Public liability policy – Indemnity – Claimant constructing supermarket over railway cutting – Claimant settling claim for loss during construction works – Whether underlying insurance policy providing indemnity – Preliminary issue determined
In 2003, work began on the claimant’s project to enclose a section of railway by installing sections of concrete tunnel over a cutting and building a supermarket on top of the site. The owner of the railway track and surrounding land granted Chiltern Railway Co Ltd (Chiltern) a contractual right to run trains along the track.
The rail regulator required the claimant to take out public liability insurance cover of £155m. The claimant arranged an underlying policy of insurance with the defendants, inter alia, to indemnify the claimant against sums paid out in respect of: (a) the death, or bodily injury to, or illness or disease of any person; (b) loss of or damage to material property; and (c) any obstruction, loss of amenity, trespass, nuisance arising out of and in connection with the project. Exception 6a provided: “The insurers shall not be liable in respect of… liability… arising solely under fines, pre-determined liability or liquidated damages clauses in any contract or agreement”.
Prior to the commencement of the project, the claimant had entered into a deed of covenant granting Chiltern a wide contractual indemnity up to £155m. Under the deed, the claimant was required to pay Chiltern “on demand such sums as shall…fairly compensate them for all and any costs, losses or expenses arising out of or resulting (directly or indirectly) from…the carrying out of the Works…on its existing and/or future railway passenger business”.
In 2005, a section of tunnel collapsed onto the railway lines below. Although no property belonging to Chiltern was damaged, the claimant made a payment under the deed to compensate Chiltern for loss of business resulting from a reduction in passenger revenue following the incident. The claimant challenged the defendants’ refusal to provide an indemnity under the insurance in respect of that settlement. A preliminary issue arose whether the claimant was entitled to the indemnity on the assumption that no property interest of Chiltern had been affected and no material property had been lost or damaged; and that the claimant’s liability to Chiltern arose solely out of the deed of covenant.
Held: The preliminary issue was determined; the claimant was not entitled to the indemnity sought.
The proper construction of the underlying policy depended upon the ordinary and natural meaning of the words used in their contractual and commercial setting. The niceties of language might have to give way to a commercial construction more likely to give effect to the parties’ intention: Tioxide Europe Ltd v CGU International Insurance plc [2004] EWHC 2116; [2005] Lloyd’s Rep IR 114 and Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 applied.
Public liability insurance policies were generally regarded as not affording cover against liability in contract for pure economic loss: James Longley & Co v Forest Giles Ltd [2001] EWCA Civ 1242; [2002] 1 Lloyd’s Rep IR 421 and Bartoline Ltd v Royal & Sun Alliance Insurance plc [2006] EWHC 3598 (QB); [2007] 1 All ER (Comm) 1043 considered.
In the present case, paras (a) and (b) of the insuring clause, which had to be read as a whole, plainly contemplated harm for which there was liability in tort, namely harm to someone’s bodily integrity or property interests. Liability for such harm suffered by the public would arise in tort rather than contract, particularly in the context of a construction project. With regards to para (c), “nuisance” and “trespass” were well-recognised torts, both of which could be brought only by a party that had an interest in the land: Hunter v Canary Wharf Ltd [1997] AC 655 considered.
Turning to the terms “obstruction” and “loss of amenities”, construed in the context of the insuring clause, and bearing in mind that this was a public liability policy, the former referred to a particular type of actionable nuisance, namely obstruction of the highway or a private right of way. The latter referred to loss of or impairment to such amenities as the quiet enjoyment of possession of land and easements, such as rights of way, ancient lights, support and water rights, all of which were types of property rights the loss of which or impairment to would give rise to a right to compensation in tort.
Exception 6a dealt with cases where liability for breach of a co-extensive contractual duty arose. The exception was designed to ensure that certain heads of damages irrecoverable in tort were excluded in such cases.
Justin Fenwick QC and Mark Cannon (instructed by Berwin Leighton Paisner LLP) appeared for the claimant; Colin Edelman QC and Richard Harrison (instructed by Davies Lavery) appeared for the defendants.
Eileen O’Grady, barrister
