|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Ted Baker Plc & Anor v AXA Insurance UK Plc & Ors  EWHC 1406 (Comm) (25 May 2012)
Cite as:  EWHC 1406 (Comm)
[New search] [View without highlighting] [Printable RTF version] [Help]
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| TED BAKER PLC
NO ORDINARY DESIGNER LABEL LIMITED
| - and -
|AXA INSURANCE UK PLC
FUSION INSURANCE SERVICES LIMITED
TOKIO MARINE EUROPE INSURANCE LIMITED
Richard Lynagh QC and James Medd (instructed by Kennedys) for the Defendants
Hearing dates: 27, 28, 29 February 2012
1, 5, 6, 9, March 2012
Crown Copyright ©
Mr Justice Eder :
Issue 1 – Are direct losses by non forcible and violent ("F&V") theft by employees covered under the Policy?
1. On its true construction does the AXA policy wording cover direct losses viz. the cost of stock sustained by the claimants, or either of them, as a result of the alleged acts of Mr Okyere-Nsiah?
Issue 2 – Are business interruption losses arising from non F&V theft by employees covered under the Policy?
3. On its true construction does the AXA policy wording cover business interruption losses consequent on the alleged loss of stock sustained by the claimants, or either of them, as a result of the alleged acts of Mr Okyere-Nsiah?
5. Are the claimants entitled to indemnity under the policy in respect of the business interruption losses claimed even if they are not entitled to indemnity under the Theft section of the AXA policy in respect of the direct losses claimed?
6. Are business interruption losses excluded because they were the subject of policy exclusions relied upon by the defendants, namely that they were caused by or consisted of acts of fraud or dishonesty ?
7. What is the significance, if any, for this purpose of the fact that the parties agreed by an express endorsement entitled "Theft Extension Endorsement" to delete from the Policy an exclusion which read "This section does not cover….Consequential loss…arising directly from theft or attempted theft." ?
Issue 4 - Estoppel
8. If, on its true construction, the Policy does cover the losses referred to in issues 1 and 2 above, are the claimants nonetheless estopped by convention from relying on such construction?
9. Is the knowledge and conduct of the claimants' brokers to be imputed to the claimants for the purposes of determining the defendants' claim to an estoppel?
10. If, on the true construction of the Business Interruption section of the Policy, the losses claimed are excluded by policy exclusion 4(c), are the defendants nonetheless estopped from relying on such construction as alleged by the claimants in paragraphs 43 and 44 of the Reply?
Issue 5 – Rectification
11. If, on its true construction, the Policy does cover the losses referred to in Issues 1 and 2, should the Policy nonetheless be rectified as alleged by the defendants so as expressly to exclude theft of stock by employees by non forcible or violent means from the cover provided on the basis of mutual mistake?
12. Is the knowledge and intention of the claimants' brokers to be imputed to the claimants for the purposes of determining the defendants' claim to rectification?
13. If, on the true construction of the Business Interruption section of the Policy, the losses claimed are excluded by exclusion 4(c), should the section nonetheless be rectified as alleged by the claimants in paragraphs 43 and 44 of the Reply so as to remove such exclusion?
Issue 6 The Factual Matrix/Custom of the Trade Alleged by AXA
14. Is the existence and/or nature of 'Fidelity' or Theft by Employee policies relevant to construing the AXA wording or to the claims for rectification or estoppel?
15. If so, are the averments made by the defendants about such policies in paragraphs 18 to 22 of AXA's Defence correct?
16. Is the extent of coverage under the Independent policy previously issued to the claimants relevant to the issues of construction, rectification or estoppel in the circumstances of this case? And if so,
17. What were the terms of the Independent policy and would it have covered losses sustained by the claimants, or either of them, as a result of the acts of Mr Okyere-Nsiah and his accomplices?
18. Is evidence of the matters pleaded at paragraphs 32 to 45 of AXA's Defence relevant and admissible in respect of the construction of the AXA policy wording, it being common ground that it is, if proved, admissible in connection with the issues of rectification or estoppel?
19. If so, are these facts correct?
20. Did the claimants or their brokers, prior to inception or renewal of the policy, provide disclosure of any the following facts and matters:i) Experience of fidelity losses.ii) Size of annual payrolliii) A statement as to the nature of the insured's supervision, checking and management system;iv) The existence of the Norwich Union and/or AIG policies.v) The claimants' annual stock variance or "shrinkage" percentages.
21. Would it have been material for a prudent underwriter to know these or any other facts and matters prior to providing insurance against surreptitious theft of stock by the claimants' employees or consequential business interruption?
22. Are sub-issues 20 and 21 above relevant to the issues of construction, or AXA's claims to rectification or estoppel?
Issue 6A: The Co-Insured Policies
23. If the Court finds for the claimants on the construction of the AXA policy and rejects the defences of rectification and estoppel pleaded by AXA, do Fusion and Tokio Marine nevertheless have defences to the claims against them?
