Food For Thought: Access Denied – Denial Denied – 18 months after the FCA COVID-19 Business Interruption Test Case – where are we?

In January 2021 the Supreme Court delivered its judgment in the Financial Conduct Authority’s (FCA’s) COVID-19 business interruption insurance test case. While the judgment is over 100 pages long and details many different issues, for the purposes of this discussion, we are concerned with the several non-damage denial of access clauses (“NDDA Clauses”) that were considered. These clauses were initially held by the Divisional Court to provide a narrow and more localised form of cover, and as such would not cover the disruption caused by the COVID-19 pandemic more generally. This point was not included in the appeal by the FCA. However, on the appeal, the Supreme Court’s interpretation of other clauses, including the disease clause, differed from Divisional Court’s view, holding instead, that due to the Supreme Court’s approach to causation, there was cover under the relevant disease clauses arising from the various COVID-19 governmental regulations. The usual ‘but for’ test for causation was held to not apply, and that each occurrence of COVID-19 could be considered an equal and effective cause of the governmental regulations, and the subsequent closure of the hospitality sector. This presented a potential option for policyholders to argue that this reasoning should be applied to other NDDA Clauses which were not considered in the FCA test case, rather than accepting the Divisional Court’s approach.

This point was considered in the Certain Policyholders v China Taipaing Insurance (UK) Co Ltd arbitration where one of the several central issues was whether a Denial of Access Clause would apply where the disease is national rather than local in scope, and concerned the wording “in the vicinity of the Premises.” As Lord Mance put it, referring to the Supreme Court’s position on causation;

“I therefore doubt whether the Divisional Court could or would have approached the matter as it did in paragraphs 466 and 467 had it had the benefit of the Supreme Court’s analysis.”

Ultimately, his award avoided the need to form a substantive position on the point, but the path was made clear for the point to be argued before the Courts.

This leads to the Judgment in Corbin & King v AXA (one of a number of similar cases brought by the hospitality industry) Corbin & King Limited operated a number of cafes and restaurants in and around London, and AXA Insurance issued them with a combined insurance policy for the period 12 November 2019 to 11 November 2020. The policy included an NDDA Clause, the relevant section providing:

“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.

…

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.

Corbin & King therefore claimed under the Policy for business interruption losses arising out of access to the premises being hindered or otherwise restricted as a result of the governmental regulations dealing with COVID-19. The relevant restrictions being the 20 March – 4 July 2020 lockdown, early closing times of 10:00 PM from 24 September 2020, and the second lockdown from 5 November – 2 December 2020.

AXA Insurance denied cover, resulting in proceedings in the High Court that were ultimately expedited due to the potential impact on a significant number of other businesses, particularly in the hospitality sector. The Court outlined two key issues in the matter:

1. Whether the NDDA Clause provided effective cover for the loss resulting from restrictions on access to the Claimant’s premises under governmental regulations passed in response to the COVID-19 pandemic during the course of 2020.

2. 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.

The Claimants, of course, relied upon the Supreme Court’s ruling in the FCA test case outlined above in respect of disease clauses, that every occurrence of COVID-19 could be considered an equal and effective cause of the government regulations that restricted or hindered access to the premises.

Conversely, the Defendants argued that the clause only provided a ‘narrow and localised’ form of cover, and relied upon the approach taken by the Divisional Court on similar NDDA clauses in the FCA test case.

Once it was determined that the Court was not bound by the Divisional Court findings in the FCA test case – specifically because the specific wording of the NDDA clause and that the arguments advanced were different to those dealt with the in FCA test case – Mrs Justice Cockerill held that;

1. The NDDA Clause provided effective cover – the Supreme Court’s broader approach to causation should be adopted, and therefore COVID-19 is capable of being a danger within one mile of the insured premises. This risk within one mile, combined with other dangers led to the regulations, which ultimately caused the closure of the business, and the business interruption loss.

2. With regards to quantum, the Policy was a composite Policy, and each Policyholder had their own interest represented by each of the separate restaurants/cafes and therefore each was entitled a limit of up to £250,000 for each of the three restrictions.

Mrs Justice Cockerill was clear that the Divisional Court had not erred, nor was their analysis of the policies at issue undermined by the Supreme Court’s decision. The decision was purely permitted because the Supreme Court had moved the goalposts on causation, and as such, a materially different argument on construction was put forward, allowing the different finding in this case.

The decision has significant potential to impact upon claims for business interruption, and will likely come as welcome news for policyholders who have had their claims declined. Furthermore, it will likely prove an important authority for policyholders seeking an indemnity for losses suffered at multiple premises.

AXA Insurance have confirmed that they will not be appealing the decision, and it may prove to impact upon the slate of impending hospitality insurance matters: Stonegate Pub Company v MS Amlin which is currently pending as an expedited trial of certain issues; Greggs PLC v Zurich Insurance PLC which is due to have a preliminary hearing in the first week of July, and Various Eateries Trading Ltd v Allianz in the second week of July. All three cases are to be heard by the same Judge.

As ever, the devil is in the detail, and each NDDA Clause will be construed according to the specific form of words within the relevant policy.