Whether (Non-Damage) Denial Of Access (‘NDDA’) Clauses Cover The Covid 19 Pandemic

Corbin & King and Others v AXA Insurance (2022, Commercial Court)

Summary

Contrary to two previous court decisions, although a NDDA clause was held to provide cover for localised occurrences interfering with a business, in light of the Supreme Court decision in FCA v Arch, the clause was held to provide broader cover than that in the case of disease occurring more widely.  Covid-19 was thus held to fall within the phrase ‘a danger or disturbance at your premises or within a 1 mile radius of your premises’ in a Denial of Access BI cover.  The court held that cases of the disease within the radius constituted a danger and, coupled with other uninsured but not excluded danger constituted by the disease outside the radius, had led to regulations which caused the closure of the insured businesses and the business interruption loss.

Case note

A combined business insurance policy, including cover for property damage and  business interruption, was issued to Corbin & King restaurants and other establishments for the period of one year from November 2019.

Access to certain of the insureds’ premises was subsequently restricted or hindered as a result of government regulations imposed in response to the covid-19 pandemic, first by a period of forced closure, then by an enforced closing time and after that by a further period of forced closure.

The insureds submitted claims under a clause in the Business Interruption section of the policy in the following terms:

“Denial of access (non-damage) cover

We will cover you for any loss insured by this section resulting from interruption or interference with the business where access to your business is restricted or hindered for more than the franchise period [2 hours] 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.
2. the unlawful occupation of your premises by third parties

Provided that …

We will not cover you where access to your premises is restricted or hindered as a result of  … (4) notifiable diseases as detailed in the Murder, suicide or disease cover …”

The insureds contended that they had coverage because there were cases, or the threat of cases, of covid-19 within a one mile radius of each of their premises and this, combined with cases elsewhere in the UK, was an effective cause of the making of the regulations which led to the restriction of access to each of the premises.

By contrast, AXA contended that the cover provided by a NDDA clause is qualitatively different from that provided by a disease clause.  The NDDA clause only provides a narrow form of cover in respect of ‘a danger or disturbance’ specific to the locality of the insureds’ premises, as opposed to a nationwide state of affairs.  The paradigm type of incident covered is a nearby structure at risk of collapse.  AXA argued that the insureds could only recover if they could demonstrate that it was the presence of the risk of covid-19 at the insureds’ premises or within a one mile radius, as opposed to the country as a whole, which led to the regulations.

The decision

In preferring the insureds’ argument, Mrs Justice Cockerill held that this clause provides a localised cover, but one which is capable of extending to disease occurring widely.

The judge began by considering  whether she was bound by the findings of the Divisional Court in FCA v Arch, which had not been appealed on this point, that clauses similar to the one in the present case, covering dangers within a specified radius, had a narrow, localised focus and did not indemnify the insured against business interruption losses caused by regulations introduced to cover the pandemic as a whole.  She held that she was not so bound.  This was because the wordings considered by the Divisional Court were sufficiently different for her to proceed from first principles. 

Further, in FCA v Arch the argument in the Divisional Court had proceeded on the assumption that such clauses contained a  “but for” test of causation, i.e. in order for there to be coverage, the position had to be that, but for the occurrence of the insured peril, the insured’s business would not have been interrupted.  That reasoning could not stand given that, on appeal, the Supreme Court had ‘moved the goalposts’ by finding that a broader test of causation applied generally in the case of disease, such that cases of covid-19 occurring within the radius were a concurrent cause of the restrictions along with all the other cases outside the radius.  In coming to her conclusion, the judge noted that Lord Mance, a member of the Supreme Court but on this occasion sitting as a sole arbitrator, had come to a conclusion similar to hers in September 2021 in ‘The China Taiping Arbitration’.

From that point, Cockerill J found that:

• The wording of the clause was too general to be confined to transient, local incidents and could include generic circumstances such as a disease.

• The correct approach to construing a contractual clause was not to consider paradigm cases or historical origins, but the words used, as these would be understood by an ordinary policyholder (i.e. a small businessman possibly assisted by a high street broker).

• The phrase ‘a danger or disturbance at your premises or within a 1 mile radius of your premises’ was apt to include disease.

• The natural reading of exclusion (4) was that notifiable diseases which were not detailed in the Murder, suicide or disease cover could be covered under the NDDA.

• In the Irish  High Court case of Brushfield v AXA (2021), the exact same clause had been held to be confined to dangers or disturbances at the insured’s premises or within 1 mile of the premises, with the result that a national pandemic was not covered.  However, Cockerill J was unable to concur with the Irish court, amongst other matters because she considered its decision was overly concerned with paradigm and inferred subjective intention, and not enough with the wording.

• Pursuant to the Supreme Court’s judgment in FCA v Arch, the broader test of causation applied to disease claims under clauses such as the NDDA in Corbin & King v AXA.

• Because this was a composite policy, i.e. covering several insureds, and given the wording of the policy, the limit of cover was provided per insured and per claim.

Insurer, Axa, has said it does not intend to challenge the court of appeal judgment.

For further information on business interruption insurance, please contact William Sturge at Lovetts. by email [email protected] or by telephone on 01483 457500.