The Fusion Co-insurance
24. Did Mr Burbedge orally describe the cover provided by endorsements A05/F08 as "larceny" cover to Mr Watts?
25. If so, did he thereby negligently or innocently misrepresent the scope of the AXA policy/Ted Baker risk to Mr Watts?
26. If there was misrepresentation by Mr Burbedge, did Mr Watts/Fusion reasonably rely on the misrepresentation and were they induced by that misrepresentation to agree to take a 20% line of the AXA insurance?
28. If so, do these facts and matters give rise to any cause of action for Fusion and if so what is Fusion's remedy?i) Is the scope of a policy to which the co-insurer is being asked to subscribe by a broker a fact which, if misrepresented, can ground a cause of action in misrepresentation?ii) Is the fact that Mr Wisdom of Fusion was sent a copy of the terms of the AXA endorsements and policy wordings in September 2004 a complete answer to Fusion's claims based on misrepresentation and/or mistake?
Tokio Marine Co-insurance
29. In March 2006 did Mr Read send to Mr Monahan:i) a spreadsheet summarising the AXA cover and referring to "theft not by VFEE—Excess £5k"? ;ii) A brokers' presentation referring to the AXA Policy/Ted Baker Risk as "Commercial "all risks" of physical loss or damage including Theft (following Forcible/Violent Entry/Exit to or from the premises, Glass, Subsidence and Sprinker leakage." And listing as principle extension "larceny--own premises only"? ;
30. If there was a misrepresentation by Mr Read and/or Mr Burbedge, did Mr Monahan/Tokio reasonably rely on the misrepresentation and was he/they induced thereby to agree to take a 25% line of the AXA insurance co-insurance?
32. If so, do these facts and matters give rise to any cause of action for Tokio and if so what is Tokio's remedy?i) Is the scope of policy to which the co-insurer is being invited to subscribe by a broker a fact which, if misrepresented, can ground a cause of action in misrepresentation?ii) Is the fact that Tokio were sent a copy of the terms of the AXA endorsements in about May 2006 a complete answer to Fusion's claims based on misrepresentation and/or mistake?
A. Mr Lindsay Page. He joined Ted Baker in 1997 and is the Financial Director. From the start, he was very closely involved in the placing of Ted Baker's insurance policies until about 2003 when Mr Charles Anderson, Head of Finance, became more closely involved.
B. Mr Charles Anderson. He joined Ted Baker in July 2001 and is the Head of Finance. Part of his job was to deal with insurance. The companies actively assess risk and how best to deal with that risk. There is a Risk Management Committee consisting of himself, Mr Page, Mr Jarvis and other members of management.
C. Mr Douglas Jarvis. He joined Ted Baker in 1990 when it was relatively small and became the Financial Controller. According to his own statement, he was on the periphery so far as organising the various insurance policies are concerned but was involved in the risk management side of things and sat on the Risk Management Committee.
D. Mr Laurence Connolly. He was the Distribution Director at the warehouse. He gave evidence in particular with regard to the security procedures in relation to staff employed at the warehouse and the information he provided to the surveyors who carried out inspections of the warehouse from time to time on behalf of the insurers.
E. Mr Guy Burbedge. Between 1978 and 1984 he worked at General Accident Fire and Life Assurance Company Limited ("GA") where he was employed in the commercial underwriting team. Thereafter he worked at a number of broking firms and joined Layton Blackham in February 2004. He took over the Ted Baker account shortly thereafter in May 2004.
A. Mr Martin Vallins. He was the AXA underwriter who dealt with the "rollover" of the Ted Baker account when the insurance incepted on 18 June 2001 following the demise of the Independent.
B. Mr Kenneth Bynorth. He was an underwriter at AXA until August 2011. He became involved with the Ted Baker account just before a pre-renewal meeting in January 2004. His involvement continued until about the end of March 2004 with respect to the renewal for that year.
C. Mr Edward Hale. He has been an underwriter with AXA since 1996. He had little involvement with the Ted Baker account until about March 2007 when he became involved in discussions for the renewal for 2007-2008.
D. Mr Douglas Smith. He is a Senior Commercial Underwriter at AXA and has held that position for over 11 years. He is a qualified ACII and a Chartered Insurer. He became involved with the Ted Baker account in about July 2007 as part of what was then called the "Bluefin Team". This was shortly after renewal terms had been agreed for the period 16 April 2007 to 15 April 2008. He was responsible for the subsequent renewal in April 2008.
E. Mr Patrick Conneely. He has been an underwriter with AXA since 1981. He had no direct involvement in the Ted Baker account but gave general evidence with regard to the background and use of AXA's Fidelity Guarantee Insurance Manual as well as AXA's approach to Fidelity Insurance.
F. Mr David Boulcott. He was an underwriter at Fusion. His involvement in the Ted Baker account began in about January 2004 when Fusion were approached to take over the then existing cover from AXA on a 100% basis. In the event and following certain negotiations, he declined to take on this risk and had no further involvement after about 1st March 2004.
G. Mr Michael Watts. He has been in underwriting for approximately 40 years. Previously, he was at the Independent. He joined XP Underwriting, which is part of Fusion, in about 2001. He became involved with the Ted Baker account in about July 2004 and, in his capacity as underwriter, agreed to take a line (initially 10% subsequently increased to 20%).
