(1) the Scottish Coal Company Ltd (2) the Scottish Coal (Deep Mine) Company Ltd (3) Mining Scotland Ltd v (1) Royal and Sun Alliance Insurance Plc (2) Liberty Mutual Insurance Company (Uk) Ltd (3) Eagle Star Insurance Company Ltd

JurisdictionEngland & Wales
Judgment Date28 April 2008
Neutral Citation[2008] EWHC 880 (Comm)
Docket NumberCLAIM NO: HQ 02X00812
CourtQueen's Bench Division (Commercial Court)
Date28 April 2008

[2008] EWHC 880 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice David Steel

CLAIM NO: HQ 02X00812

Between:
(1) The Scottish Coal Company Limited
Claimants
(2) The Scottish Coal (deep Mine) Company Limited
(3) Mining Scotland Limited
and
(1) Royal And Sun Alliance Insurance Plc
Defendants
(2) Liberty Mutual Insurance Company (uk) Limited
(3) Eagle Star Insurance Company Limited
(4) Groupama Insurance Company Limited (formerly Gan Insurance Company Limited)
(5) Scor Uk Company Limited
(6) Alea London Limited (formerly The Imperial Fire And Marine Insurance Company Limited)
(7) Axa Reinsurance Uk Plc

Mr Moxon Browne QC & Andrew Miller (instructed by McClure Naismith) for the Claimants

Derek Sweeting QC & Jeffrey Jupp (instructed by Vizards Wyeth) for the Defendants

Hearing dates: 4 th March 2008 – 19 March 2008

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr. Justice David Steel:

Introduction

1

This is a claim by coalmine owners against underwriters in respect of a roof collapse in May 2000. The focus of liability issues is the unsuccessful attempt by the owners to mine through a roadway (or cross cut) that bisected the panel that was being mined. Underwriters contend that the planned attempt gave rise to material changes in the risk and associated obligations of disclosure. Subject to liability, there are also substantial issues of quantum relating to the property loss (put forward at £2.36 million) and business interruption loss (put forward at £4.25 million).

Mining History

2

Mining Scotland Limited was formed from the remaining National Coal Board pits in Scotland after the coal industry was de-nationalised in the 1990s. It has two subsidiary mining companies; the Scottish Coal Company Limited which operates a number of open-cast coal mines in Scotland, and the Scottish Coal (Deep Mine) Company Limited which operated the Longannet Mine. This was the last underground coal mine in Scotland. It received government subsidies without which it would not have been viable. In fact the Longannet Mine later closed as a result of flooding and the owning company went into administration. However, for the purposes of this claim, there is no need to distinguish between the three companies.

3

The Longannet Mine was next to the Longannet Power Station on the north shore of the Forth. It mined a seam of coal which is approximately 2 metres high, and extends northwards towards Solsgirth and the Devon Valley, and south beneath the Forth and under the Mid-Lothian shore.

4

The coal is of relatively poor quality with low calorific value and a significant ash content. It is however attractive to Scottish Power who operate Longannet Power Station, since it has a very low sulphur content and allows the generator to meet emissions regulations. The power station was built specifically to burn the coal from the seam.

5

Coal in the Longannet Colliery was mined using the longwall retreat and advance mining systems. The system involves driving two parallel roadways under ground some 200 to 300 metres apart to a distance of up to 1 or 2km. The seam to be mined lies between the two roadways. The two roadways are connected by another roadway which becomes the new 'faceline'. The mining equipment is the installed in the faceline. A coal cutting machine (or “shearer”) travels along the face and cuts it. As the cutting occurs, hydraulically powered supports move forward to hold the ceiling above the machines. This roof area (or “goaf”) then collapses behind the supports as it moves forward. The face is extracted until it terminates short of the main roadway leaving a “barrier pillar” of sufficient dimensions to absorb the vertical stress.

6

Once the large panels have been mined, the smaller pillars are sometimes mined using the same technique. Because the distance between the access roads is smaller this is termed “shortwall mining”. Indeed, by 2000 the northern area of the mine was largely worked out or limited by local faulting. The plan was for production to switch to the south. However, as an interim measure, it was decided that the last production from the northern area was to be from residual pillars or panels of coal between access roadways.

