UK: Public Liability Insurance: Cover For Environmental Clean Up Costs

The case of Bartoline v Royal & Sun Alliance provides clarification of the legal meaning of the term "damages" in the context of insurance policies.

Pollutants entered two watercourses as a consequence of a fire at Bartoline’s premises. The Environment Agency used its statutory powers under the Water Resources Act 1991 to carry out emergency clean-up works to the watercourses, and sought to recover the cost of these works from Bartoline under the same statute. In addition, it served a works notice on Bartoline, obliging it to undertake certain clean-up works itself.

Bartoline made a claim under its public liability (PL) policy for its liability for the expenses incurred by the Environment Agency. Royal and Sun Alliance (RSA), Bartoline’s PL insurers, refused indemnity, stating that the expenses incurred did not fall within the scope of the insuring clause in the PL policy, which provided coverage for "legal liability for damages in respect of …damage to property… nuisance trespass to land or interference with any easement right of air light water or way".

Bartoline disagreed, and brought a claim against them for breach of contract. Amongst other things, they argued for a wide definition of damages, claiming that had they not complied with the works notice, there was a likelihood that they would have received claims for damages from third parties, and that their compliance had therefore reduced the chances of such claims being brought, and any damages the Insurers would have had to pay out in this situation.

The judge considered whether, on a true construction of the PL policy, the liability of Bartoline to the Environment Agency, and the costs incurred of carrying out works pursuant to the works notice, were capable of constituting a legal liability for damages.

The liability to repay expenses incurred by the Environment Agency and the liability to pay damages in tort were described by the judge as "different animals". A liability to compensate or reimburse another party that arises through statute is not a liability for damages but operates as a debt. By contrast, a liability that arises through a tortious act gives the right to recover damages by way of compensation for loss and damage. The "core" meaning of the word "damages" in English law "involves pecuniary recompense given by law to a person for the actionable wrong that another has done him". Bartoline’s liability to the Environment Agency was statutory and was not based on an actionable wrong, and was therefore not capable of constituting a legal liability for damages.

The court rejected the wider definition of damages contended by Bartoline. Unless the policy contains an express clause imposing an obligation on the Insured to mitigate losses that might otherwise fall to Insurers, there is no legal obligation to carry out works that might prevent such claims being brought, or lessen the amount that might then be claimed. Bartoline could not recover through this route either.

When coupled with Tesco Stores v Constable and Others - click here for more detail - (where it was held that the principal purpose of interference-with-property cover in a PL policy was to provide protection against claims in tort), the Bartoline decision reinforces the argument for construing conventional PL operative clauses quite narrowly. It remains to be seen whether brokers will accept this approach or press for clearly more intensive protection for their clients.

Further reading: Bartoline Ltd v Royal & Sun Alliance plc and Another [2007] 1 All ER (Comm) 1043

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 15/10/2007.