Project Angel Bidco v AXIS - what are the key takeaways for warranty and indemnity insurers?

30 November 2023. Published by James Wickes, Partner and Matthew Wood, Senior Associate and Matt Ward, Trainee Solicitor

 On 31 October 2023, the London Circuit Commercial Court gave judgment in Project Angel Bidco Limited (in administration) v Axis Managing Agency Limited & Ors (2023) EWHC 2649

The judgment forms the newest addition to a limited but growing body of English case law regarding warranty and indemnity insurance (W&I) claims. His Honour Judge Pelling KC (the Judge) found in favour of the defendant insurers (Insurers) on matters of construction of an anti-bribery and corruption (ABC) exclusion. Although the judgment follows a trial of preliminary issues, it effectively disposes of the claim, since it was common ground that the claim would be excluded if the Insurers' construction of the exclusion were upheld.

Whilst the judgment applies settled principles of contractual interpretation, it nevertheless provides a helpful insight into how English courts will construe W&I policies. The judgment also clarifies the court's approach to assertions of conflict between policy exclusions and the cover spreadsheet. 

The facts

On 19 November 2019, the claimant, Project Angel Bidco Limited (the Insured), purchased the entire issued share capital of Knowsley Contractors Limited (trading as King Construction) (the Target) for approximately £16.7m (the Transaction). The warranties given by the Sellers in the sale and purchase agreement (SPA) were insured under a buy-side W&I policy issued by the Insurers (the Policy).

The Target provided civil engineering and construction services. A key client of the business was Liverpool City Council (LCC). After completion of the Transaction, the Insured identified that the Target was the subject of certain allegations relating to its compliance with anti-bribery legislation (the Allegations), which had not been disclosed to the Insured. The Insured argued that as a result of the discovery of the Allegations, LCC had ceased or severely reduced the business it did with the Target. The Allegations are the subject of an ongoing police investigation and the parties agreed for them to be kept confidential.

The Insured claimed that the Sellers had breached warranties regarding the Target's ABC compliance. The Insured contended that the true value of the Target had been either nil or at most £5.2m, and therefore that it had suffered a loss of either £16.35m or £11.15m respectively. However, the limit of liability under the Policy was £5m. Accordingly, the Insured limited its claim to that amount. 

Construction of the ABC exclusion

Relevant Policy provisions 

The insuring clause provided that the Insurers would, subject to Policy terms and conditions, "indemnify the insured for, or pay on the insured's behalf, any Loss covered by this Policy".

The Insurers had declined the claim based on an exclusion providing that: "The Underwriters shall not be liable to pay any Loss to the extent that it arises out of… any ABC Liability” (the Exclusion).

ABC Liability” was defined as meaning “any liability or actual or alleged non-compliance by any member of the Target Group or any agent, affiliate or other third party in respect of Anti-Bribery and Anti-Corruption Laws”.

The parties' positions

The key issue was whether the Allegations constituted an ABC Liability, despite not having given rise to any liability or actual (i.e. proven) non-compliance by the Target, where the police investigation had been ongoing when the warranties were given (and remained so at the time of judgment).

The Insurers argued that the Allegations were an ABC Liability, being "alleged non-compliance… in respect of Anti-Bribery and Anti-Corruption Laws", such that the Exclusion applied.

The Insured submitted that the definition of ABC Liability contained an “obvious minor error” and should be corrected to read: “any liability for actual or alleged non-compliance… in respect of Anti-Bribery and Anti-Corruption Laws”. If the Insured was correct, the Exclusion would not apply, because the Allegations had not given rise to a liability (as there was only alleged non-compliance).

The Insured argued that the proposed correction reflected the parties' agreement when the Policy was bound. In support of that case, the Insured relied on pre-contractual exchanges, including drafts of the Policy and emails between underwriters and the broker.

The Insured contended that the Policy did not reflect the parties' agreement, due to a drafting mistake. The mistake was said to be obvious because the definition as drafted did not make sense, in that the phrase "any liability" would also encompass "actual or alleged non-compliance…". The Insured argued that the alleged mistake should be corrected as a matter of construction (applying the principle in Chartbrook Ltd v Persimmon Homes [2009] AC 1101).


The Judge held that the pre-contractual material on which the Insured relied was not admissible for the purpose of construction of the Policy, because it did not establish any relevant background facts known to the Insured and Insurers. Whilst the material might show that both parties were aware of an actual or potential ABC problem (of unknown scope), it was not evidence of an agreed approach to coverage for ABC risks.

The Judge went on to reject the Insured's submission that the definition of ABC Liability contained an obvious drafting error which should be corrected as a matter of construction. The Judge found that:

  • like any contract, an insurance policy is to be construed by ascertaining what a reasonable person would have understood the parties to have meant. As in the FCA Covid-19 test case 1, the reasonable person here was an ordinary policyholder who is taken to have read through the policy conscientiously to understand what cover they were getting;
  • the reasonable policyholder would have read the word "or" as having the same meaning throughout the ABC Liability definition – i.e. such that the definition comprises three different situations (a liability, actual non-compliance, and alleged non-compliance), each of which was excluded;
  • that approach to the exclusion was a practical one which mirrored the insured warranties, and also the insuring clause (which contemplated that the Policy could respond both to direct loss suffered by the Insured and to liabilities of the Target to third parties); and
  • conversely, the Insured's construction of the ABC Liability definition did not make sense, because there could be no liability to make good an alleged breach of Anti-Bribery and Anti-Corruption Laws (as opposed to an actual breach).

Cover spreadsheet

The Policy was structured in a typical way with a schedule, policy wording and cover spreadsheet. The cover spreadsheet indicated, in the usual way, that the warranties the subject of the claim (i.e. ABC-related warranties) were "Covered".

The Insured contended that the cover spreadsheet supported its position on construction of the Exclusion. The Insured argued that a reasonable policyholder would not expect the Exclusion to sweep away the cover granted under the cover spreadsheet for ABC-related warranties, because the transparent and internally consistent way to achieve that result would be for the cover spreadsheet to mark the relevant warranties as "Excluded".

The Judge rejected this argument. He found that the purpose of the cover spreadsheet was to identify the warranties that were covered in-principle, and that an exclusion can apply to a warranty that is marked as "Covered". This structure did not introduce any contradiction into the Policy. On the contrary, exclusions could only apply to an obligation which was otherwise covered.

Whilst this construction will be welcomed by W&I insurers, they should continue to ensure that the cover spreadsheet accurately reflects the negotiated position, as the Judge's interpretation was based on the specific wording of the Policy and an exclusion may be found not to apply to the relevant loss. 

Final thoughts

The case provides helpful guidance on the Court's approach to the interpretation of exclusions in W&I policies. It also serves as a reminder for both insurers and brokers that in the absence of inherent absurdity or obvious nonsense, judges will be reluctant to find that policy wordings contain mistakes which should be corrected as a matter of construction. 

Whilst it is yet to be determined whether the recent increase in litigated W&I disputes will be sustained, this judgment (like that in Finsbury Food Group Plc v AXIS Corporate Capital UK Ltd & Ors) vindicates insurers' decision to defend an unmeritorious claim. Where litigation is unavoidable, the determination of key coverage points on a preliminary issue basis may (in an appropriate case) mitigate the costs risk of a full trial on liability and quantum.

1  FCA v. Arch Insurance (UK) Limited and others [2021] UKSC 1

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