This half-yearly update on insurance coverage litigation summarises significant insurance coverage cases in the English courts and provides a detailed analysis of the Corbin & King v AXA Insurance UK Plc case, highlighting the key takeaways for policyholders. In the first half of 2022, the English courts have delivered important judgments on a number of critical issues for policyholders, including Covid-19 business interruption insurance, aggregation clauses, insurers’ implied obligation to pay claims within a “reasonable” time, and the effect of lenders’ mortgagee interest insurance policies; some of which are policyholder friendly, some less so.
Significant cases 2022 H1
Corbin & King v AXA Insurance UK Plc  EWHC 409 (Comm): In the most anticipated decision of the last half-year relating to Covid-19 business interruption losses, the English High Court determined in favour of a restaurant business, that a prevention of access clause in its policy was triggered by the Government-mandated lockdowns arising from Covid-19 in 2020 and 2021. Given the importance of this case for policyholders, we analyse the court’s findings in further detail below.
Spire Healthcare Limited v Royal & Sun Alliance Insurance Limited  EWCA Civ 17: This decision is the latest word on the interpretation of “aggregation clauses” in insurance policies that require a policyholder to aggregate similar or related losses into a single claim against the insurer, which is then subject to a liability cap on each claim. The Court of Appeal held that several claims against the policyholder could be aggregated into one claim against the insurer on the basis that there was “one source or original cause” of the policyholder’s loss. As a result, the policyholder’s recovery was limited to £10 million, the policy limit per claim.
Following a claim by the victims of serial misconduct of a breast surgeon who had performed procedures at two private hospitals operated by Spire, Spire agreed to pay £27 million in compensation to the victims. The policy contained an aggregation clause that applied a £10 million liability cap where Spire’s loss was attributable to “one source or original cause”. Following the settlement, Spire sought recovery of £20 million from RSA. Spire argued that its loss was attributable to two different sources or original causes: (1) victims for which mastectomies were clinically necessary, but negligently performed, and (2) victims who did not clinically require mastectomies. RSA argued that the claims were attributable to one source or original cause—the surgeon’s misconduct.
At first instance, the High Court agreed with Spire. In overturning the High Court’s decision, however, the Court of Appeal held that all of the claims arose out of the same source or original cause: an incompetent/negligent surgeon who failed to treat his patients with adequate skill and care. This judgment contains an important summary of the law on construction of aggregation clauses that refer to “one source or original cause”, which require the widest possible search between claims for a unifying factor. It also provides a key reminder that in making the widest possible search for a unifying factor, there must be qualifications made for the presence of a reasonable causal link and that the unifying factor must not be too remote.
Quadra Commodities S.A. v XL Insurance Company SE and others  EWHC 431 (Comm): This decision is the first to consider the application of section 13A of the Insurance Act 2015, which implies a term into insurance contracts that claims must be paid within a “reasonable” time, the remedy for which is damages. The English High Court rejected the policyholder’s claim for damages, finding that the investigation and payment of sums due had taken place within a reasonable time, as there were reasonable grounds for resisting the claim.
Quadra, an agricultural commodities trading and logistics company, was a victim of the ‘Agroinvestgroup Fraud’ in Ukraine discovered in 2019. Quadra had entered into contracts to purchase grain from two Ukrainian companies, who perpetrated a fraud by selling the same goods to different traders. Quadra claimed for its loss under a marine cargo open cover insurance policy, and also claimed damages under section 13A of the Insurance Act 2015.
Having found that there was insurance coverage for which the insurer was liable to pay to the policyholder under the policy, the court then considered whether insurers breached the implied term under section 13A to pay claims within a reasonable time. Quadra commenced the proceedings approximately 15 months after it transmitted its notice of loss to the insurers. While this case is subject to appeal, the court held that a reasonable time to investigate, evaluate and pay the claim, assuming there were no grounds for disputing it, would have been “not more than about a year” from the notice of loss. However, the court concluded that there was no breach of section 13A because there were reasonable grounds, although mistaken, to dispute the claim, including: (i) the size and complexity of the claim given the scale of the Agroinvestgroup Fraud; (ii) the type of cover which applied to transport and storage operations of different types and different locations; and (iii) factors outside of the control of the insurers such as destruction and unavailability of evidence over what happened at the warehouse and awaiting relevant ongoing proceedings in Ukraine.