H. Mr Ian Monahan. Until recently he was an underwriter manager at Tokio Marine. He was involved in the negotiations in 2006 which culminated in Tokio Marine taking a 25% line from 28 March 2006 until 15 April 2007.
I. Mr Jon Avant. He is currently an underwiter at Tokio Marine where he has worked for some 8 years. He became involved in the Ted Baker account in the early part of 2006 after Tokio Marine agreed to co-insure 25% of the risk until 15 April 2007 when the matter was passed to him to be handled by his team.
J. Mr Roy Preston. He is a risk surveyor of almost 40 years experience. He previously worked for AXA for just under 10 years until he was made redundant in May 2010. He carried out certain surveys of Ted Baker premises between about 2002-2006.
K. Mr Anthony Hutchins. He has worked as an underwriter since 1979 when he joined Commercial Union and was with them at the time of the merger with GA in 1998 to form CGU. He subsequently joined Allianz in about March 2001 where he remained until May 2010 to join AXA. He is currently Head of Commercial Property at AXA's Head Office but was not with AXA during the time that Ted Baker was insured with AXA. His evidence focussed mainly on the types of cover provided by Commercial Union in particular during the late 1970s and early 1980s.
A. Mr Adam Clifford. He was employed as a Commercial Underwriter at AXA from late 2001 until the summer of 2003 and was involved in the 2003/2004 renewal.
B. Mr Stephen Hartshorne who was unable to be called for medical reasons. He is an underwriter and joined AXA in 2003. He was involved with the Ted Baker account from about late March 2004 until shortly after July 2007.
A. Ms Shirley Beglinger. She is an Associate of the Chartered Insurance Institute and a Chartered Insurance Practitioner. Between 1998 – 2004 she worked for Swiss Re and thereafter became Managing Director of Aon UK Ltd, concentrating on financial institutions business. She currently works for her own consulting company, Director Swiss Partnership Ltd.
B. Mr Stephen Coates. He worked for Eagle Star from 1983 – 1992 in a variety of commercial underwriting roles; at the Independent from 1992 – 2001 where, latterly, he was the UK property Underwriting Manager; and thereafter at Allianz Insurance plc ("Allianz") as a regional senior underwriting manager. He is currently employed as UK Head of Property & Casualty Underwriting by Allianz.
C. Both experts served written reports and, following a meeting, provided a joint statement. In addition, they gave oral evidence.
The scheme of this Judgment
Ted Baker's witnesses: Mr Page, Mr Anderson and Mr Jarvis
Copy of the Independent Policy
A. As to the section "Material Damage All Risks" (which was, in fact, Section K in the standard wording):
a) It provided general cover of an all risks nature i.e. "Damage occurring during the Period of Insurance arising from any accidental cause not being an Excepted Cause".
b) Within that section, there was a subsection headed "Section Exceptions" which provided in material part that the Independent shall not indemnify the insured for (amongst other things) the following:
"4) Damage caused by theft or attempted theft unless
a) involving forcible and violent entry to or exit from Buildings at the Premises….
7) Damage caused by
c) acts of fraud or dishonesty on the part of the Insured or any partner director or employee of the Insured members of their families or any other person to whom Property Insured has been entrusted…"
c) There was a separate endorsement headed "BAR K05 Full Theft Cover" which provided: "It is hereby noted that Section Exception 4) a) is deleted."
B. As to the section "Business Interruption" (which was in in Section B in the standard wording):
a) The printed standard wording provided two discrete types of business interruption cover viz "all risks" and "specified perils". Here, the relevant schedule stipulated that the wording applicable was the latter ie "specified perils" and specified the relevant perils as those numbered 01 to 15 inclusive.
b) The printed wording provided cover for "Consequential Loss" (a defined term) occurring during the period of insurance caused by any of the "Specified Perils" (as listed) subject to a proviso which provided:
"…Provided that at the time of the happening of the Consequential Loss there shall be in force an insurance covering the interest of the Insured in the property at the Premises against such loss or damage and that
1) payment shall have been made or liability admitted therefor
2) payment would have been made or liability admitted therefor but for the operation of a proviso in such insurance excluding liability for losses below a specified amount"
c) Under the list of "Specified Perils", paragraph 13 (which was one of the specified perils) provided in material part:
"13) Theft or attempted theft involving
a) forcible and violent entry to or exit from Buildings at the Premises including such thefts or attempted thefts involving collusion by any employee but not partner or director of the Insured….."
d) The relevant schedule also specified various applicable endorsements including "B06" viz. "BUS B06 FULL THEFT COVER:- It is hereby noted that Section Exception 4) a) is deleted." This is confusing because there was no exception 4)a) in the "business interruption - specified perils" part of the standard wording. There was an exception 4)a) in the "business interruption - all risks" section; but, as I have said, on the face of the documents, this had not been chosen as the applicable wording. This suggests some error of some kind but at this point in time it is unclear what the error was. In any event, for the reasons set out below, I do not consider that any such error affects the outcome of the present proceedings.
