Construction - theft exclusion clause - business interruption insurance

Ted Baker (TB) sold merchandise through retail outlets. Between early 2006 and December 2008, TB noticed losses at a London warehouse but was unable to identify the cause. On 12 December, following a tip-off, an employee in charge of processing returns of stock, was arrested. He was, along with two accomplice van drivers, charged was stealing stock from the warehouse. On 13 March 2009, he pleaded guilty to conspiracy to steal between 10 September 2000 and 12 December 2008. Claims for loss of property and for business interruption were made against the defendant insurers. The Material Damage section of the policy excluded damage caused by "acts or frauds of dishonesty by the Insured’s employees". However, cover was provided by the 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 every loss which does not involve entry to or exit from the Premises by forcible and violent means." The Business Interruption section applied where there was insurance in place covering the loss of property, although it excluded consequential loss for all loss "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, there was a special endorsement, headed "Theft Extension Clause" which stated “Exclusion 2(c) of the Cover is deleted.” Exclusion clause 4(c) was not deleted. The insurers denied that employee theft was covered by the policy. Eder J ruled as follows:

  1. As a matter of construction of the wording of the policy, there was cover for employee theft under the Theft section. That construction was not contrary to business commonsense, it was not plain that something had gone wrong with the wording and this was not a case in which a term of the contract was open to more than one interpretation. The failure of TB to take up specific "Theft by Employees" cover available under the policy was not admissible as an aid to construction. The subjective views of the parties were inadmissible as part of the factual matrix, and there was no relevant evidence of market practice.
  2. Business interruption losses arising from theft by employees was covered by the policy. The cover under this section was on an "all risks" basis, the proviso that material damage covered was satisfied, exclusion 2(c) had been deleted and exclusion 4(c) had not been deleted but it applied only to fraud or dishonesty (see paras 108, 109, 110 and 113).
  3. There was no estoppel by convention. There were no relevant shared assumptions, and in any event it would now be inequitable for Axa to assert that there was no cover for employee theft under the Theft Section or BI Section of the policy (see para 118).
  4. Rectification was not made out. There was no outward expression of accord indicating an agreement to an exclusion clause or an agreement that employee theft was excluded, nor any cogent material upon which it could be said that the policy wording did not reflect what the parties agreed not merely what they or one of them thought that it meant (see para 124).

For further information: Ted Baker plc v Axa Insurance UK Ltd [2012] EWHC 1406 (Comm)