Legal Updates

Commercial Law - Insurance Law – Environmental Law - Interpretation of Terms of Insurance Policy

The case of Bartoline Ltd v Royal and Sun Alliance Insurance Plc and Another [2006] (which was heard in November 2006 but only published in March 2007), concerned the interpretation of terms as they related to liability insurance. The claimant, who was insured, carried on business as a manufacturer of adhesives and as a filler and packer of hydrocarbons. The first defendant was, at the time, the claimant's public liability insurer.

In May 2003, a fire broke out at the claimant's premises. The consequences of which meant that polluting matter entered a watercourse adjacent to those premises. The polluting matter then allegedly flowed into another watercourse. As a result of the incident, the Environment Agency acting under its statutory powers carried out emergency work. In addition to this, the agency served statutory notices (“Works Notices”) on the claimant requiring them to carry out certain further works.

The agency claimed to have been lawfully entitled to carry out the emergency works in the immediate aftermath of the incident by virtue of the powers conferred on it by s.161 of the Water Resources Act 1991 (“the Act).

Likewise it claimed to have been fully entitled to serve Works Notices requiring the claimant to carry out the further works by virtue of s.161A of the Act. Furthermore, pursuant to s.161(3) and s.161D(3) of the Act, the agency claimed to be entitled to recover from the claimant the expenses reasonably incurred by it in carrying out those works, and served invoices as such on the claimant.

The claimant made a claim under its insurance policy in respect of various losses and liabilities said to have been incurred as a result of the fire and pollution which ensued. Those included a claim under the public liability section of the policy in respect of the insured's liability for expenses incurred by the agency in carrying out the emergency works, and in respect of at least some of the works which the insured had been required to carry out by the Works Notices.

The insurer rejected that head of claim and subsequently, the claimant brought legal proceedings. The fundamental issue to be decided by the court was whether, having regard to the terms of the policy, any liability on the part of the claimant under s.161 or s.161D of the Act constituted a 'legal liability for damages' in respect of 'accidental ... damage to property' or 'nuisance, trespass to land ... or interference with any easement right of air, light, water or way' arising from the escape of the polluting matter from the premises as a result of the fire.

The court held:

Any liability to repay the expenses incurred by the agency under s.161(3) or s.161D(3) of the Act and any liability to pay damages in tort were quite different. One arose from the need to protect the public interest in the environment, and the other arose to protect individual interests in property. One gave rise to a right to recover the cost of certain works as a debt, whilst the other conferred a right to recover damages by way of compensation for loss and damage.

A claim under s.161(3) or s.161D(3) could be made where no claim for damages in tort could succeed. However, even where a claim in tort could successfully be pursued in a case, the amount of those damages might well be different to the amount recoverable under the relevant statutory provisions.

The core meaning of damages was the ‘pecuniary recompense’ given by the process of law to a person for the actionable wrong that another had done to him. In the field of marine insurance that was the meaning which would normally be attributed to the word. The court held that there was no reason why a different approach should be adopted in relation to other forms of public liability insurance.

The essential purpose of such insurance policies was to provide an indemnity in respect of certain types of liability in tort, a fact which was reflected in the choice of the word 'damages' in the policy in the this case. The court decided that that was made even clearer by the context in which the word was used. There was no objective commercial purpose which might require the word 'damages' to be construed in any more extended a sense than it would warrant if taken at face value.

The obvious risk which the insurer was insuring against was that the claimant might be held liable in damages for breach of its duties in tort in respect of certain kinds of damage. The court ultimately decided that it would be wrong to construe the relevant provisions of the policy in such a way as to bring within its scope a liability pursuant to statute, which was analytically separate and distinct from the liability for damages in respect of breaches of tortious duty at common law, which the policy had been clearly designed to cover.

Please contact us for more information on assessing damages due under termination of a contract at enquiries@rtcoopers.com

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.
 

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