Policyholders who suffered business interruption losses as a result of the COVID-19 pandemic should look again at their business insurance policies. The Commercial Court, in Corbin & King Ltd & Ors v AXA Insurance UK Plc (Rev1)  EWHC 409 (Comm) (25 February 2022) (bailii.org), found that a Non-Damage Denial of Access (NDDA) clause was capable of providing cover for business interruption losses suffered by the policyholder as a result of the restrictions to access caused by the pandemic.
Background to this case
In FCA v Arch Insurance (UK) Ltd and others (2020), the FCA Test Case brought on behalf of small and medium sized businesses (SMEs) who had suffered financial losses arising from business interruption caused by the pandemic, the Divisional Court found that in general NDDA clauses did not provide cover for such losses, which we explored in our earlier article. The wording of the clauses typically included "emergency in the vicinity", "danger or disturbance in the vicinity", "injury in the vicinity" and "incident within 1 mile/the vicinity". As a result the clauses were held to provide a narrow localised form of cover in respect of a local event, not cover for a national (or international) pandemic.
The decision on the NDDA clauses was not appealed to the Supreme Court, although a number of other findings were. These included the finding of the Divisional Court in relation to the 'disease clauses' (clauses which provided cover for business interruption losses arising from disease within the geographical limit). While considering causation in relation to those clauses (among others) the Supreme Court held that each case of COVID-19 was an equal and effective cause of the restrictions imposed by the government. The but-for test was not determinative in ascertaining whether the test for causation had been satisfied and it would be sufficient to establish a localised occurrence of the disease in combination with the wider pandemic, even if that localised occurrence would not have been sufficient on its own.
In Corbin & King Ltd and Others v AXA Insurance UK PLC the insureds were the owners and operators of a number of well-known restaurants, cafes and other establishments in London. They suffered losses because of the COVID-19 pandemic and the government regulations preventing access to their premises as a result. They sought to claim under the Combined Business Insurance Policy (the Policy) issued to them by the defendants, AXA.
The NDDA - prevention of access clause – in the Policy provided cover for business interruption (BI) losses as follows:
"We will cover you for any loss insured by this section 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:
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.
We will not cover you where access to your premises is restricted or hindered as a result of
notifiable diseases as detailed in the Murder, suicide or disease cover
actions where you have been given prior notice."
The Claimants contended that they were entitled to cover for all their BI losses under the NDDA clause as long as they could demonstrate:
- that there were cases or the threat of cases of COVID-19 at or within a one-mile radius of each of the Claimants' premises, which constituted a danger; and
- such cases or threatened cases, combined with actual or threatened cases, elsewhere in the UK, were an effective cause of the passing of the Regulations which led to restriction of access to each of the Claimants' premises.
AXA, on the other hand, argued that the NDDA clause only provided a narrow, localised form of cover in respect of a "danger or disturbance" specific to the locality of the Claimants' premises, occurring at the Claimants' premises or within a one-mile radius as opposed to a nationwide state of affairs – in line with the Divisional Court decision in the FCA Test Case. As a result the Claimants were only entitled to an indemnity under the NDDA clause if they could demonstrate that it was the presence or the risk of COVID-19 at the Claimants' premises, or within a one-mile radius, as opposed to the country as a whole, which led to the Regulations.
It was a key part of the Claimants' argument that the Divisional Court's judgment in FCA v Arch, that NDDA clauses (such as the one they were claiming under in the present case) do not provide an indemnity, could not stand in light of the Supreme Court's analysis of causation in FCA v Arch. In line with the Supreme Court decision each actual or threatened case of COVID-19 was of equal potency and a separate and effective cause.
The questions for the Court
The Court was asked to decide two key questions:
- 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 (the Coverage Issue); and
- Whether, if the NDDA clause did provide effective cover, there was a single limit of £250,000 in respect of all premises for each restriction/closure, or whether there was a limit of £250,000 for each set of premises in respect of each restriction/closure (the Quantum Issue).
The coverage issue
The Court held that the NDDA clause in the Policy did provide cover to the Claimants in relation to the BI losses they had suffered as a result of the restrictions imposed by the government in 2020 to deal with the COVID-19 pandemic.
The Judge found that the AXA wording was sufficiently different to the policy wordings considered during the FCA Test Case. The arguments raised in relation to the AXA wording had not been heard by the Divisional Court, so the Commercial Court was not bound by the Divisional Court's decision in relation to the interpretation of the AXA NDDA clause.
The Court accepted the Insureds' position that danger can cover disease and even though there was an exclusion for restriction of access due to disease in the Policy this was only applicable in relation to those diseases specifically identified in the Policy. The natural reading of the Policy must be that diseases not on the excluded list can be covered. Danger can cover disease and COVID-19 was not an excluded disease.
The Court agreed that there must be a "danger" within a one mile radius of the insured premises but there was no requirement in the Policy that the "danger" should exclusively be present within that one mile radius. It would be wrong to say that the "incident" or "danger" can only be local – which was consistent with the conclusion the Supreme Court had reached in respect of "disease" clauses in the FCA Test Case. In finding that each case of COVID-19 was an equal and effective cause of the restrictions imposed by the government the decision of the Supreme Court had, in the words of the Judge, "moved the goalposts".
The quantum issue
The Court found that the Policy was a composite one. As such AXA were bound to indemnify each of the Claimants in respect of each of their premises up to the Policy limit of £250,000 for each government restriction or lockdown.
The Judge accepted the insureds' argument that each restaurant was a separate business carried on in different premises and each restriction interfered with a different business operated by a different insured. The judge found that the Policy referred to cover in respect of "interruption and interference with the business where access to your Premises is restricted." The premises insured were in different locations and each one could therefore be affected differently by a "danger" triggering cover.
Separate limits therefore applied in respect of each separate business.
This decision will be welcomed by policyholders who may have thought they had been left with no way to claim BI losses suffered as a result of the regulations imposed by the Government because of COVID-19. The decision is aligned with the Supreme Court's analysis of causation in the Test Case brought by the FCA in 2020. However, while the Supreme Court considered these issues in the context of disease clauses, the door appeared previously to have been closed to policyholders bringing claims under prevention of access clauses (NDDA clauses) – which were never appealed to the Supreme Court.
This door now appears to be ajar; particularly as AXA has confirmed that it will not be appealing the decision. Policyholders affected by the pandemic should dust off their business insurance policies again to carefully consider how the latest judgment applies to them. It may be that policyholders who have been unable to recover BI losses so far should look again at their policies to see if their NDDA clauses could in fact provide cover.