Ted Baker v AXA - fashion mishap for AXA

In the recent case of Ted Baker Plc and Another v AXA Insurance UK Plc and Others [2012] EWHC 1406 (Comm), Eder J held that a commercial combined insurance policy taken out by clothing retailer, Ted Baker, covered theft by an employee and the consequential or business interruption losses that flowed from the theft regardless of the fact that Ted Baker had not taken out a section of the policy relating to employee theft.

Background

As part of a stock-take, Ted Baker realised that it had suffered a substantial loss of stock from its London warehouse. Following investigations, one of Ted Baker's employees, along with two accomplice van drivers, were discovered to have been stealing stock from the warehouse. The employee was arrested and pleaded guilty to conspiracy to steal over an 8 year period. Ted Baker brought a claim against AXA for £1 million for the loss of stock and £3 million for consequential loss or business interruption.

AXA declined cover on the basis that the policy wording did not, as a matter of construction, cover employee theft. AXA primarily asserted that such cover would only be provided by way of fidelity insurance, which had not been taken out by Ted Baker. As an alternative AXA advanced a claim for rectification and also raised other defences such as mistake, estoppel and rectification.

The Decision

Eder J was not convinced by AXA's arguments and held that:

The fact that Ted Baker had not taken out the section of the policy relating to employee theft could not be taken into account as an aid to interpretation (applying Mopani Copper Mines Plc v Millennium Underwriting Ltd [2008] EWHC 1331 (Comm) [2008]). Nor did this election necessary lead to the conclusion that the policy was not intended to cover employee theft. Eder J therefore found that, as a matter of policy construction, the theft cover was "full" and included theft by employees.

Market practice did not replace the ordinary meaning of the words used in the policy. While the availability of fidelity cover meant that the parties were open to agree such cover, they were equally free to agree that employee theft was covered without such fidelity cover. In this instance, there was no exclusion of employee theft and the fact that such exclusion was market practice did not displace the fact that there was no such exclusion in the policy taken out by Ted Baker.

Evidence that the AXA policy was intended to replicate Ted Baker's earlier policy with the Independent was merely part of the negotiations and did not override or affect the policy terms that were actually agreed between AXA and Ted Baker. Furthermore, Eder J considered that the parties' subjective intentions were irrelevant and inadmissible.

Under the policy wording, business interruption losses arising from non-forcible and violent theft by an employee were covered. Although there was an exclusion for consequential losses arising from theft or attempted theft, this had been deleted indicating that consequential loss arising from theft was intended to be covered.

The estoppel claim failed; there was no relevant shared assumption and it would be unconscionable for AXA to claim that employee theft was not covered.

The rectification claim failed because there was no expression of accord between the parties indicating agreement to exclude theft cover nor was there any evidence to suggest that the policy wording did not reflect the parties' agreement.

Finally, there was no material misrepresentation or non-disclosure.

Comment

This judgment underscores that the terms of insurance cover is to be construed by the policy terms in fact agreed, and highlights that the fact that an insured has elected not to take out a section of a standard policy does not, of itself, necessarily indicate that such cover is not to be provided elsewhere in the policy. Further, do not assume that clear policy wordings can be overridden by counter arguments based on asserted market practice, or upon a focus of the parties' subjective intentions that "do not cross the line".

This case reminds insurers to ensure that policies are clearly drafted and that all aspects of the insurance are properly and fully considered and documented. Particular care should be given to the wording used in and the scope of insuring clauses and also of exclusions: it is vital to ensure that excluded events are clearly set out if necessary and that exclusions and insuring clauses "hang together".

Also it should be noted that evidence of deleting an exclusion can, in the overall factual context, be a determinator that cover is otherwise to be provided.