely or in part, for wordings not specifically addressed by the Divisional or Supreme Court. That conduct has given rise to a second wave of litigation by policyholders.
The insurance policy issued to Corbin & King contained a non-damage Denial of Access extension clause. The clause provided insurance for losses resulting from interruption or interference with the business where Corbin & King's access to its premises was restricted or hindered by actions taken by the "police or any other statutory body", in response to a danger or disturbance at the premises or within a 1 mile radius.
Corbin & King – as we know, rightly - sought cover under the Denial of Access extension for its COVID-19 losses. In summary, Corbin & King's position under the policy was that:
Access to its premises had been restricted and/or hindered by the government's restrictions and Regulations;
The restriction of access to each of the premises arose directly from actions taken by "any other statutory body" as required by the Denial of Access clause, since the restrictions were imposed by Regulations laid before parliament; and
The restrictions set out in the Regulations were imposed in response to a danger at each of the premises, or within a 1 mile radius of each of them. More specifically, (a) the Regulations were passed in response to the danger to life and health posed by COVID-19; and (b) at all material times from at least early March 2020 there were actual or threatened cases of COVID-19 at the premises or within a 1 mile radius of each of the premises.
AXA disputed Corbin & King's interpretation of the Denial of Access clause. It submitted in its defence that the clause provided only a narrow, localised, form of cover - intended to provide cover for measures taken in response to a danger or disturbance exclusive to the premises or the relevant radius. Therefore, AXA's stance was that the clause did not extend to cover losses which flowed from measures taken by the government to address a national pandemic.
The High Court's judgment is a resounding victory for Corbin & King – and it will have widespread, positive implications for other policyholders who have similar wordings.
In regard to the construction and interpretation of the Denial of Access clause, Mrs Justice Cockerill found in favour of Corbin & King for the following (summary) reasons:
- Based on the wording of the Denial of Access clause, it would be wrong to say that the danger could only be local. For cover to exist, whilst there would need to be a local manifestation inherent in the 1 mile radius, the danger did not need to be an exclusively local risk or something of very local significance;
- As emphasised by the Supreme Court in the FCA Test case, the policy's contractual provisions should be interpreted by reference to how the words would be understood by a reasonable person - which in the case of an insurance product sold principally to SMEs, would be an ordinary policyholder who would have read the policy conscientiously to understand what cover they were getting (who would not have carried out the minute textual analysis of a "pedantic" lawyer). Accordingly, the interpretation of the policy should be approached from the position of a small businessman, albeit with a broker to assist. Against that background (a) the word "danger" could be said to cover disease; and (b) the policy could not be interpreted as containing any locality limitation other than the 1 mile radius. Notably, Mrs Justice Cockerill observed here that the Denial of Access clause did not pair the word "danger" with 'local' – and the term "relevant authority" was not defined as meaning a local authority either (although the inclusion of "any other statutory body" within the clause was, in any event, manifestly wide enough to encompass central government restrictions);
- There was no valid basis for AXA's submission that the danger covered by the Denial of Access clause had to be "transient" (an argument constructed by AXA on the grounds that the policy's cover did not come into force until the danger had existed for 2 hours and thereafter, the indemnity period was limited to 12 weeks). To the contrary, Mrs Justice Cockerill noted that the 12 week limit in fact envisaged that some dangers could have effects which would last more than 12 weeks; and
- Whilst the Denial of Access clause excluded cover where the claim was a result of a notifiable disease listed in a separate 'murder, suicide or disease' clause within Corbin & King's policy, that did not mean that cover for disease had been carved out from the Denial of Access clause altogether. When considering the effect of this exclusion from the view of the reasonable reader – which was an SME owner advised by their broker - the natural reading would be that diseases not listed in the 'murder, suicide or disease' clause could be covered under the Denial of Access provision, subject to the policy's conditions. As a result, cover for COVID-19 could not be excluded by AXA on that ground either.
In summary, Mrs Justice Cockerill did not consider that AXA's approach to the construction of the Denial of Access clause reflected the conventional approach. Instead, she determined that Corbin & King's approach to construction (which viewed COVID-19 as a danger, with manifestations within the 1 mile radius) reflected an analysis which was "…more coherent with a straightforward reading of the clause as the hypothetical SME user would do".