Registers of Insurances
" 'ALL RISKS' OF LOSS OR DAMAGE…. AS DETAILED BELOW SUBJECT TO THE INSURERS POLICY TERMS LIMITS AND CONDITIONS.
INCLUDING THEFT FOLLOWING FORCIBLE AND VIOLENT ENTRY INTO AND/OR EXIT FROM THE PREMISES…."
Under the same general heading, there then followed a summary of various other terms and the identification of the property insured by reference to column headings (ie buildings, plant, stock and miscellaneous) followed by a list under the heading "Clauses" including the following wording:
"Larceny (own premises only) – Subject to £1,000 excess".
This was then followed by a second main heading: "CONSEQUENTIAL LOSS" under which there was the following wording:
"CONSEQUENTIAL LOSS FOLLOWING: 'ALL RISKS' OF LOSS OR DAMAGE…….SUBJECT TO INSURERS POLICY TERMS LIMITS AND CONDITIONS. INCLUDING THEFT FOLLOWING FORCIBLE AND VIOLENT ENTRY INTO AND/OR EXIT FROM THE PREMISES".
The collapse of the Independent and "rollover" to AXA
"Q. You were told, I think, by the brokers that the rollover to AXA was on the same terms and cover as the Independent?
Q. You regarded the AXA policy as replicating the Independent's covers?
A. Yes "
To similar effect was the evidence of Mr Anderson at Day 1/151.
"Q. Were you involved in the transfer of insurance to AXA and subsequently the other co-insurers, or not?
A. Not directly. I was aware of it, but our insurance brokers – I was aware a transfer was going to happen, because of the events about the preceding insurer, but it was very much left with the broker.
Q. I take it that it is also your understanding that the aim was for AXA to replicate the Independent cover?
A. That was the intention, yes.
Q. That the rollover was effected on the same terms and cover?
A. That is what I believed happened, yes."
"12. I would have read the documentation comprising the full presentation of risk and certainly read the Risk Register that I attached to the Risk Survey Requests as the handwriting on this is mine. Had it made reference to any form of fidelity risk I would have noted that and there would be reference to that in the documents in the underwriting file. I have always understood that the main part of indemnity cover is cover for losses of property as a result of thefts by employees which do not involve the use of forcible or violent means of entry or exit. The Risk Register did make reference to "larceny own premises cover" (which I did not understand as any type of fidelity cover) and that is information I subsequently passed onto the risk surveyors."
I consider this evidence further below.
"We are now beginning to obtain details of the re-insurance costs to us for this risk and our Head Office colleagues have advised us that we can no longer continue to write this policy at the Independent (sic) terms. We have been instructed to increase the current MD [ie Material Damage] rating by 100% and the BI [ie Business Interruption] rating by 120%....."
On behalf of the claimants, Mr Cogley QC submitted that this email was significant because it showed increased rating which was consistent with a special premium being charged for the risk of employee theft. That may or may not be correct but it seems to me that this is reading too much into the email: it is simply impossible to know from the email itself the reason for the increased reinsurance costs were and (despite certain comments by Ms Beglinger which supported Mr Cogley QC's submission but which I found somewhat speculative) there was no other cogent evidence which might provide an explanation.
2001: The AXA Policy
A. The document states "SCHEDULE: COMMERCIAL COMBINED" which, it is common ground, refers to AXA's then standard printed wording which consisted of a number of discrete sections including, in relevant respect, Material Damage (All Risks), Business Interruption (All Risks) and Theft, all of which were described in the Schedule as being "Sections in Force".
B. In the standard wording:
a) The Material Damage section had an express exclusion (Exclusion clause 3(b)) in effect excluding "DAMAGE" (as defined) caused by or consisting of "…acts of fraud or dishonesty by the Insureds employees…."
b) The Business Interruption section provided in material part as follows:
"BUSINESS INTERRUPTION – ALL RISKS
Indemnity Clause A
(Applicable to all items other than any item on Accounts Receivable)
The Company agrees that if any building or other property used by the Insured at the Premises for the purpose of the Business be accidentally lost destroyed or damaged and in consequence the Business carried on by the Insured at the Premises be interrupted or interfered with then the Company will pay to the Insured in respect of each item in the Schedule the amount of loss resulting from such interruption or interference provided that
1. at the time of the happening of the loss destruction or damage there shall be in force an insurance covering the interest of the Insured in the property at the Premises against such loss destruction or damage and that
i) payment shall have been made pr liability admitted therefore
ii) payment would have been made or liability admitted therefore but for the operation of a proviso in such insurance excluding liability for losses below a specified amount"
In addition, there were express exclusions in the BI section in effect excluding "CONSEQUENTIAL LOSS" (as defined) "..arising directly from theft or attempted theft…" (Exclusion clause 2(c)) and "…caused by or consisting of…acts of fraud and dishonesty…" (Exclusion clause 4(c)). However, as referred to in the Schedule, there was a special endorsement which provided: "637 THEFT EXTENSION CLAUSE (ALL RISKS) – Exclusion 2c) of the Cover is deleted." In passing, it should be noted that exclusion clause 4(c) was not deleted.
c) The Theft section stipulated in material part that "…in the event of (1) any of the Property Insured while within the Premises being lost or damaged as a result of (a) theft (or attempted theft) involving entry to or exit from the Premises by forcible and violent means…[AXA] will….indemnify the Insured in respect of such loss and damage…." However, as referred to in the Schedule, there was an endorsement which provided:
"A05 THEFT EXTENSION CLAUSE
The insurance by this Section extends to cover loss or damage resulting from theft or any attempted thereat but the Insured shall be responsible for the first £1,000 of each and ever loss which does not involve entry to or exit from the Premises by forcible and violent means."
