UK: Public Liability Insurance: Cover For Contractual Liabilities

In its judgment in the case of Tesco v. Constable & Others, handed down on 14 September 2007, the High Court has considered the availability of cover for contractual liabilities under the public liability section of a project policy. The judge took a very narrow view of a Contractual Liability Extension, effectively restricting cover to losses of a tortious type.

Tesco’s claim for indemnity arose out of the collapse of a tunnel outside Gerrard’s Cross Station, which led to the line through Gerrard’s Cross being closed for 51 days. Chiltern Railways, who operate on the line through Gerrard’s Cross, made a claim against Tesco under a contractual Deed of Covenant. The claim was settled in June 2007 and the settlement included amounts for lost revenue suffered as a consequence of the tunnel collapse after the line had re-opened.

The Insuring clause of the PI section provided that "The Insurers will indemnify the Insured against all sums for which the Insured shall be liable at law for damages in respect of (a) death of or bodily injury to or illness or disease of any person (b) loss or damage to material property… (c) obstruction, loss of amenities, trespass, nuisance or any like cause…"

There was also a Contractual Liability Extension, which provided that liability assumed by the insured under contract which would not have attached in the absence of such contract would be the subject of indemnity under the PL section of the policy only if the conduct of the claim were to be vested in the Insurers.

Tesco argued that the amounts paid to Chiltern in settlement represented sums which Tesco was "liable at law" to pay, and that the liability arose out of "obstruction, loss of amenities, trespass, nuisance or any like cause", because the line closure following the tunnel collapse should be understood as obstruction or loss of amenity" Alternatively, the Contractual Liability Extension should respond.

Mr Justice Field rejected Tesco’s submissions. Agreeing with the position argued by the insurers, he found that:

• The starting point for analysing the policy was to look at the type of policy; in this case, it was a public liability policy, which was (per Mr Justice Field) generally understood to be intended to cover tortious, rather than contractual, losses.
• The Insuring clause clearly listed well-known torts, albeit using the typical shorthand language of a public liability policy. Obstruction, loss of amenity etc are torts which require an interest in the property affected. As Chiltern had no interest in the railway line, they would not have a claim in tort against Tesco (hence the reliance on the Deed of Covenant) and so Tesco could not be "liable at law" in tort.
• The Contractual Liability Extension was subject to the main insuring clause and operated only to extend the cover to co-existent liability in contract; it did not extend the policy further to cover all contractual legal liabilities.
• The judge distinguished between public liability, a term which he said was intended to describe claims in tort which could be brought by the public at large, and "private liabilities", which only arise (as here) as a result of some private agreement between the parties.

The judge took a narrow approach to the construction of wording which could, on the face of it, have significantly extended the scope of the operative clause of the policy. If insureds and brokers want to have cover under a public liability policy for pure contractual liability arising from interference with access to or the use of land in which the claiming party has no legal interest, it will be necessary to use very clever words to that effect.

CMS Cameron McKenna LLP acted for the Chiltern Railway Company in the underlying claims under the Deed of Covenant.

Further reading: Tesco v Constable & Others [2007] EWHC 2088 (Comm)

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 21/09/2007.