Prevention of Access clauses revisited

In Corbin & King v AXA Insurance Plc [2022] EWHC 409 (Comm), the High Court considered the scope of insurance cover provided by a ‘prevention of access’ extension for Covid-19 business interruption losses. While the Divisional Court in the FCA Test Case concerning Covid-19 business interruption insurance had generally found that Prevention of Access clauses did not provide cover in these circumstances, the Court in this case was able to distinguish the clauses considered previously so that the wording in this case could be looked at afresh.

The Court found that Covid-19 was a “danger” and that the prevention of access clause in the case provided localised cover but one which was capable of extending to a disease such as Covid-19 if there were cases within the radius. Adopting the Supreme Court’s approach to causation in the FCA Test Case, the prevention of access clause did provide cover for the business interruption losses suffered as a result of the pandemic.

Background

The case concerned the scope of cover provided by a prevention of access extension in a combined business insurance policy issued by the Defendant insurer. The Claimant insureds were owners and operators of a number of restaurants and cafes in and around London who had suffered business interruption losses as a result of the Covid-19 pandemic and the various UK Government restrictions. Each insured company owned a separate restaurant or café (save for one company who owned three café/restaurants). Coverage and quantum were in dispute.

Prevention of Access clauses were one of the categories of non-damage business interruption extensions considered in the Covid-19 business interruption insurance test case of FCA v Arch and Others [2021] UKSC 1 (the FCA Test Case). Full analysis of both the Divisional Court and the Supreme Court judgments can be found on our Insurance Blog but extracted here are some key points that are critical to the context in understanding the Corbin & King x AXA decision. The Divisional Court in the FCA Test Case generally found that Prevention of Access clauses did not provide cover for business interruption losses arising as a result of the restrictions imposed by the UK Government in response to the Covid-19 pandemic. This was on the basis that the wording in certain clauses, such as “emergency in the vicinity” or “danger or disturbance in the vicinity”, connoted something specific which happens at a particular time and in the local area and were, therefore, intended to provide narrow localised cover. This aspect of the Divisional Court’s decision was not challenged on appeal. The Divisional Court also found that the question of causation followed its construction of the wordings and so it did not need to decide many of the arguments raised by the parties on causation. In contrast, the question of causation received significant attention from the Supreme Court in the FCA Test Case and the Supreme Court ultimately held that the “but for” test was not determinative in ascertaining whether the test for causation has been satisfied. The Supreme Court found that certain clauses under consideration could respond to cover losses resulting from the localised occurrence of the disease in combination with the wider pandemic, even if the localised occurrence of the disease would not have been sufficient on its own to cause an insured’s losses.

The prevention of access clause here provided cover for business interruption losses where access to premises was restricted or hindered by:

“the actions taken by 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”  (the POA Clause)

The POA Clause also contained an exclusion where access to premises was restricted or hindered as a result of “notifiable diseases as detailed in the Murder, suicide or disease cover” (the Notifiable Disease exclusion).

The insured argued that Covid-19 was a “danger” to life and health and that the Divisional Court’s findings on similar Prevention of Access clauses in the FCA Test Case cannot stand in light of the Supreme Court’s analysis on causation in that case.  The insured’s case was that the POA Clause provides cover if there were cases (or the threat of cases) of Covid-19 at or within a one-mile radius of the premises and such cases, combined with others elsewhere in the UK, were an effective cause of the UK Government regulations which led to restriction of access. The insured relied on the reasoning of Lord Mance in his award in the China Taiping arbitration (discussed further below).

The insurer, on the other hand, sought to rely on the Divisional Court’s findings on coverage on the Prevention of Access clauses in the FCA Test Case and argued that the POA Clause only provided narrow, localised cover for transient dangerous incidents. It also relied on a recent decision of the Irish High Court in Brushfield Ltd (t/a The Clarence Hotel) v AXA Insurance Designated Activity Company & Another [2021] IEHC 263 in which an identical clause to the POA Clause was found not to provide cover in a judgment that post-dated the Supreme Court’s judgment in the FCA Test Case.

Decision

In her judgment, Mrs Justice Cockerill considered a number of issues which are set out below.

Was Cockerill J bound by the decision of the Divisional Court in the FCA Test Case?