"15 I am told by Kennedys that endorsements A05 to the Theft Section and 637 to the Business Interruption section attached later in 2001. I do not recall the circumstances in which these came to be added at that time. I was very busy around the time in question and think it unlikely that these came about because I had revisited the documents received from the brokers but it is possible. It is more likely that the brokers approached me after receipt of the early schedule which did not contain these endorsements and told me that the schedule I had sent out did not match the Independent cover because the larceny cover was missing.
16 As a result of that I would have looked for an appropriate endorsement on the AXA system for shoplifting from retail risks and scrolled through to find one that I considered best matched the cover required (and previously given by Independent) and clearly decided A05 was the best fit. If there had been discussion about AXA giving any form of fidelity cover that would appear in the underwriting file.
17 I am quite sure I did not intend A05 to give cover for fidelity risks. I did intend to give cover for theft and not involving forcible and violent entry to or exit from the premises. I did not intend to give cover for surreptitious theft by an employee.
18 If cover for surreptitious theft by an employee was required by the brokers then that would be clear on the file and would have required a different set of underwriting considerations and would have been given under a different section of the policy. It would have been additional cover to that provided by the Independent and would have been reflected in a further premium on the AXA Schedule. It would never be given by a short endorsement of the type in question. I would have had to refer it upwards as underwriting of fidelity risks is closely controlled at AXA. There was an AXA manual for this and not everyone was authorised to underwrite it even within the terms of the manual.
19 As regards the deletion of exclusion clause to 2(c) in respect of consequential loss following theft, I confirm that it is standard to delete that exclusion to give cover for business interruption consequent upon theft but I did not intend by doing so to give cover for business interruption consequent upon fidelity risks or surreptitious theft by an employee. I intended by this deletion to provide cover for business interruption consequent upon theft using forcible and violent means. In any event AXA does not give cover for business interruption losses consequent upon fidelity and I do not recall ever seeing that type of cover.
20 It would not have crossed my mind to delete the exclusion of fraud and dishonesty exclusion at 4(c) as I did not intend to give cover for business interruption consequent upon fraud or dishonesty. In my mind this would have included thefts by employees using surreptitious means.
21 Having refreshed my memory of this risk from the documents with which I have been provided I confirm that in my dealings with this matter I and, it seems to me, the brokers proceeded at all times from 18th of June 2001 on the assumptions that the AXA policy
- provided the same cover, in terms of scope, as the Independent policy and
- did not provide cover for surreptitious thefts by employees or business interruption losses consequent upon such thefts."
Renewals: 2002 and 2003
A. In fact no such cover has ever been available in the combined insurance market and Mr Burbedge's recollection of the cover available from the GA nearly 30 years ago in 1984 was faulty.
B. If such cover was available it was very rarely requested or granted, as Mr Burbedge accepted.
C. Such cover would also be extremely valuable to Ted Baker and provided without additional premium or the usual underwriting requirements or terms and conditions.
D. It is inherently improbable that Mr Burbedge, if he thought that the AXA policy provided this cover would never have mentioned it to anyone, including AXA, his clients or co-insurers.
E. It is inherently improbable that if Mr Burbedge really believed the AXA policy provided this cover, that he would voluntarily request a five fold increase in the excess to avoid confusion.
F. It is inherently improbable that as a broker he would describe such rare cover simply as "larceny" or "Theft Not by FVEE" when he knew that that term would not convey that it included surreptitious employee theft.
I consider each of these points in turn.
A. Was the cover in fact available even from GA?
B. The rarity of the cover ?
C. Extremely valuable cover ?
D/E/F Inherently Improbable?
"35. When I read endorsement A05 I certainly did not consider it gave any form of fidelity cover. In my view surreptitious theft of employer's property by their employees is the major part of any fidelity policy and I am clear that I did not intend the extension to provide that cover. … I … understood the purpose of the Theft Extension Clause to be for shoplifting. …
36. I would have mentioned my understanding to Guy I believe in the context of discussion with him taking him through one of my early renewal spreadsheets to which I refer below but I could not say if it was in 2004 or later.
37. Had it been suggested to me by anyone that this clause was providing cover for fidelity losses/surreptitious thefts of stock by employees, I would most certainly have focussed on it as to be told that would most certainly have rung alarm bells. As I deal with further below, I would have confirmed with Ken Bynorth what was required by way of information in order for such a risk to be underwritten. I would also have made initial enquiries of Guy as to precisely what cover was being sought and with what limits. Once we had received the information, it would probably have been necessary to refer it to Head Office unless what was required was within the very limited cover provided by the Theft by Employees section and within Branch empowerment."
