Public liability policy – Indemnity – Appellant constructing supermarket over railway cutting – Appellant agreeing to compensate railway company in respect of certain losses to its business arising from the works – Appellant making payment to company under agreement – Whether entitled to indemnity under insurance policy – Whether indemnity confined to appellant’s liability in tort – Appeal dismissed
In 2003, the appellant commenced work on a project to build a supermarket over a railway cutting; the railway was to be enclosed in a tunnel and the supermarket built upon the infill site above it. The railway operator C Ltd, held a contractual licence to run trains on the track. By a deed of covenant, the appellant undertook to compensate C Ltd for any costs, losses or expenses to its business arising from the works.
The rail regulator required the appellant to take out public liability insurance of £155m in connection with the works. The appellant took out a standard form combined policy with the respondent insurers, section 3 of which provided for the appellant to be indemnified “against all sums for which The Insured shall be liable at law for damages” in respect of various listed matters, including bodily injury and loss or damage to material property. An extension to section 3 further provided that “liability assumed by The Insured under contract or agreement… shall be the subject of indemnity under this section”.
In 2005, a section of tunnel collapsed onto the railway lines. The appellant made a payment to C Ltd under the deed to compensate it for loss of business resulting from reduced passenger revenue following the incident. The respondent refused to indemnify the appellant under the insurance policy in respect of that settlement. In proceedings brought by the appellant, a preliminary issue was tried as to whether the respondent was entitled to an indemnity under the policy based upon the assumption that: (i) no property interest of C Ltd had been affected; (ii) no material property had been lost or damaged; and (iii) the appelant’s liability to C Ltd arose solely out of the deed of covenant.
Determining that issue in favour of the respondent, the judge held that public liability policies generally covered liability to the public at large for claims in tort or for the type of damage protected by the law of tort: they did not provide cover against contractual liability for purely economic loss. He held that the respondent’s policy did not differ in this respect and hat the extension clause did not radically extend the cover; it merely provided cover where the respondent was liable in contract for a tort committed by another party that fell within the matters listed in section 3. The appellant appealed.
Held: The appeal was dismissed.
A public liability policy provided cover against liability to the public at large; by contrast, private liability arose from contracts entered into between individuals. Public liability in that sense arose in tort; it did not and could not arise only in contract. The fact that the policy in question was public liability insurance was not conclusive as to its construction, but gave a strong indication as to the meaning of the words used. Although the wording might extend to cover third-party claims in contract for pure economic loss, a clear statement to that effect should be included, and such insurance would be expected to be described as contract liability or financial or consequential loss cover.
The policy in question was a typical public liability cover in standard form. Although the reference to “all sums for which The Insured shall be liable at law” was sufficiently wide to include liability in contract, the following words made it clear that the cover was in respect of liability in tort. The wording did not indicate an intention to include liability in contract under a contract of indemnity. Although a breach of contract gave rise to a liability at law for damages, that liability under the policy had to be “in respect of” one or more of the classes of liability set out in section 3, and each of those had to correspond to a familiar class of liability arising in tort. Further, the policy covered contractual liability that was co-extensive with liability in tort. The language of the policy did not entirely support such an interpretation, but it was a commercial construction that gave effect to the parties’ intention.
The reference to liability “in respect of” certain matters in section 3 meant specifically “for” those matters, namely liability for any of those torts to the party that had the right to claim. For example, the appellant’s liability in respect of loss or damage to material property had to be liability to the person to whom that property belonged and liability for loss suffered by someone else as a consequence of such damage was not “in respect of” it within the meaning of the policy.
The contractual liability extension did not assist the appellant in the instant case. In stating that contractual liability “shall be the subject of indemnity under this section”, it remained faithful to the insuring clause and indicated that the contractual liability assumed must still be “in respect of” the physical affect on a third-party claimant’s person, property or property rights. Since C Ltd had not suffered any loss or damage as set out in section 3, the appellant could not claim indemnity in respect of the payment that it had made to C Ltd.
Justin Fenwick QC and Mark Cannon (instructed by Berwin Leighton Paisner LLP) appeared for the appellant; Colin Edelman QC and Richard Harrison (instructed by Davies Lavery) appeared for the respondent.
Sally Dobson, barrister