7

The pillar which is at the centre of the present claim was entitled S89. It was in the northern section of the seam between two access roadways, designated S12 and S14. These two access roadways had been connected, and the pillar bisected, by three cross cuts. One of these was No 2 cross cut which was about half way along the pillar. It was this cross cut, almost double the height of the retreat shortwall face, which collapsed during the mining process.

The Defendants

8

The Defendants are a consortium of insurance companies nominally led by Royal & Sun Alliance Insurance Plc (“RSA”) who provided material damage and business interruption insurance to Scottish Coal pursuant to a Policy No. GA 00494099 dated 16 May 1997. As lead insurer RSA subscribed to just under 40% of the risk. The Defendants are referred to as “the underwriters”.

IMIU

9

Albeit named as the leading underwriter, in reality RSA were acting as a front for the International Mining Industry Underwriters Ltd (“IMIU”) who wrote a 15% quota share reinsurance for the underlying insurers (on behalf of RSA together with International Insurance Company of Hannover Ltd and Gerling Global General Reinsurance Company Ltd).

10

In the run up to the original cover and each annual renewal, underwriters arranged for a “risk assessment report” to be prepared by IMIU. The reports for February 1997, November 1997 and November/December 1998 were in similar format. The 1998 report recorded that, whilst operations still centred on Castlebridge area, the limited reserves in that area would lead to a change of focus to the adjacent Kincardine area by late 1999.

11

As with the previous reports, the author, Mr. Allan Williams assessed the risks at the mine under the headings “Loss Probability Profile”, “Maximum Forseeable Loss” and “Risk Exposure Profile”. His analysis included a number of specific and enumerated recommendations for risk reduction.

12

In November 1999, Mr Williams again visited the mine and prepared a risk assessment report for underwriters. His report recorded “the loss of the remaining workable reserves at Castlebridge”. The plan, as Mr Williams understood it, was to concentrate all production on Kincardine with Castlebridge workings being salvaged (i.e. the recovery of machinery) and sealed off within 6 months.

13

This focus on Kincardine involved in Mr Williams' view three particular “vulnerabilities”:

(a) a major loss resulting from a spontaneous combustion event;

(b) a major roof collapse in a drift roadway;

(c) the risks associated with a very poor standard of housekeeping as regards the infrastructure.

14

Mr Williams added that, given the pace of change, it was appropriate to “undertake a full inspection in February / March 2000 at which point the Kincardine operations should be running in a more normal mode and salvaging of Solsgirth and Castlebridge will be underway.” He also specified various additional recommendations to those set out in his earlier report.

15

In an internal letter dated 19 November 1999, the brokers, Marsh, recorded a proposal that IMIU should visit again at the end of February to “reconsider the exposure and the rates” and furthermore that the “renewal will contain a 'notice clause' at 1 st April to allow a review of the policy.”

16

It seems fairly clear from the documentary material (as supplemented by the oral evidence) that underwriters were concerned in the light of Mr Williams' report that their risk exposure had increased. Indeed AIG Europe, one of the existing companies on the panel, was unwilling to renew save on terms of a minimum deductible of £2.5 million and was duly replaced. Underwriters in particular wanted to impose a deadline on compliance with the recommendations in the various reports. For this purpose they wished to be able to review matters in April.

17

By the same token, the Claimants and their brokers were enthusiastic that such a review should take place since they were confident that safety standards would duly improve once production Kincardine was underway and the Castlebridge site vacated. Indeed it was hoped that underwriters would agree to a reduction in premium to reflect these factors not least because, as brokers understood it, the Kincardine area presented a lower hazard in terms of risks of spontaneous combustion, gas emission and geological faults.

The master slip

18

The master slip incorporated as a matter of form the expiring policy wording albeit with the total sum insured increased from £89 million to about £130million and the premium increased from £389,050 to £519,827:-

Under Section B – PROPERTY DAMAGE

“INSURED EVENT

Loss or destruction of, or damage to, the Insured Property by the Insured Perils occurring during the Policy period (hereinafter called “Damage”)”

The Insured perils at Section B – Property Damage included clause 10:

“IMPACT

Impact caused by roof fall, animals or vehicles, including railway locomotives, rolling stock and draglines, or articles dropped therefrom excluding damage to such vehicles (other than forklift trucks, draglines or mobile plant) or property in such vehicles.”

“3. REINSTATEMENT CONDITIONS

1

In the event of Damage the basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the property lost, destroyed or damaged which for the purposes of this clause shall mean:

b. In the event of loss or destruction of insured property … the...

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