Taking a simple approach to the question of indemnity

Two recent cases have resulted in different outcomes when the judges have sought to simplify the legal analysis.

There have been two recent interesting judgments in the English courts where policyholders have argued for the broadest application of indemnity, but with differing success.

The most recent case, Corbin & King v Axa, concerned claims by restaurant operators, including  those of the Wolseley and Delaunay restaurants, for indemnity under a prevention of access clause in their insurance policy for their Covid-19 business interruption losses.

A different “disease clause wording” was the focus of last year’s Supreme Court ruling in the Financial Conduct Authority (FCA) test case litigation and that court resolved issues on that wording in a way that was favourable to policy holders. The Supreme Court did not similarly focus on prevention of access clauses because the High Court’s findings relating to them – broadly in insurers’ favour – were not appealed.

In her judgment on February 25, 2022, Justice Cockerill ruled insurer Axa did have to indemnify the claimants for their losses under this type of clause. This is because: the issues before her were different from those argued in the FCA litigation; the analysis of the Supreme Court on causation in the context of disease clauses substantially undermined the High Court’s reasoning about the construction of prevention of access clauses; therefore, properly construed, the claimants were entitled to business interruption cover under their prevention of access policy wording.

Sum insured

A further issue then arose as to how much indemnity insurers should pay under the policy. This required the court to consider the meaning of the definition of “sums insured/limits”. The policy stated this to be “100% of the sum insured or £250,000, whichever is less”. The parties agreed there were three different Covid-19 restrictions affecting the claimants’ restaurant businesses during the policy period, namely the government’s closure orders in March and November 2020 and government restrictions imposed in September 2020.

The claimants argued they were entitled to indemnity of up to £250,000 for each restaurant premises in respect of each of the three restrictions. This meant an indemnity payment of up to £750,000 for each restaurant premises. Conversely, Axa argued the total indemnity payment under each policy was limited to £750,000.

The judge agreed with the claimants. The policy issued was a composite policy. Each policy typically named restaurants as separate insureds. The closure of premises at different locations was also to be seen as separate incidents. A policyholder therefore received the bene t of the stated limit for each restaurant for each restriction so no cap of £750,000 a policy applied.

In the second case, Spire Healthcare v Royal & Sun Alliance Insurance (2022), private hospital group Spire Healthcare sought £20m indemnity under its insurance policy issued by RSA.

The underlying issues concerned third-party claims against Spire arising from misconduct by Mr Paterson, the infamous consultant breast surgeon who was sentenced to 20 years in prison for unlawful wounding of his patients. Paterson had consulted at Spire’s hospitals for a lengthy period. Spire settled those claims. Unlike the previous case, there was agreement the policy indemnified Spire, but the issue was how much.

The policy specified an “each and every claim” limit of indemnity of £10m and an aggregate limit of £20m. The policy also contained wording aggregating claims “consequent on or attributable to one source or original cause”. RSA argued all the claims made against Spire were attributable to one source or original cause and so a per-claim limit of £10m applied.

No aggregation

Spire argued instead that all claims were not to be aggregated together so they were entitled to a total indemnity of £20m, the policy aggregate limit. They claimed  this was because there two different cohorts of claim made against them. The first was for “cleavage sparing mastectomies”, which were an unrecognised form of patient mastectomy.

The second was for the carrying out of surgery after Paterson falsely and dishonestly represented to patients that they had a cancerous or pre-cancerous condition when this was not the case. The two claim cohorts could not be aggregated together.

The High Court agreed with Spire and a per claim limit of £10m did not apply to all claims. However, the Court of Appeal in their judgment on January 11, 2022 disagreed.

The judge’s analysis was overcomplicated and incorrect. The judge should have searched widely for a unifying factor and had he done so then he should have concluded that all claims against Spire were based on a pattern of deliberate and dishonest behaviour by Paterson. Therefore, all claims made against Spire were to be aggregated together under the “original source and cause” wording and a per claim indemnity limit of £10m should be applied under the policy.

In each of these cases, the courts sought to apply a simplified analysis in determining indemnity scope, resulting in differing policyholder/insurer outcomes. That is unsurprising as the ultimate beneficiary of such an approach always depends on the underlying issues and facts arising.

For more information, please contact Stephen Netherway.

This article was originally published in Insurance Day, the world’s leading source of insurance industry insight and analysis. Read more here © 2021 Informa PLC

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