UK: (Re)insurance Weekly Update 14- 2017

Last Updated: 5 May 2017
Article by Nigel Brook
Most Read Contributor in UK, December 2017

A summary of recent developments in insurance, reinsurance and litigation law.

This Week's Caselaw

Leeds Beckett University v Travelers Insurance Company: The meaning of "accidental" in a property policy and the scope of various policy exclusions

An accommodation block was built by the claimant in 1996 over an historic watercourse. In December 2011, large cracks appeared overnight. Further investigation revealed that the building's supporting concrete blocks had "turned into mush" and the building was demolished in 2012. The claimant sought to claim under its building insurance policy (which was taken out in August 2011). "Damage" was defined under the policy as meaning "accidental loss or destruction or damage" and various exclusions were included in the policy.

Much of the case turns on its facts, but Coulson J summarised some key principles in the decision. He held as follows:

(1)" "Accidental" simply means an event that occurs by chance, which is non-deliberate". Damage can occur due to an inherent vice, or by ordinary wear and tear, and still be accidental. However, to be accidental the event must be non-inevitable. Inevitably will be assessed from the time that cover was taken out. The claimant does not need to prove the exact nature of the accident and foreseeability is irrelevant.

On the facts of the case, it was held that at the time the policy was taken out the damage was inevitable at some point during the policy period and hence was not accidental. Furthermore, there had been no flood, as argued by the claimant.

Accordingly, the claim failed. Nevertheless, the judge also considered the various policy exclusions.

(2) Cover for "gradual deterioration" was excluded under the policy. The judge rejected the claimant's argument that this meant deterioration of the thing itself (ie the building), without any influence from an external source. He accepted the insurer's argument that deterioration inevitably involved an interaction between the property being insured and its environment (eg the ground on which it stood). Furthermore, "gradual" meant something which develops over time: "If deterioration is itself progressive (ie it takes place over time), then gradual deterioration must mean a process that may go even more slowly". Here the damage happened over a period of at least 10 years and so this exclusion would have applied even if the damage had been accidental.

(3) Cover for faulty design was excluded under the policy. The judge accepted that accidental damage can be the subject of an operable exclusion for faulty design. The insurer need only show that the design was not fit for its purpose: no negligence need be demonstrated. On the facts, the judge accepted that the design of the groundwater drainage had been defective.

(4) Finally, the judge also rejected an argument that the original damage here was damage to the concrete and that the cracking was "subsequent damage". The claimant had sought to rely on an Australian decision that an exclusion for damage caused by gradual deterioration or faulty design should not exclude cover for subsequent damage. The judge held that there was no subsequent damage here and, in any event, any subsequent damage was not caused by a cause "not otherwise excluded".

UK Insurance v R&S Pilling: Court of Appeal holds that vehicle was being "used" when being repaired

The first instance decision in this case was reported in Weekly Update 8/16. A garage mechanic obtained permission from his employer to use the loading bay at his work premises to carry out some repairs to his own car. Due to his negligence when carrying out the repairs, a fire started at the premises and spread to adjoining premises. The employer's insurer paid out and then sought to bring a subrogated claim against the mechanic. The only insurance policy which might potentially cover that claim would be the mechanic's ordinary car insurance. That provided that "We will cover you for your legal responsibility if you have an accident in your vehicle and you kill or injure someone; you damage their property..."

At first instance, the judge held that that clause narrowed the cover provided by section 145(3) of the Road Traffic Act 1988, which provides that a motor insurance policy must cover liability caused by the "use" of the vehicle. The Court of Appeal has now held that that was wrong: "It is obvious that something has gone wrong with the language of clause 1a in that, as I have said, its express terms only cover liability if [the mechanic] was in his car when the accident occurred. Such limitation of cover was plainly never intended". The certificate expressly formed part of the policy and that confirmed that the policy "satisfies the requirements of the relevant law applicable in Great Britain" ie including section 145(3) of the RTA.

It was held that the judge had also erred in finding that the car was not being "used" within the meaning of section 145(3): "I consider that the repair work carried out by [the mechanic], in order to put his car into a safe and good working condition and so enable his car to pass its MOT, which it had just failed, and so enable him to continue to drive it, was a use of the car consistent with its normal function, applying a purposive interpretation to section 145(3)". By contrast, it was suggested that arguments might arise where the car had not been driven for a considerable period of time, or the work was of reconstruction rather than repair.

The Court of Appeal summarised English and EU jurisprudence of the meaning of "use of a vehicle" as follows: "(1) "Use" is not confined to the actual operation of the car in the sense of being driven. (2) There may be "use" of a car when it is parked or even immobilised and incapable of being driven in the immediate future. (3) "Use" of a vehicle includes anything which is consistent with the normal function of the vehicle. (4) Damage or injury may "arise out of" the use of the car if it is consequential, rather than immediate or proximate, provided that it is, in a relevant causal sense, a contributing factor".

Cruise and Maritime Services v Navigators Underwriting: Whether sales agent entitled to indemnity under marine policy

The head charterers of a cruise ship time chartered the vessel to Transocean Tours, a cruise and tour company. Transocean entered into a "General Sales Agency Agreement" with the claimant, pursuant to which the claimant marketed cruises on the vessel as the agent of Transocean. The claimant appointed tour operators who then contracted with the passengers.

The claimant was named as a co-insured on a marine policy taken out by the head charterers. The policy was a liability policy and the claimant claimed an indemnity against liabilities said to have been incurred by the claimant to the passengers following an outbreak of norovirus on the vessel.

Knowles J dismissed that claim on the basis that the claimant was not liable to the passengers under the Athens Convention 1974 because it was not a "contracting carrier". The passengers had contracted only with the tour operators.

Furthermore, the alleged liability did not fall within the scope of the policy, which covered only "losses, costs and expenses incurred as charterers": there was no charter of the vessel by the claimant and the claimant was not a charterer. This was a case where the claimant's name had been added to the policy without any real thought and for no additional premium. As the insurer's barrister put it: "the mere naming of [the Claimant] as co-assured does not of itself mean that the alleged liability in respect of which this claim is advanced fell within the Policy". It did not mean that the commercial purpose of the policy was to cover the claimant for any liability owed to passengers arising out of the operation of the Agreement.

Finally, it was noted that the mere outbreak of norovirus is not enough to establish fault or neglect, although the judge did not need to decide if there had been fault or neglect here.

(Re)insurance Weekly Update 14- 2017

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Nigel Brook
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