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Interpretation of combined commercial policy wording

Ted Baker Plc v AXA Insurance UK Plc [2012] EWHC 1406 (Comm)

The claimant clothing retailer discovered that an employee had been stealing stock from its warehouse. The claimant claimed on its commercial combined insurance policy that it held with AXA, for losses during the period of 2004-2008 in relation to loss of stock (£1 million) and losses for consequential loss or business interruption (£3 million).

AXA declined cover on the basis that the policy wording, as a matter of construction, did not cover employee theft. Amongst their arguments were the following assertions:

i) if the claimant had wanted this sort of cover, they would have taken out a specific type of insurance known as ‘fidelity insurance’;

ii) there was a theft section within the policy, but the claimant had not selected the ‘theft by employees’ section from the standard policy wording; and

iii) the policy was intended to replicate cover that was provided by a previous insurer (which AXA contended did not cover employee theft).

Eder J handed down judgment on 25.05.2012, and held in favour of the claimant. The court found that despite the fact that the claimant had not selected the specific section in relation to ‘employee theft’, the theft section of the policy should be construed as to include theft by employees.

The court held that market practice does not replace the ordinary meaning of words used within policy wording. Therefore, although the parties could have opted to take out fidelity cover, “the wording should be given its plain meaning, namely theft means theft, including theft by employees as this is not otherwise excluded’.

Insurers should be aware therefore that even if an assured does not take out a specific section within a standard policy wording, this does not rule out this type of cover being provided elsewhere. The court seemingly prefers to take the literal meaning of policy wordings, and therefore policies need to be clearly drafted, to avoid confusion as to what the scope of the policy actually is.