AXA Insurance served a slice of humble pie

The Covid-19 pandemic caused widespread disruption across many sectors of the economy, with the restaurant and wider hospitality sector being one of the hardest hit.

In a recent interview with Ed Balls, Gordon Ramsay argued that while the past two years have been ‘devastating’ for the restaurant industry, the upside is that ‘the crap’s gone’. It is a harsh view, given that multiple restaurant chains have closed branches for good, including Ask, Bella Italia, Byron Burger and Café Rouge.

Business interruption (BI) insurance was invariably seen as an essential lifeline for those that survived. But in seeking to rely on their BI policies in order to recoup their losses, many hospitality companies have faced fierce resistance from insurers which have refused to pay out.  

Action is now being taken in the courts by affected businesses to address the problem. Most notable among them is the recent BI claim by Corbin & King whose restaurants, cafes and brasseries include The Delaunay, The Bellanger, The Colbert and The Wolseley (pictured).

In February, the restaurateurs won a High Court case against the UK arm of French insurer AXA. Mrs Justice Cockerill found that it should pay out under a BI policy for their losses during the two pandemic lockdowns of 2020. Following a loss adjustment exercise, this decision is expected to cost AXA up to £4.4m .

Grounds for bringing it had been paved by a Supreme Court judgment in a BI test case brought by the Financial Conduct Authority (FCA) in January 2021 on behalf of several thousand policyholders. In deciding to bring a test case against several leading insurance companies, the FCA recognised that the complex issues surrounding BI policies had the potential to create significant uncertainty for policyholders.

The Supreme Court’s landmark ruling substantially allowed the FCA’s appeal and, although this resolved much uncertainty for both policyholders and insurers, it came with limitations. Since the test case could not accommodate every eventuality, it would not set a precedent for resolving all disputes or for determining the outcome of each individual claim.

Further litigation soon arrived when the High Court was asked to consider various issues in Corbin’s case against AXA. One of the most notable was the scope of cover provided by the AXA policy’s Denial of Access (Non-Damage) clause, which compensates businesses should their venues be closed by a statutory body because of a local danger or hazard. While clauses vary from policy to policy, they generally relate to ‘incidents in the vicinity of’ the affected premises. It was held by the Supreme Court that such clauses are designed to cover narrow, localised incidents such as brawls, bomb scares, gas leaks and traffic accidents as opposed to general restrictions placed on businesses across the country. In this case the court had to determine whether the policy’s wording provided effective cover for loss resulting from restrictions on access.

Under the terms of AXA’s policy, the relevant clause stated: ‘We will cover you for any loss insured by this section 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: The actions taken by the 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.’

Having examined the scope of Corbin’s insurance cover, the High Court held that it was not a requirement in the policy that the ‘danger’ should exclusively be present within a one mile radius.

The High Court also rejected AXA’s argument on coverage, namely that the claims were limited to £250,000 for all premises and held that the policy provided cover for £250,000 per Covid claim and per premise.

Mrs Justice Cockerill’s judgment dealt with the ambiguity of key words in the denial of access clause. But the wording of her decision in relation to the effect of the £250,000 figure was distinctly unambiguous: ‘Overall the picture which emerges from a consideration of the wording and a consideration of the nature of the policy persuades me without difficulty that the correct answer is that this is a composite policy in respect of which each insured is entitled to claim £250,000 in respect of each claim.’

Notably, she added that the Supreme Court’s approach to causation should be adopted: ‘I conclude that Covid-19 is capable of being a danger within one mile of the insured premises, which, coupled with other uninsured but not excluded dangers outside, led to the regulations which caused the closure of the businesses and caused the business interruption loss.’

In similar cases, companies with comparable policies can reasonably expect that they will be paid out per Covid claim and per premise by their insurers. But just as every case is different, so the Denial of Access clause in each policy can also vary.

Unfortunately for many, the decision may have come too late, while others may simply not be in a position to front up the costs of litigation at a time when they are putting all of their resources into building up their businesses

Insurers will need to have a radical rethink about the wording of their policies in light of the potential claims facing them; the more likely response from others may be that they wait and see what happens next.

Gurpreet Sanghera is a partner at Simkins, London