While the court’s reasoning indicates that it will determine whether the insurer has paid the claim within a “reasonable time” on a case by case basis, it does provide a yardstick of approximately one year for insurers to investigate complex claims where there are no grounds for insurers to dispute. Policyholders will wish to refer to this decision where insurers unduly delay payment of meritorious claims.
Piraeus Bank A.E. v Antares Underwriting Limited and others  EWHC 1169 (Comm): This case considered the purpose and scope of mortgagee interest insurance policies. These are policies taken out by a lender (mortgagee) with an interest in a property to insure against property loss or damage. The idea—at least in principle—is that the policy will protect a lender if the borrower’s insurance does not respond to covered risks because of an irregularity committed by the borrower.
In this case, local authorities in Venezuela detained a vessel for 14 months because the crew were suspected of smuggling diesel oil. The vessel’s owners brought a claim for constructive total loss of the vessel under a war risks policy, which included cover for seizure, arrest and detention, and the consequences thereof. The policy provided that if the vessel was detained for more than 12 months, the owners would be deemed to have been deprived of possession without any likelihood of recovery, and would thus be entitled to claim for total loss. However, the war risks policy excluded losses arising from any action taken by state authorities under the criminal law of any state. In any event, and unconnected to the detention of the vessel and therefore consideration, at the owner-insurer level, of the war risks policy, the underwriters successfully defended the owners’ claim on the grounds of material non-disclosure by the owners.
Piraeus Bank A.E. was the mortgagee of the vessel, and had a mortgagee’s interest insurance policy (the “MII Policy”). The MII Policy insured the bank’s interest as assignee and loss payee under the owners’ policy, in other words the Bank was insured for its entitlement to payment of insurance monies directly from the insurer in respect of any claims made by the owner under the war risks policy (it was not insured for its interests as a mortgagee more widely). Following the avoidance of the owners’ war risks policy, Piraeus brought a claim under its MII Policy. The MII Policy wording provided coverage in the event there was “prima facie” coverage under the war risk policy but there was subsequent non-payment by the underwriters of the war risk policy resulting from any act of the “Relevant Parties” (owners or their servants or agents), including any breach of warranty or conditions or any misrepresentation or non-disclosure or alleged non-disclosure of any fact or circumstances. Accordingly, a key question was whether the owners had a “prima facie” claim under the war risks policy. The Court held that, as the detainment of the vessel was lawful under Venezuelan law, the claim fell within the above-mentioned exclusion of the war risks policy and, as a result, there was no total constructive loss of the vessel. Importantly, the Court found that the express wording of the MII Policy was not intended to, and did not, cover losses that would not have been covered by the owners’ war risks policy—here because there was no constructive total loss under the owner’s policy or the loss was excluded.
The Bank argued that the MII Policy provided cover (under a separate limb of the insuring clause which did not mention “prima facie” coverage) for any loss or damage caused by the “Relevant Parties” if there was subsequent non-payment by the owners’ underwriters. The court interpreted this part of the insuring clause as linked to the war risks policy, but since coverage had not been denied on the basis that the vessel detention was caused by the Relevant Parties, but on unconnected non-disclosures, the Court rejected the Bank’s argument. In clarifying the extent of coverage under mortgagee interest insurance policies, the court observed that these are secondary policies which must be read together with the primary policy (in this case, the war risk policy) in order to determine the availability and scope of any indemnity.
Detailed Comment: Corbin & King v AXA Insurance UK Plc  EWHC 409 (Comm)
Corbin & King owns a number of restaurants in and around London, including the well-known Wolseley and Delaunay, which were forced to close or operate within certain restrictions as a result of the Covid-19 lockdowns in England of 2020 and 2021.