Cockerill J found that she was bound by the Divisional Court decision but only so far as: (a) the point was argued and decided in the Divisional Court; and (b) the Divisional Court’s analysis is not undermined by the Supreme Court decision. This was consistent with the analysis of Lord Mance in China Taiping.

The judge started by asking whether the clauses which the Divisional Court had considered, and the arguments addressed to it, were so similar to the POA Clause and arguments before her in this case, that it would be illogical to come to a different conclusion. Having considered the clauses carefully, the judge distinguished the POA Clause from those considered in the FCA Test Case and found them to have sufficient differences to permit the POA Clause to be looked at on first principles. Cockerill J noted that there were key textual differences between the POA Clause and the clauses in FCA Test Case, in particular, the lack of the word “incident” in the POA Clause, different authority wording (here “police or other statutory body” as compared with, for example, “police or other competent local, civil or military authority”), there was no requirement in the POA Clause for the “danger or disturbance” to be “in the vicinity of the premises” and, importantly, as we shall see, there was the Notifiable Disease exclusion in the POA Clause.

The judge then went on consider whether the arguments addressed by the Divisional Court were the same as those now being argued. Cockerill J found the arguments in relation to the POA Clause were framed differently to those before the Divisional Court.  As Cockerill J put it:

“the decision of the Supreme Court has moved the goalposts and the argument which has emerged is materially different“

The Divisional Court had assumed “but for” causation was applicable because it was assumed that the UK Government response could only be viewed as having been caused by the pandemic and not by individual cases.  The essence of the FCA’s argument in the Divisional Court was that Prevention of Access clauses were engaged on the basis that Covid-19 was everywhere, and thus it was also local and in the vicinity or radius.  It was not argued, as it was in this case, that the Prevention of Access clauses provided narrow localised cover which could extend to a single case of Covid-19 in the vicinity.  Cockerill J noted:

“The Supreme Court’s approach to causation in relation to disease opened up the field for a different iteration of the construction argument.”

She therefore concluded that she was not bound by the Divisional Court’s conclusions on construction although recognised that the analysis of the Divisional Court in relation to similar clauses will have considerable relevance.

Construction of the POA Clause

Cockerill J found that the POA Clause did provide cover for the business interruption losses suffered by the insured as a result of the Covid-19 pandemic.  In doing so, she emphasised how important it was, in this kind of policy, to construe the words from the perspective of a reasonable person and approach the policy as if you are “a small business albeit with a broker to assist“. She also rejected any suggestion that it was permissible to construe the clause by reference to paradigm examples of local risks (such as a bomb scare) or the historical derivation of clauses. She relied on several points in coming to this conclusion on construction.

First, she found that “danger” can cover disease.  If “danger” can cover disease, it becomes if not the insured peril (as it is under the disease clause) but a potential component of an insured peril.

Second, there is nothing in the wording to suggest that the “danger” needs to be local or that the clause was concerned only with something of very local significance. There was no locality limitation other than the radius.  It was also hopeless to argue that the danger had to exist solely within the radius, and that a risk would be excluded if it straddled the radius. Nor was any relevant authority identified as local (as was the case in some of the Prevention of Access clauses considered in the FCA Test Case). The judge noted that “any statutory body” in the POA Clause – i.e. whose actions here had to give rise to the issue with access to the premises – was manifestly wide enough to encompass the UK Government.

Third, the judge said there was no basis for the insurer’s submission that a “danger” in this context is transient. She noted that the policy had an indemnity period of up to 12 weeks which contemplated that some “dangers” covered by the clause could have effects which lasted more than 12 weeks.

Finally, the judge found the Notifiable Disease exclusion significant.  Such an exclusion was not considered in the FCA Test Case. The Notifiable Disease exclusion excludes cover for prevention of access where access was restricted due to notifiable diseases covered by the “Murder, suicide or disease cover” (MSDE Clause). The judge said the natural reading of this exclusion was that if some diseases are excluded, logically not all are. There was no reason why the MSDE Clause and the POA Clause should be mutually exclusive which was the same conclusion reached by Lord Mance in China Taiping.

The judge then considered whether there were any other factors which would suggest a different conclusion on construction.  The insurer had suggested two matters:

The findings of the Divisional Court in the FCA Test Case on two particular clauses – MS Amlin and Zurich – which it argued were materially identical to the POA Clause and were found not to provide cover.

