UK: Property Damage Insurance - Meaning Of Loss And Damage

Outokumpu Stainless Ltd v Axa Global Risks (UK) [2007] EWHC 2555 (Comm)

A recent case provides clarification of the meaning of "damage" and "loss" and the scope of cover afforded by a radioactive contamination extension to a property damage policy.

The Insured owned and operated a steelworks at which it smelted scrap metal. Its claim arose out of an incident in which it inadvertently melted in its furnace a source of radioactive plutonium 238. There was no serious damage to or contamination of the smelting plant and equipment, and only inconsequential interruption to the Insured’s production. However, the Insured had to dispose of a substantial quantity of contaminated slag under controlled conditions, not via its ordinary slag processing contractors.

The Insured sought to recover those disposal costs under its All Risks Material Damage policy, which contained traditional property damage cover and a radioactive contamination extension to include "loss destruction or damage due to contamination caused by the use of radioactive scrap materials utilised in the manufacturing process".

The Insured contended that "loss destruction or damage" in this context was broad enough to include economic loss consequent on radioactive contamination, and that therefore disposal costs should be covered under the policy. Insurers argued that this was not the case, and that "loss" in this case was restricted to physical damage related loss, to the recovery of which the policy as a whole was directed.

The judge found for Insurers. In the clause defining Damage in the policy, "loss" meant, in context, "loss resulting from Damage to the Property of the Insured". He did comment that the policy was not consistent in its use of either the words "loss" or "damage". However, he thought it would be surprising if the parties intended by using the wording in the radioactive contamination extension to introduce cover of a wholly different nature from that given by the Property Damage section of the policy. The intention of the extension was to reintroduce one of the risks otherwise excluded, not to broaden the scope of the cover for radioactive contamination to include economic loss. The definition of "loss" was restricted to physical damage related loss.

In addition, the costs of disposing of the slag had not been caused by processing. It occurred during processing, but because of the presence of a radioactive source. The judge did not consider that the extra cost arising by reason of the presence of a radioactive source could be properly described as costs flowing from damage caused by processing.

This case shows the stress courts place on construction of policies as a whole, and that wordings of extensions should be read bearing the type of cover afforded by the policy in question in mind.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 22/11/2007.