Proof of Assignment to lovely Prevention of Access delights

HSF delivered an outstanding update on the prevention of access clauses last Tuesday (15 March 2022) in a format slightly different from their annual report of cases. And my turn to have a go on this proof of assignment!

The FCA Test Case had a selection of wordings which were in the judgement more or less set out in a manichean classification. There was scope for disagreement in some of the conclusions and that is what the court marvellously achieved in the Corbin & King v AXA Insurance Plc [2022] EWHC 409 case.

This decision is also going the opposite direction from that taken by the Irish High Court in Brushfield Ltd (trading as The Clarence Hotel) v AXA Insurance Designated Activity Company & Another [2021] IEHC 263 !

 Policyholders can expect new Prevention of Access [POA] tests as a detailed analysis of the hybrid clauses and the overall context can change everything.

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 Business Interruption Test Case, the prevention of access clause did provide cover for the business interruption losses suffered as a result of the pandemic.

Coverage and quantum in dispute

The Claimant insureds were owners/operators of London restaurants and cafes who had suffered business interruption losses as a result of Covid-19 and the various UK Government orders. Each insured (company) owned a separate restaurant or café (save for one company who owned three cafes/restaurants).  Defendant insurer had issued a combined business insurance policy which of course contained a denial of access clause.

When detailed words matter

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 one mile radius of your premises [….]

 The use of ‘your’ is that of consumer wordings as opposed to pure commercial wordings

The 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 coverage endorsement. 

Zurich has also a notifiable disease exclusion in its All Risks commercial form.  

The insured argued that Covid-19 was a “danger” to life and health; the clause therefore 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. Very logical indeed.

No palimpsest to be binding, just key textual differences : (i) the lack of the word incident, (ii) the presentation of an alternative authority wording “police or other statutory body” v “police or other competent local, civil or military authority”, (iii) the absence of requirement for the danger or disturbance to be “in the vicinity of Your premises”, (iv) the notifiable disease(s) exclusion

The but for causation rewriting the Orient Express is not relevant here because the disease can spread beyond the so-called vicinity.

 

Construction is key for a reasonable policyholder

 A = danger can include 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.

 B = 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.  Something wrong with the FCA case is to think that it had to exist solely within the radius. And that a risk would be excluded if it went beyond said radius. Any relevant authority need not to be local since it refers back to “any statutory body” in the clause reviewed. Actions from the UK Government could then be considered. 

§     C = The judge said there was no basis for the insurer’s inference that a “danger” in this context was transient. As a matter of the fact in the AXA wording the indemnity period is 12 weeks!

 D = The judge found the Notifiable Disease(s) exclusion of huge importance.  The notifiable disease(s) exclusion does NOT provide cover for prevention of access where access was restricted due to notifiable diseases as it was more specifically covered by the murder, suicide or disease coverage endorsement. Evidently this exclusion was that if some diseases are excluded, logically not all are. The coverage endorsement and the prevention of access are not automatically mutually exclusive.

§   E = The judge then weighted any other factors which could have meant a different conclusion on construction.

Sublimit quantum when Prevention of Access = 100% of the sum insured or GBP250,000 whichever is less

Single limit of GBP250,000 applicable to all premises insured hereunder or a GBP250,000 limit applicable to each premises. We are not asked to review any aggregation on this particular case.

The insured relied on the composite nature of the policy to argue that the GBP250k sublimit applied to each premises. 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 policy includes the word “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 coverage.

AXA argued that one limit of GBP250,000 applied across all premises insured. One supporting argument was that the limit was “100% of the sum insured or GBP250,000 whichever is less” : it would be inconsistent for the total sum to be a floating sum applicable to all premises (in the aggregate) and the GBP250,000 to be applicable to each premises. Counterfactual, but not so factual at all times.

The judge found that this business insurance composite policy referred to cover in respect of interruption and interference with the business where access to your Premises is restricted.

She also noted that the premises insured were in different locations and could well be affected differently by a danger triggering coverage.

The overall effect becomes separate limits for each premises !