If an insured doesn’t specifically opt for cover against employee theft, will it still be covered with the standard wording?
“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 answer to the question above is yes.)
The case
Ted Baker plc and Another v AXA Insurance UK plc and Others was a 2012 case at the High Court arising from the insurer’s decision to decline a £4 million claim from the clothing retailer after it discovered a major theft of stock from its London warehouse. The clothing retailer claimed £1 million for the loss of its garments and £3 million for the resulting business interruption.
The key issue
Whether employee theft and resulting business interruption was covered when these risks were neither explicitly included nor excluded from the policy as it was written.
Was employee theft and resulting business interruption covered when these risks were neither explicitly included nor excluded from the policy as it was written?
The wording
The policy was based on an AXA multi-section commercial combined wording and a schedule containing specific endorsements. Among other things, the policy contained Theft and BI Sections (both stated as operative) as well as a Fidelity Section entitled “Theft by Employees” (stated as inoperative). The Theft Section limited cover to theft involving forcible and violent entry, but also contained an endorsement, the “Theft Extension Clause” as follows:
“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 BI Section originally contained two exclusions for loss “arising directly from theft or attempted theft” and “caused by or consisting of…acts of fraud and dishonesty”. However, an endorsement had then deleted the former exclusion, leaving the latter still in force.
Ted Baker noticed losses at its London warehouse during stock taking, and an employee was subsequently arrested and prosecuted for conspiracy to steal. AXA denied that employee theft was covered by the policy, arguing that such cover could only be provided by the Fidelity Section, which Ted Baker had decided not to take out.
The BI Section originally contained two exclusions for loss. However, an endorsement had then deleted the former exclusion, leaving the latter still in force.
The judgment
The judge held that the theft cover was “full” and therefore included theft by employees, because the endorsement to the Theft Section had clearly deleted the “forcible and violent means” proviso.
Although Ted Baker had not decided to take out the fidelity cover available within the policy that could not be interpreted as necessarily meaning that it did not want protection against employee theft, the judge held. Furthermore, AXA’s contention that it was market practice to exclude employee theft from such policies could not override the fact that it was not specifically excluded from the policy taken out by Ted Baker.
Accepting that the literal meaning of “theft” should therefore include theft by employees, the judge did not accept that this was contrary to business common sense, or that the terms of the policy were open to more than one interpretation, or that there was something wrong with the wording as a result.
The judge also dismissed AXA’s argument that since its policy was intended to replicate one Ted Baker had previously taken out with another insurer, which AXA said did not cover employee theft, then its own policy was clearly not intended to include this risk either. The individual parties’ subjective intentions were irrelevant and inadmissible – the policy wording is all that matters.
BI losses were also covered, because the exclusion for losses “arising directly from theft or attempted theft” had been deleted, indicating that these losses were therefore covered.
The judge agreed with Ted Baker that the “caused by or consisting of…acts of fraud and dishonesty” exclusion was not actually concerned with theft at all but with fraud or dishonesty other than theft, but because it left room for ambiguity it must therefore be construed against AXA anyway.
Although Ted Baker had not decided to take out the fidelity cover available within the policy, that could not be interpreted as necessarily meaning that it did not want protection against employee theft, the judge held.
The lessons
This case yet again highlights the importance of clearly drafted policy terms that avoid ambiguity and inconsistency. In particular, special attention should be given to ensuring that coverage clauses and exclusions clearly set out the scope of cover, and that endorsements have been carefully considered so they accurately reflect the intentions of both the insured and insurer.
It also shows that what is “market practice” cannot be relied on in court to help clarify fuzzy or sloppy wording.
Finally, this ruling establishes that even if a policyholder does not take out a specific section within a standard policy wording, this does not necessarily mean this type of cover is not provided elsewhere within the policy wording – unless specifically stated within the wording.