So far as relevant, I consider this evidence further below.
Renewals: 2005, 2006
2006: Tokio Marine
Renewals: 2007, 2008
"94. Looking at the document now, I would make the same comments as I made in connection with the 2004 Risk Schedule. I did not think reading it that Guy was requesting … either fidelity cover or cover for surreptitious thefts by employees. Again, I have never come across a broker requesting such cover… by putting forward a document with an extension to the Material Damage section called "larceny (own premises only)."
Issue 1 – Are direct losses by non F&V theft by employees covered under the Policy?
A. The starting point is the decision of the House of Lords in Investors Compensation Services v West Bromwich Building Society  1 WLR 896.
B. The relevant principles in the context of a policy of insurance were summarised by Stuart-Smith LJ in Yorkshire Water Services Ltd v Sun Alliance & London Insurance plc  2 Lloyds Rep 21:
"(1) The words of the policy must be given their ordinary meaning and reflect the intention of the parties and the commercial sense of the agreement. Thus they must be construed in their context or, as Lord Mustill put it in Charter Reinsurance Co Ltd v Fagan and Others  2 Lloyd's Rep 113 at 177… 'the words must be set in the landscape of the instrument as a whole'.
(2) A literal construction that leads to an absurd result or otherwise manifestly contrary to the real intention of the parties should be rejected, if an alternative more reasonable construction can be adopted without doing violence to the language used.
(3) In the case of ambiguity the construction which is more favourable to the insured should be adopted; this is the contra proferentem rule."
C. As noted by Hobhouse J in M/S Aswan v Iron Trades Mutual Insurance Co  1 Lloyds Rep 289 at 293:
"A policy of this kind needs to be construed having regard to the ordinary use of language. If the words used have an ordinary and natural meaning that is reasonably clear that is the meaning which should be adopted and the Court should not entertain an obscure or contrived argument to give these words some different meaning. This principle is reinforced where it is the insurance company that is seeking to reject the ordinary meaning and where the document is, as here, a standard form document produced by the insurance company itself." (emphasis added)
D. It is not the function of the Court to give a contract a 'reasonable' interpretation if the contract is clearly expressed, but happens to be unfair to one of the parties (Jason v Batten  1 Lloyds Rep 281 at 290), nor should the Court override a clear interpretation of the words used just because that interpretation would effectively defeat the main commercial purpose of the Policy – Standard Life Assurance v Oak Dedicated Ltd and others  EHWC 222 (Comm).
E. Here the position is not nearly so drastic as in the Standard Life case – the claimants' interpretation of the clear words used does not defeat the commercial purpose of the policy – at its highest for the defendants, it merely reflects what is, in this one discrete area of the policy and with the benefit of hindsight, a 'bad bargain' for the defendants. That is not and never has been a reason to strain the literal construction of clear words used - see eg Cook Arkwright v Haydon  2 Lloyds Rep 579, where Hobhouse J observed at 582:
"…even if these policies were unbusinesslike, such a consideration does not provide an escape from the clear contractual provision. These policies represent a bargain freely entered into between assured and underwriter, and it is not for the Court to remake that bargain, even if it were to think that a different bargain would have been better" (affirmed by CA)
F. This is not a situation governed by Rainy Sky v Kookmin Bank  1 WLR 2900 in that there simply are not two (or any) competing constructions of the words used, there is only their plain meaning. None of defendants' witnesses were able to point to any other contender as to what the relevant words mean, save by reference to (non-existent) exclusions elsewhere in the policy. In all the circumstances there is undoubtedly cover under the 'direct' theft section of the Policy and the wording should be given its plain meaning, namely that theft means theft, including theft by employees as this is not otherwise excluded. If it is necessary to go any further than this, Ted Baker say that, this being a policy of non-marine insurance, 'theft' means theft as per the Theft Act 1968, following Grundy (Teddington) v Fulton  1 Lloyds Rep 16, but it would suffice for the claimants' purposes even if it meant theft as understood by an ordinary businessman.
A. Mr Vallins: "… [A05] in fact covers, doesn't it, just looking at it, all theft? That is what it says. A. Yes. Unless it is otherwise anywhere else in the wording there are any other restrictions restricting the type of theft, then yes, it would cover all theft." [T3/49/15];
B. Mr Bynorth: "Q. Yes. So, as you have agreed with me just a few moments earlier, even with F&VE in the insuring clause, in other words E1 at page 124, employees could be covered, it follows, doesn't it, both as a matter of logic and just looking at the words, that employee theft was also covered by extension AO5, wasn't it? A. Yes, if it is not otherwise excluded." [T3/102/22ff.]
C. Mr Smith: "Q. AO5 covers employee theft, doesn't it? A. It doesn't exclude employees. Q. Therefore, it ...? A. By interpretation, then it would include theft by employees." [T3/132/19ff.] "If I wanted to word [A05] to exclude employee theft, I would have had to edit it as well." [T3/139/13ff.] "It doesn't -- AO5 doesn't exclude theft by employees." [T3/140/25].
