Nature of contract - Exceptions - Theft by employee
Ted Baker Plc and another company v AXA Insurance UK Plc and other companies: Queen's Bench Division, Commercial Court (Mr Justice Eder): 25 May 2012
The first claimant was a holding company for business involved in the well-known Ted Baker brand worldwide. The second claimant was its wholly owned UK subsidiary. During the relevant period, the claimants sold merchandise through various shops and retail outlets. Between early 2006 and December 2008, the claimants noticed losses at a London warehouse and called in an independent security consultant. The losses were confirmed and later an employee along with two accomplices were arrested; the employee pleaded guilty to conspiracy to steal.
The first defendant insurer issued cover for the claimants in May 2001, replacing an earlier insurer, and continued with various renewals in substantially similar form during the whole of the relevant period. Initially it provided sole cover but later the other defendants provided part as co-insurers. The proceedings concerned a dispute over the scope of cover. The defendants’ primary case was that the insurance wording (the policy) did not, as a matter of construction, cover theft by or in collusion with an employee. In the alternative, they submitted that the claimants would in any event be estopped by convention from relying on a construction that the policy did cover such theft; as a further alternative, they sought rectification of the contract. They attempted to adduce evidence as to the factual matrix or custom of trade in support of their case on construction; the claimants argued all such extrinsic evidence was inadmissible (for the full list of issues, see  of the judgment).
The principal issue for determination was whether, on its true construction, the policy covered theft by or in collusion with an employee. The claimants contended that it did; they further contended that it also covered business interruption.
The court ruled: It was established that policies against burglary or theft could expressly except from the risk any loss by theft or dishonesty of the assured’s servants. However, absent such express exception, there was no reason in principle why a policy which covered ‘theft’ should not include theft by an employee (see  of the judgment). In the instant case, fairly read, the terms of the contract were not open to more than one interpretation. Business common sense did not point generally either way.
Further, given that the effect of the policy was clear and there was no relevant ambiguity, it was not permissible to take into account the non-selection of the theft by employees section, and in any event it would not assist the defendants. As a matter of wording of the policy, the claimants were right regarding business interruption losses arising from the relevant theft by employees. The defendants’ case on estoppel by convention failed in limine as did its case on rectification. As to the latter, in a contract, there had to be some material upon which it could be said that the instrument did not reflect what the parties agreed, not merely what they or one of them thought it meant (see , , , , ,  of the judgment). The claimants succeeded on the principle issue (see  of the judgment).
Yorkshire Water Services Ltd v Sun Alliance & London Insurance Ltd  2 Lloyd's Rep 21 applied; Aswan M/S Engineering Establishment Co Ltd v Iron Trades Mutual Insurance Co Ltd  1 Lloyd's Rep 289 considered; Investors' Compensation Scheme Ltd v West Bromwich Building Society, Investors' Compensation Scheme Ltd v Hopkin & Sons (a firm), Alford v West Bromwich Building Society, Armitage v West Bromwich Building Society  1 BCLC 493 considered; Royal and Sun Alliance Insurance plc v Dornoch Ltd  1 All ER (Comm) 590 considered; Mopani Copper Mines plc v Millenium Underwriting Ltd  EWHC 1331 (Comm) considered.
Stephen Cogley QC and Tim Marland (instructed by Browne Jacobson) for the claimants; Richard Lynagh QC and James Medd (instructed by Kennedys) for the defendants.