The judge disagreed with the insurer on this point and differentiated both the MS Amlin and the Zurich clause. Although she tended to agree with Lord Mance that the distinction of “vicinity” is not enough were all else equal, she held that all else was not equal: importantly the MS Amlin and Zurich clauses did not have the Notifiable Disease exclusion and there were other “textual differences” which created a different picture, namely how the “authority” was referred to.

The decision of the Irish High Court in Brushfield v AXA which post-dates the Supreme Court judgment in the FCA Test Case and concerned exactly the same clause (with the same insurer Defendant) and in which the Irish High Court found that the reference to “danger or disturbance” was not intended to extend to a pandemic which has nationwide effects.

The judge noted that the argument before her in this case was not entirely the same as that in Brushfield as the insurer in that case had argued that Covid-19 was covered by the MSDE Clause and so was an excluded peril. She disagreed with the decision in Brushfield and felt the judge in that case had not considered the wording sufficiently.

The judge concluded that the POA Clause provided localised cover but one which was capable of extending to disease. This meant that the clause was capable of being triggered – as to the requirement for a danger at the premises or within the radius – by one or more cases of disease in the radius, subject to the issue of causation.

Causation

The judge found that the Supreme Court’s approach to causation in the FCA Test Case should be adopted in this case and that, therefore, Covid-19 was 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. Therefore, “but for” causation was not applied.

Quantum

Finally, the judge turned to quantum and how the sub-limit applicable to the POA Clause was to be applied.  Among the ‘Cover limits’ listed in the business interruption section of the policy was Prevention of Access. The “sum insured/limits” were stated to be:

“100% of the sum insured or £250,000 whichever is less”

The issue in dispute was whether there was a single limit of £250,000 applicable to all premises insured under the policy or a £250,000 limit applicable to each premises? It is worth noting that the Court was not being asked to consider any aggregation wording in this context.

The insured relied on the composite nature of the policy to argue that the limit of £250,000 applied to each premises. They said 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 insured also noted that the policy used the term “floater” in the context of business interruption loss caused by physical damage. This suggestion of a floating limit for all premises that had incurred such losses was not used in respect of the Prevention of Access cover.

The insurer argued that one limit of £250,000 applied across all premises insured. One argument they relied on to support this position was that the limit was expressed to be “100% of the sum insured or £250,000 whichever is less” which they argued supported a single limit because it would be inconsistent for the total sum to be a floating sum applicable to all premises in the aggregate and the £250,000 to be applicable to each premises.

The insured was successful on this point. The judge found that this was a composite policy and noted that the policy refers to cover in respect of “interruption and interference with the business where access to your Premises is restricted.” (emphasis added). She noted that the premises insured were in different locations and could well be affected differently by a danger triggering cover.

The overall effect, therefore, was to open up separate limits for each premises.

Comment

In a careful analysis of the existing precedents on Covid-19 business interruption claims, Cockerill J concluded that she was not bound to follow the decision of the Divisional Court in the FCA Test Case on the construction of the POA Clause here on the basis that the wording of the POA Clause was “texturally different” and the arguments put to her by the parties differed from those put by the parties in the FCA Test Case, because of the Supreme Court’s decision on causation. As such she could construe the AXA wording from first principles and in doing so concluded that the POA Clause provided localised cover, but, importantly, cover that was capable of extending to disease.

The decision is clearly a helpful one for policyholders, and the judgment provides some clear guidance as to how the construction of Prevention of Access clauses ought to be approached, namely from the position of a small businessperson with the assistance of their broker. Following the Supreme Court decision on causation, the key question for policyholders with Prevention of Access and hybrid wordings will be whether such clauses can properly be said to respond to a case of disease within the relevant radius, rather than whether it can be said to respond to the pandemic more generally.

Whilst the decision on quantum was clearly helpful for the insured, the real test on quantum will come when aggregation wording is tested in this context.

The overall effect of this case, and in particular the findings that coverage applies for disease (if there are cases in the radius) and the application of the Supreme Court’s approach to causation, is that policyholders with unresolved potential claims arising from the Covid-19 pandemic may now consider looking again at coverage under Prevention of Access clauses, particularly those which have differences from those considered by the Divisional Court in the FCA Test Case.