D. Mr Cash: "MR JUSTICE EDER: The question was: "Full theft, as you have defined it, would not cover theft by an employee, would it?" You said: "Not specifically, no". A. There is no specific exclusion that I am aware of that would exclude an employee." [T4/33/5ff.]…A. A05 equals full theft cover" [T4/63/24ff.]
"Attractive as that proposition is in general, there are dangers in judges deciding what the parties must have meant when they have not said what they meant for themselves. This is particularly dangerous when the parties have selected from the shelf or the precedent book a clause which turns out to be unsuitable for its purpose. The danger is then intensified if it is only one part of such a clause which is to be construed in accordance with "business common sense".
Non-Selection of the Theft by Employees Section
"There is a pleasant diversity of authority on this subject which the curious can find conveniently listed in a note in Scrutton on Charterparties, 16th ed. (1955), p. 33. But the court, in construing a contract, is seeking to ascertain the intention of the parties as expressed in the words that they have used. Where there is a standard form of words familiar to commercial men and contained in a printed form in general use, such as the "Gencon" charter, it seems unreal to suppose that when the contracting parties strike out a provision dealing with a specific matter, but retain other provisions, they intend to effect any alteration other than the exclusion of the provision struck out. I cannot, prima facie at any rate, ascribe to them any intention of altering the meaning of the words in the provisions which they have chosen to retain. I say "prima facie" because there may be added or substituted words which drive one to the conclusion that they did intend to ascribe to the words retained a meaning modified by the added or substituted provisions; but, while I think that I must look first at the clause in its actual form without the deleted words, if I find the clause ambiguous, I think that I am entitled to look at the deleted words to see if any assistance can be derived from them in solving the ambiguity, bearing in mind the prima facie rule which I have indicated."
In addition, Mr Lynagh QC relied upon the Mopani Copper Mines v Millennium Underwriting  1 CLC 992 where Christopher Clarke J undertook a review of the authorities on the admissibility of deletions and omissions from written contracts. He acknowledged that there was a diversity of authority, but concluded that the general tenor of the authorities was that recourse could be had to the fact and content of a deleted clause where:
"(a) deleted words in a printed form may resolve the ambiguity of a neighbouring paragraph that remains; and (b) the deletion of words in a contractual document may be taken into account, for what (if anything) it is worth if the fact of the deletion shows what it is the parties agreed that they did not agree and there is ambiguity in the words that remain. This is classically the case in relation to printed forms… or clauses derived from printed forms…" (paragraph 120)
Mopani itself concerned the pencilling out of a phrase and the superimposition of the words "TBA MLM"; in the event Christopher Clarke J was of the view that he would resolve the ambiguity without reference to the deleted words specifically, but by reference to the factual background; nevertheless, reference to the legible deleted words "fortified" him in his conclusions (paragraphs 85 and 86).
"Points of Agreement between the Experts
1. The experts agreed that fidelity insurance provides cover for theft by employee(s), although the cover provided is usually wider than just employee theft. An underwriter providing such cover would want to know such material facts as outlined in Mr Coates' statement at para 52. The policy cover provided by such a fidelity policy would contain clauses particular to that type of insurance as detailed in Mr Coates statement para 33, although the exact wording would vary between insurers.
2. The experts agreed that since 2000 commercial combined polices invariably extend to include violent and forcible theft cover and this is the standard cover provided in the commercial combined market. They further agreed that cover for non-violent/forcible theft was and is frequently available upon request. Business Interruption (BI) cover written within commercial combined polices will also provide cover for violent/forcible theft as standard and sometimes be extended to cover theft not involving violent/forcible entry/exit.
3. BI cover following thefts by employees is always excluded under fidelity policies and such cover is not available in the general commercial market.
4. It was agreed that one key element of fidelity cover has for some considerable time been cover for theft of property (money & goods) by employees. "
Matters that crossed the line
A. The fact that the parties intended that the AXA policy should replicate that provided by the Independent and that the premiums were originally the same.
B. An outward expression of accord crossing the line is to be found in the wording of the risk registers sent out by the claimants' brokers Layton Blackham and the exchanges that took place between AXA and the brokers prior to the conclusion of the policy terms in 2004.
C. The fact that the parties did not use the theft by employee section of the AXA policy. This applies to all the brokers, including Mr Davenport who was seeking to replicate the Independent policy. It also applies to Mr Burbedge who accepted that if, as a broker in 2004, he wanted to obtain for his client cover for theft by that client's employees using that section would "probably be the obvious way, yes".
D. Mr Burbedge's request for the excess to increase to £5,000 from £1,000 crossed the line: it cost his client £1.5m. This was accepted by Mr Page in cross-examination. It is entirely inconsistent with an assumption or intention that this policy was covering surreptitious theft by employee of stock and contents because no competent broker would do such a thing if he really thought he had such valuable cover.
E. The fact that the brokers provided information which was relevant to the alleged cover under the heading "liability policy" rather than "property policy" crossed the line. This is because it would be expected that if the alleged cover was being provided, it would have been provided in respect of that cover as well. Mr Burbedge accepted that the information was not given in that context. There is no evidence in the documents which suggests that facts which were material for any insurer to know if he was providing cover for non FVEE thefts by employees was provided to AXA in the context of the property policy. All the evidence is to the contrary.