Similarly, Mrs Justice Cockerill also found against AXA's arguments on causation. The judgment confirms that the Supreme Court's approach to causation in the FCA Test Case should be adopted, meaning, as Mrs Justice Cockerill 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 businesses and caused the business interruption loss".
The Divisional Court's judgment
For completeness, Mrs Justice Cockerill also addressed at length within her judgment whether the High Court was bound by certain parts of the Divisional Court's judgment in the FCA Test Case, upon which AXA sought to rely. In short, whilst there were considerable similarities between the clauses considered by the Divisional Court and Corbin & King's clause, she concluded that those similarities were not so strong that the Divisional Court's judgment was binding.
Further, whilst the Divisional Court had accepted that radius and vicinity clauses offered a "narrow, localised" form of cover, Mrs Justice Cockerill clarified that the Divisional Court's finding was made following consideration of a materially different issue. The Divisional Court has been asked by the FCA to consider whether clauses were engaged on the basis that COVID-19 was 'everywhere', meaning that because it was everywhere it was also local. In comparison, Corbin & King's case was based on a materially different argument, which focused upon the disease in individual cases. It argued that it was entitled to an indemnity under the Denial of Access clause, so long as it could demonstrate that there was a single case of COVID-19 at the premises, or within a 1 mile radius, which led to the Regulations, irrespective of the (inter)national nature of the pandemic. Mrs Justice Cockerill concluded that Corbin & King was entitled to an indemnity on that basis, and therefore the cover was not limited to localised risks only.
This is an important clarification for policyholders with outstanding claims. We are aware from other matters on which we are acting of certain insurers who are seeking to rely upon the Divisional Court's remarks on localised risks to deny valid "Denial of Access" claims. In light of Mrs Justice Cockerill clarification on the issue, such reliance is now untenable.
In addition to the interpretation of the Denial of Access clause, the claim also featured a dispute between the parties on quantum and whether multiple policy limits applied. The outcome depended upon whether the cover provided by AXA reflected a composite policy, which provided for separate interests and limits - or joint insurance which provided only one combined, collective, limit.
AXA had accepted that, subject to cover, Corbin & King would be entitled to an indemnity of up to £250,000 in respect of each of the three government Restrictions relevant to the claim (i.e. a total of £750,000) The parties did not however agree on how the limit of £250,000 should be applied. The issue therefore was whether a single limit of £250,000 applied in respect of all premises for any one claim (as AXA submitted), or whether a limit of £250,000 applied to each of the premises (as Corbin & King contended). Given that there were three instances where access was restricted, this meant that the High Court was effectively asked to determine whether Corbin & King was entitled under the policy to up to £750,000 for each of their premises, or £750,000 in total.
Determining the issue, Mrs Justice Cockerill found in favour of Corbin & King again, on the basis that:
- The policy in this instance was a composite policy. Whilst it was made up of a single policy document, it insured the interests of a number of companies within the Corbin & King group, reflecting the fact that the policy provided cover for different restaurants/cafés. Each insured company therefore had a separate interest, represented by the restaurant(s) or café which it owned;
- It was not the expectation in the context of a composite policy that a single limit would apply to all of the premises and all of the claims; and
- That analysis is supported unequivocally by the construction of the policy, which refers to cover for "interruption and interference with the business where access to your Premises is restricted…". Each of the restaurants/cafés were in different locations and could be affected differently by a danger which triggered the policy's cover. In addition, the word "premises" pointed to each restaurant/café, supporting the analysis that each of the insured companies under the policy had separate interests and in turn, separate limits.
The decision therefore means that each of the Corbin & King entities which has a valid claim under the policy is entitled to up to £750,000, for each of their premises - which is significantly more than the amount AXA had accepted.
Applicable limits and aggregation issues will also be addressed in a number of cases listed to be heard by the Commercial Court during June and July 2022, including for our client, Various Eateries Trading Limited.
The High Court's judgment in this case is another welcome decision and significant step forward for policyholders.
Insurers who have historically denied or sought to reduce valid "Denial of Access" claims, should now make payments to their policyholders without further delay.
If you have any questions relating to this briefing, please contact Sonia Campbell or Chloe Derrick.