Roger Franklin, London Solicitors Litigation Association (LSLA) committee member and Head of Insurance Litigation at Edwin Coe LLP, explains why the industry needs to take heed of the potential impact of a key COVID-19 decision by insurer Axa.
Just when insurers thought that the scope of their exposure to Covid-19 business interruption losses had crystallised, Axa’s decision not to appeal the recent judgment in Corbin & King v Axa has opened up the possibility of more claims, with other significant issues looming on the horizon.
In Corbin & King the claimants issued claims against Axa under the non-damage denial of access (NDDA) cover in a policy of insurance which provided business interruption cover from November 2019 to November 2020. Corbin & King’s losses arose from the enforced closure of their restaurants and cafés as a result of the regulations passed in response to the pandemic.
Axa, like many other insurers, initially rejected such claims based upon the reasoning of the Divisional Court in the test case FCA v Arch, which held that although the term “danger” was capable of including a contagious disease, the business interruption was caused by the regulations which were introduced to combat the national pandemic. Thus the proximate cause of the losses was the national pandemic rather than any case or cases of Covid-19 in any particular radius.
That logic was thrown into doubt by the Supreme Court’s reasoning on causation, which found that each case of Covid-19 was a concurrent cause of the restrictions, and therefore, even if there was only one case of Covid-19 in the relevant radius, there was coverage.
The judge in Corbin & King concluded that the Divisional Court judgment did not present an obstacle to judgment in favour of the Claimants. The Supreme Court’s approach to causation, although not expressly directed to NDDA clauses, had “opened up the field for a different iteration of the construction argument, which approximates to the one adopted by the Supreme Court on disease clauses.” On that basis, she found for the Claimants
The Corbin & King judgment is of general application and comprehensively undermines the Divisional Court judgment on the construction of Prevention of Access clauses. Its wider impact will, of course, depend on each policy wording. However, there are many combined commercial polices in the market with ostensibly similar clauses to the Axa NDDA clause, and where, on its proper construction, an NDDA clause responds to a case or cases of Covid-19 within a specific radius of the insured premises, it is likely that the court will apply the Supreme Court’s broader approach to causation.
Nor are the implications of the Supreme Court reasoning on causation restricted to NDDA clauses. Given the extent of the disruption many businesses have suffered as a result of the pandemic, policyholders with shorter indemnity periods (for example, three months) are already contemplating the prospect of multiple claims within one policy year.
The argument runs as follows. If each case of illness sustained by a particular person at a particular time and place is a separate insured occurrence, then a new 3 month indemnity period arguably starts with each occurrence of Covid-19 during the term of the policy. And while that may seem a surprising outcome, it is a natural consequence of (a) a policy with an indemnity period that commences on the occurrence of a notifiable disease within a particular radius, and (b) the Supreme Court’s determination that each case of illness is a separate trigger for cover.
These issues, coupled with those of aggregation and the correct treatment of furlough payments in business interruption claims (are they a saving?) will entertain the minds of policyholders and insurers alike over the next year. Some of the issues will be resolved in the course of litigation which is already proceeding through the Courts. Others will be addressed on a case by case basis. What is inevitable is that in this unique period of change and upheaval, at least one thing is certain for insurers: more claims, and more litigation.
 Corbin & King Limited and others v Axa Insurance UK Plc  EWHC 409).
 FCA v Arch Insurance ( EWHC 2448 (Comm);
 FCA v Arch Insurance (UK) Ltd and others  UKSC 1