Corbin & King decision departs from FCA test case rationale on Prevention of Access Clauses

Corbin & King Limited & Ors v AXA Insurance UK PLC [25.02.22]

Date published

11/03/2022

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The English High Court finds in favour of restaurant chain Corbin & King for business interruption losses as a result of access to premises being restricted due to government COVID-19 regulations. The decision distinguishes prevention of access claims from the FCA Test Case and puts insurers on the hook for separate policy limits for each insured and effected premises.

The background

Corbin & King Limited and subsidiaries (Corbin & King) were owners and operators of 12 well-known restaurants, cafes and other establishments in and around London, including The Wolseley and The Delaunay. On 7 February 2020, AXA Insurance issued to Corbin & King a Business Combined Insurance policy for the period 12 November 2019 to 11 November 2020 (the Policy). 

The Policy contained a NDDA clause in the following terms: 

We will cover you for any loss insured by this second resulting from interruption or interference with the business where access to your premises is restricted or hindered for more than the franchise period shown in your schedule 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.

Provided that:

1     The insurance provided by this cover shall only apply for the period starting with the restriction or hindrance and ending after 12 weeks during which time the results of the business are affected

2      Our liability for any one claim will not exceed the limit shown in your schedule.

We will not cover you where access to your premises is restricted or hindered as a result of:

1.     Physical damage to property at your premises or elsewhere

2.    Strikes, picketing labour disturbances or trade disputes

3.    The condition of or the business conducted within your premises, or any other premises owned or occupied by you

4.    Notifiable diseases as detailed in the Murder, suicide or disease cover

5.    Actions where you have been given prior notice.”

Corbin & King claimed under the Policy for business interruption losses arising out of access to premises being restricted or hindered as a result of government regulations to combat COVID-19, which imposed the following ‘restrictions’:

  1. The first lockdown from 20 March 2020 until 4 July 2020 (the 21 and 26 March 2020 and 4 July 2020 Regulations).
  2. Early closing times of 10pm from 24 September 2020 (the 24 September 2020 Regulations).
  3. The second lockdown from 5 November 2020 to 2 December 2020 (the 5 November 2020 Regulations).

AXA Insurance denied cover, which led to proceedings being commenced in the English High Court that were expedited for determination in light of the fact that the issues would affect a range of other businesses.

The issues

The two key issues in the case were:

  1. The coverage issue: whether the NDDA clause provided effective cover for loss resulting from restrictions on access to premises under government regulations passed in response to the COVID-19 pandemic in the course of 2020.
  2. The quantum issue: 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.

If there was coverage, AXA accepted that Corbin & King were entitled to an indemnity of up to £250,000 for each of the three restrictions.

The FCA Test Case

Central to the coverage issue in this case were the determinations of the Divisional Court and Supreme Court in the FCA Test Case.

To recap, the Divisional Court’s approach to POA (Prevention of Access), including NDDA and AOCA (Action of Competent Authority) clauses, was generally to find that such clauses were highly unlikely to provide cover for the consequences of COVID-19. In essence, this was because such wordings (referencing for example, an incident, emergency, danger or disturbance in the vicinity or a one mile radius of insured premises) were construed to provide a narrow, localised form of cover not intended to respond to a countrywide pandemic. By contrast, its approach to disease clauses was generally to find cover, except in relation to two clauses (QBE 2 and QBE 3) where cover was said to be limited to specific and localised events. 

The Divisional Court’s findings that certain POA (including NDDA and AOCA) clauses that did not cover losses arising from the COVID-19 pandemic were not challenged on appeal. The Supreme Court did, however, deal with coverage under the disease clauses finding that cover was intended to be confined to the consequences of specific local cases. 

Questions of causation then became critical and the court went on to apply a broad approach to causation. It was found that each case of COVID-19 was a concurrent cause of the restrictions imposed by the government and that it was sufficient to prove that business interruption was a result of government action taken in response to cases of disease, which included at least one case of COVID-19 within the geographical area covered by the clause. The Supreme Court stated that a similar causal analysis applied to hybrid and POA clauses before it, with indications that such analysis should also apply more generally elsewhere.

This led to questions as to whether the Supreme Court’s reasoning on causation should be applied to POA clauses (including NDDA and AOCA clauses) more generally.

The legal arguments

On coverage, Corbin & King argued that the Divisional Court’s judgment that NDDA clauses do not provide an indemnity could not stand in light of the Supreme Court’s analysis on causation. They argued that the restrictions were in response to a danger, which was constituted by every single actual or threatened case of COVID-19 at each of the premises or within the relevant radius as well as elsewhere in the UK, each of which was a separate and equally effective cause of each restriction. On quantum, they argued that there was a separate limit for each premise in respect of each restriction.

In reliance upon the Divisional Court findings, AXA Insurance argued that the NDDA clause provided only a narrow, localised form of cover that required proof of the presence or risk of COVID-19 at or within a one-mile radius of the premises, as opposed to the country as a whole, which led to each restriction. On quantum, AXA argued that there was a single limit in respect of all premises for any one claim.

The decision

Having determined that the court was not bound by the Divisional Court findings in the FCA Test Case on the basis that the specific wording of the NDDA clause at issue and the arguments advanced were different to those dealt with in the FCA Test Case, Mrs Justice Cockerill held:

  1. The coverage issue: the NDDA clause provided effective cover. The Supreme Court’s broader approach to causation should be adopted. COVID-19 is, therefore, 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 the business interruption loss.
  2. The quantum issue: the policy is to be analysed as a composite (not a joint) policy with each insured company having a separate interest represented by the separate restaurants/café which it owns. Each insured is, therefore, entitled to indemnity in respect of each of its premises up to the limit of £250,000 in respect of each of the three restrictions.

The implications

The court was clear that the Divisional Court in the FCA Test Case had not erred nor was its analysis of the policies at issue undermined by the decision of the Supreme Court (since the Divisional Court’s decision was taken as a matter of construction based upon the particular clauses and arguments put before it). Rather, it considered that the Supreme Court had moved the goalposts on causation and what emerged was a materially different argument on construction, allowing a different finding to be reached in this case. 

Aside from revealing the importance of getting the argument right in the first place, this opens the door to a potential flood of further cases looking to distinguish their position from the FCA Test Case. If that is the case, one might ultimately end up questioning the usefulness of the FCA Test Case as a ‘test case’, at least in relation to POA (including NDDA/AOCA) wordings.

Insurers and reinsurers alike will be aware that this decision will have a potentially significant impact upon claim quantum and ultimate exposures, particularly once the implications of this decision across other wordings have been extrapolated.

It is unknown at this time whether the decision will be appealed. We expect, however, that certain parts of the decision may impact upon other litigation currently running through the courts, including Stonegate v MS Amlin, Various Eateries v Alliance and Greggs v Zurich, which are due to be heard in June/July 2022. The direction taken by the courts will be watched with interest.

Related item: The second wave of COVID-19 litigation