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Corbin & King: Back to Square One on Covid Denial of Access BI Claims?

  • United Kingdom
  • Insurance and reinsurance

01-03-2022

On 25 February 2022, the High Court handed down its much anticipated judgment in the case of Corbin & King v AXA, a high profile Covid-19 business interruption claim brought by a restaurant group including The Wolseley and The Delaunay within its portfolio.  A copy of the judgment can be found here. The Court interpreted the non-damage denial of access (the “NDDA Clause”) in favour of the policyholder, having decided that it was not bound by the Divisional Court Judgment in FCA v Arch & others 2021 [UKSC] 1 (the “Test Case”). This was both because the Supreme Court Judgment in the Test Case made available new arguments having “moved the goalposts” and also since there were found to be material distinctions between the Test Case wordings and those in the instant case. The Judge went on to rule that the Supreme Court’s causation decision on disease clauses was intended to apply equally to denial of access clauses.  On a different point it determined that there were separate limits of cover available in respect of each lockdown for insured premises, rather than a single aggregate limit in respect of all lockdowns for all premises - this was not the main focus of the Judgment and is not covered by this briefing, but will be highly significant for parties to policies referring to multiple insureds and premises. 

The Insuring Clause and the Test Case Judgments

The NDDA Clause provided cover for business interruption losses where access to the insured premises was restricted or hindered arising directly from:

“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…”

However, it was subject to a specific exclusion where the restricted/hindered access was the result of one of a specified list of diseases not including Covid-19.

In the Test Case, the Divisional Court had found there was no cover under similar clauses amongst the sample wordings it was considering.  These included Hiscox NDDA, MSA 1, MSA 2, RSA 2.1, 2.2 and Zurich, copies of which can be found here. Essentially, the Divisional Court found these clauses provided narrow, localised cover not responding to the consequences of a nationwide pandemic.

This finding was not appealed to the Supreme Court, but there was an appeal of the Divisional Court’s findings under so-called “Disease Clauses” covering business interruption losses resulting from the occurrence of notifiable disease within a set radius of the insured premises. 

The Supreme Court Judgment overturned the Divisional Court’s decision that the nationwide outbreak of Covid-19 constituted an occurrence of notifiable disease and that the clauses responded provided that there was a case of Covid within the specified radius.  The Supreme Court said that the recognised legal meaning of the term “occurrence” was such that only individual cases (or limited outbreaks) of Covid could qualify.  Nevertheless, it went on to find cover on causation grounds since the circumstances (including the proper construction of the clause) justified a rare departure from the “but for” causation test.  It said that each case of Covid in the UK was an equal and effective cause of the lockdown restrictions which led to the business interruption, even though no case was on its own necessary or sufficient to bring about that result.  More detail on the Supreme Court Judgment can be found in our previous article here.

The Coverage Issue in Corbin & King

The Submissions

The policyholder argued that the Divisional Court Judgment on denial of access clauses could not survive given the Supreme Court Judgment.  It relied on Lord Mance’s comments questioning this in the published China Taiping arbitration (see here at 65 to 66 in particular).  Thus there was a “danger” under the NDDA Clause if there were cases, or the threat of cases within one mile of the premises.  Such cases were an effective cause of the lockdown restrictions together with other uninsured cases.

The insurers argued that that the NDDA Clause provided narrow, localised cover unresponsive to restrictions resulting from cases forming part of a pandemic.   In this regard the High Court was bound by the Divisional Court Judgment’s conclusions on the MSA and Zurich clauses in particular, which had not been appealed to the Supreme Court.  Furthermore, the Supreme Court’s causation analysis on disease clauses did not apply to denial of access clauses since they were categorically different covers.

The Decision

Justice Cockerill did not consider herself bound by the Divisional Court Judgment for two reasons:

1. despite the fact that there were  “very considerable similarities” between the Test Case wordings and the NDDA Clause, these were not so strong as to prejudge her consideration of the latter; and

2. the Divisional Court had been asked to consider a different argument, namely, whether the NDDA clause could respond to a pandemic.  However, in this case the Court was being asked to consider whether individual cases could trigger the NDDA clause.  The reason for this difference was that it was assumed before the Divisional Court that the “but for” test needed to be satisfied – only following the Supreme Court Judgment did it become clear that this was not necessarily the case.  Thus the Supreme Court Judgment had “moved the goalposts” and the argument which emerged as a result was “materially different”.

The Judge therefore considered the clause from first principles and ruled in favour of the policyholder on the following basis:

  • the “paradigm” examples of a “danger or disturbance” (i.e. bomb scare, gas leak, traffic accident) did not chime with any contractual rules of interpretation, particularly where the NDDA Clause used generic language not limited to localised “dangers”.  Nor had the paradigm examples been pleaded to be part of the factual matrix
  • the word “danger” is “linguistically apt” to cover disease
  • the NDDA Clause contained no locality limitation other than the one-mile radius requirement.  Whilst she acknowledged that the type of authority could suggest locality (e.g. police authority), this wording included “any other statutory body” where the Supreme Court had clarified that the UK Government could be a statutory authority under clauses of this type
  • the NDDA Clause contained a specific disease exclusion by reference to a list of diseases which did not include Covid-19.  Thus a policyholder would fairly assume that diseases that were not on the excluded list were capable of being covered, subject to other conditions of the clause being met.  Cockerill J noted that this point had not been argued before the Supreme Court in the Test Case
  • the Test Case clauses (MSA and Zurich) were not materially identical to the NDDA Clause.  In particular, they did not include the term “any other statutory body” to describe the relevant authorities, but rather terms such as “local”, “police”, “civil” and “military”
  • the Irish case of Brushfield Limited (t/a The Clarence Hotel) v AXA Insurance Designated Activity Company & Anr [2021] IEHC 263, even though it took into account submissions based on the Supreme Court Judgment, did not compel a different result because Cockerill J. did not agree with it for a variety of reasons
  • once it was established that disease could be covered by the NDDA Clause, “there appears to be no reason why” the Supreme Court’s causation analysis on disease clauses could not be applied to it
  • the logic of the Supreme Court Judgment, “particularly in its treatment of the hybrid and Arch prevention of access clauses, effectively undercuts the Divisional Court’s approach and erodes a principled distinction to vanishing point”.  There was an insufficient basis to draw a distinction between disease clauses and denial of access clauses simply because the factual background to the former was that notifiable diseases are capable of rapid and unpredictable spread likely to result in central government action.  Further, the Court concluded that the Supreme Court Judgment indicated that the same causation approach would apply to denial of access clauses even though it had not been necessary for it to make a ruling on them.

Comments

The Judgment was expedited under the Court’s Covid BI list on the basis that the issues in the case would affect “a considerable range of other businesses”.  Indeed, the Claimant’s solicitors claimed to represent a number of other parties with “materially identical NDDA wordings”

Certainly it can be expected that this decision will cause some policyholders to pore over their wordings to find distinctions with the Test Case wordings.  The “moved goalposts” argument may mean that it is not even necessary to search for those distinctions.

However, an appeal seems to be well on the cards, not only because of the high stakes but also as there is uncertainty over whether the Supreme Court meant for its logic on disease clauses to be extended to denial of access clauses.  In some ways one can be forgiven for thinking that we are back to square one insofar as these wordings are concerned.