Corbin & King had a business interruption insurance policy which included a clause covering business interruption losses caused by prevention of access, known as Non-Damage Denial of Access (“NDDA”) clauses. This provided cover for “loss resulting from denial of access arising directly from actions taken by a statutory body in response to a danger within a mile of your premises”. While there was an exception “where the denial of access … is a result of notifiable diseases listed in the MSDE clause”, Covid-19 was not listed in that clause. The first issue, referred to as the “Coverage Issue”, was whether the NDDA clause was triggered by Covid-19 and its associated lockdowns.
Of note, concerning the Coverage Issue, were the findings in the Financial Conduct Authority’s test case concerning recourse to business interruption policies for losses arising from Covid-19 (“FCA Test Case”). In the FCA Test Case, the High Court held, among other things, that government actions in response to a “danger” within the vicinity of an insured premises would not attract NDDA coverage in the case of losses caused by Covid-19 lockdowns. This was on the basis that NDDA clauses covered prevention of access due to a localised danger and it was not a localised danger that had caused the losses, rather they arose from a national pandemic—in other words, the court adopted a restrictive approach to determining causation.
While that particular issue was not appealed to the Supreme Court, other issues in that FCA Test Case were and on some of those, in respect of different (disease) cover, the Supreme Court took a policyholder favourable approach to issues of causation. Therefore a question arose as to whether the High Court’s strict approach to causation in relation to NDDA cover could survive the Supreme Court judgment.
The second issue was related to what could be recovered. The cover had “sums insured/limits” of “100% of the sum insured or £250,000 whichever is less” and the question, referred to as the “Quantum Issue” was whether there was a single limit of £250,000 per incident/claim (i.e. per lockdown, there being three official lockdowns) in respect of all of Corbin & King’s premises collectively, or whether that limit applied to each individual set of premises.
The Coverage Issue
The Court held that the NDDA clause was triggered because the prevention of access to the restaurants due to the imposition of lockdowns was due to presence or threat of Covid-19 and Covid-19 was a “danger” to life and health within the meaning of the NDDA. The Court held that the general language of “danger” was not limited to a local danger such as a bomb scare or a gas leak or a traffic accident (which were the original intentions of such extensions in business interruption insurance policies).
The Court concluded that the Supreme Court’s approach to causation in disease clauses, as set out in the FCA Test Case, should read across to the NDDA clause as that also covered disease. Even though there were also other dangers outside the one mile radius of the insured premises which led to the lockdowns being imposed, and those dangers did not expressly fall within the insured premises radius but nor were they specifically excluded in the policy, it was enough that Covid-19 was capable of being a danger within a one mile radius of the insured premises. Therefore, Corbin & King were covered for business interruption losses by their NDDA clause.
The Quantum Issue
The Court held that the coverage applied to each individual set of premises and for each of the three lockdowns. Therefore Corbin & King was entitled to claim £750,000 for each insured restaurant premises. This was because:
- the insured interests were not joint and the policy was therefore “composite”. In other words, the policy insures a number of different insured persons under one policy and is considered, legally, as consisting of separate contracts of insurance between the insurer and each individual insured; and
- the NDDA cover was in respect of “interruption and interference with the business where access to your Premises is restricted …”. Since the premises were in entirely different locations they could be affected differently by a danger triggering cover.
AXA has recently confirmed that it is not appealing this decision and is working through the impact on all NDDA claims. This is welcome news for policyholders with the same or similar policy wording to the NDDA clause in this case who may have been denied coverage following the first instance judgment in the FCA Test Case. Policyholders in this position should be contacted by AXA (or other insurers that underwrote the same or substantially similar NDDA policy wording) to confirm that their claims will be reconsidered in light of this decision although policyholders may prefer to take a proactive approach.
There are further Covid-19 cases to be heard this year including cases concerning aggregation, the issue of single versus multiple Business Interruption Losses and the scope of cover of extensions triggered by “at the premises” wording.