F. Mr Smith gave evidence as to what information he would have expected Mr Burbedge to give if he thought he was obtaining theft by employee cover. The main thing was the check and supervision statement. This makes sense and is consistent with the evidence that both Mr Cash and Mr Glover gave: In the event that this is solely a matter for expert evidence, Mr Coates dealt with it in his report and was not challenged upon it.
G. The fact that no additional premium was charged from year to year either under the theft section or the BI section for this very valuable cover crossed the line.
H. The absence of any document or any other evidence as to any discussion about such unusual cover crosses the line particularly when one considers the long period over which this policy spanned by way of renewal and the negotiations as to premium and terms at each renewal. The stark fact is however that the claimants have not produced a single document in which this cover was discussed as between AXA and the brokers.
A. First, it is important to note that the main part of the Independent policy was under section K ie "Material Damage All Risks". Thus, it was on an "all risks" basis. The scheme of such type of insurance is, of course very different from the scheme of the Theft section of the AXA policy which provided cover not on an "all risks" basis but on the basis of specified perils.
B. Second, within that section K there was an exception (ie exclusion 4(a)) which I have already quoted above and which in effect excluded "damage caused by theft or attempted theft unless (a) involving forcible and violent entry or exit from the premises". However, again as I have quoted above, there was a separate endorsement headed "BAR K05 Full Theft Cover" which in effect deleted the exception 4(a). In the result, it seems to me that the Independent policy did cover what is referred to as "full theft" including theft by employees not as a specified peril but as part of the all risks cover and the deletion of the relevant exclusion. Thus, if and to the extent that the parties' stated intention was to "replicate" the cover with the Independent and this is admissible, this would seem to be a point in the claimants' rather than the defendants' favour.
C. Third, so far as cover for business interruption under the Independent policy is concerned, the position would seem to be as follows. As a starting point, it is important to note that unlike the earlier "material damage" section, this part of the policy was not on an all risks basis. On the contrary, as appears above, this section provided cover for "consequential loss" (a defined term) occurring during the period of insurance covered by any of the "Specified Perils" subject to the stated proviso which I have already quoted. Importantly, the specified perils did not include what might be described as "full theft". For present purposes the only relevant specified peril was that set out in paragraph 13 which I have already quoted above and in effect only provided cover under this section for theft or attempted theft involving forcible and violent entry/exit. On this basis, it would seem that the Independent policy did not provide BI cover for "full theft" or, more specifically, "employee theft". However, this analysis does not take account of the possible effect of the endorsement BUS B06 which I have quoted above. As I have stated, the inclusion of this endorsement does not seem to make sense in the context of the applicable "specified perils" wording and that this suggests an error of some kind although at this point of time it is impossible to say what that error was. However, in my view, endorsement BUS B06 cannot simply be ignored and, on this basis, the effect would seem to be that there was business interruption cover under the Independent policy for "full theft" which for reasons similar to those which I have stated in relation to the theft section would include theft by an employee.
Issue 2 – Are business interruption losses arising from non F&V theft by employees covered under the Policy?
Issue 2 (5): The Springboard Point
Issue 4: Estoppel
Issue 5 – Rectification
(1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
(2) there was an outward expression of accord;
(3) the intention continued at the time of the execution of the instrument sought to be rectified;
(4) by mistake, the instrument did not reflect that common intention.
"Now that it has been established that rectification is also available when there was no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the 'common continuing intention' were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be. Perhaps the clearest statement is by Denning L.J. in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd  2 Q.B. 450, 461:
'Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties-into their intentions- any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice.'"
"48. I do not regard Mummery, LJ's obiter observations as indicating that rectification is dependent on a continuing common subjective intention. Where one party has admitted that he had the same belief as the other, itself something of a rarity in a contested case, the likelihood is that the parties will have communicated that belief to each other in some way. Where such an admission is made it may be justifiable to infer that they did or to take the admission as accepting that. Further the requirement for an outward expression of accord may not require an express statement of the parties' agreement if it can be implied or is obvious from what occurred. But the basis for rectification, in a contract case, remains that "there must be some material upon which it can be said that the instrument does not reflect what the parties agreed, not merely what they or one of them thought that it meant." per Hoffmann, LJ, in Britoil v Hunt, to which I refer below."
I respectfully agree with those observations.
"The Court requires the mistake to be proved with a high degree of conviction before granting relief. There are sound policy reasons for this. The Court is reluctant to allow a party of full capacity who has signed a document with opportunity of inspection, to say afterwards that it is not what he meant. Otherwise, certainty and ready enforceability would be hindered by constant attempts to cloud the issue by reference to pre-contractual negotiations. These considerations apply with particular force in the field of commerce, where certainty is so important. Various expressions have been employed in the reported cases to describe the standard of proof required of the person who seeks rectification. Counsel in the present case were agreed that the standard can adequately be stated by saying that the Court must be "sure" of the mistake, and of the existence of a prior agreement or common intention before granting the remedy."
The Co-Insured Policies