Ted Baker Plc & Anor v AXA Insurance UK Plc & Ors

Insurance wording covering “theft” ordinarily includes employee theft unless expressly excluded. A court should not imply an employee-theft exclusion merely because the policy contains a separate theft-by-employees section or because market practice commonly treats such risks separately.

Direct-loss cover and business-interruption cover are distinct. Business-interruption cover depends on the wording of its own section, including any proviso and exclusions. Where a theft exclusion is deleted, a general exclusion for fraud and dishonesty will not ordinarily be construed as reinstating an exclusion for theft by employees, particularly where that construction creates ambiguity.

Rectification for common mistake requires a continuing common intention, an outward expression of accord, continuation of that intention at execution, and a document which by mistake fails to express it. The mistake must be established with a high degree of conviction.

The claimants sought indemnity from AXA Insurance UK Plc and co-insurers for direct stock losses and business-interruption losses arising from prolonged non-forcible theft by an employee and accomplices. The insurers contended that the policy covered only theft involving forcible and violent entry or exit, and that employee theft belonged exclusively within a separate fidelity section which had not been selected.

The issues included construction of the Theft and Business Interruption sections, the effect of endorsements extending theft cover and deleting a theft-related exclusion, estoppel by convention, rectification for common mistake, and alleged misrepresentation or non-disclosure to the co-insurers.

1. Direct losses. Endorsement A05/F08 extended the Theft section to loss resulting from theft without forcible or violent entry or exit. Read according to its ordinary meaning, “theft” included theft by employees. There was no express employee-theft exclusion, and the court would not imply one.
2. The non-selection of the separate Theft by Employees section did not alter that conclusion. That section covered property and money and contained materially different conditions. Its non-selection did not justify reading words into the endorsement.
3. Business interruption. The Business Interruption section was discrete from the Theft section. Nevertheless, its all-risks wording covered interruption caused by theft, including employee theft, subject to the policy terms. The proviso was satisfied because the AXA policy itself covered the relevant property loss. Deletion of exclusion 2(c), which excluded consequential loss arising from theft, confirmed that result.
4. Exclusion 4(c), concerning loss caused by fraud or dishonesty, did not exclude theft. It stood alongside the specific theft exclusion and was at least ambiguous if construed to include employee theft. It therefore had to be construed against the insurers. Market practice and subjective evidence could not displace the wording.
5. Estoppel and rectification. Estoppel by convention failed because there was no relevant shared assumption and, in any event, it would be unconscionable for AXA to deny the cover. Rectification failed because the insurers had not shown a common continuing intention to exclude employee theft, an outward expression of accord, or a document which by common mistake failed to record the agreed exclusion. The court was not sure of the alleged mistake.
6. Co-insurers. The descriptions of the risk as “larceny” did not amount to actionable misrepresentation. The co-insurers had the policy wording, did not reasonably rely on any alleged misrepresentation, and there was no material non-disclosure.
7. The court answered the relevant issues in favour of the claimants. Direct employee-theft losses and consequential business-interruption losses were covered. The defences failed. The parties were directed to agree a draft order, including costs.