Great North Eastern Railway Ltd v Avon Insurance Plc

JurisdictionEngland & Wales
JudgeLORD JUSTICE LONGMORE,SIR PHILIP OTTON,LORD JUSTICE CHADWICK
Judgment Date24 May 2001
Neutral Citation[2001] EWCA Civ 780
Docket NumberCase No: 2000 2904 A3
CourtCourt of Appeal (Civil Division)
Date24 May 2001
Great North Eastern Railway Ltd
Appellant
and
Avon Insurance Plc
Respondent

[2001] EWCA Civ 780

Before:

Lord Justice Chadwick

Lord Justice Longmore

Sir Philip Otton

Case No: 2000 2904 A3

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

(QUEEN'S BENCH DIVISION (COMMERCIAL COURT))

(His Honour Judge Dean QC)

Royal Courts of Justice

Strand, London, WC2A 2LL

JULIAN FLAUX Esq QC and SIMON PICKEN Esq (for the Appellant)

JEREMY STUART-SMITH Esq QC and DAVID TURNER Esq (for the Respondent)

LORD JUSTICE LONGMORE

Introduction

1

The question in this case is whether Great North Eastern Railway Ltd ("GNER") was insured against business interruption losses arising from a derailment incident at Sandy on 16 June 1998 on the terms of what has been called the Fenchurch wording agreed in 1996 or (as GNER argue) the terms of what has been called a Request for Property Insurance Quotation prepared in 1998 by Fenchurch's successor as GNER's broker, Jardine Insurance Services Ltd ("Jardine"). Both forms of wording excluded liability for damage or consequential loss caused by or consisting of faulty or defective workmanship but the wording prepared by Jardine added the all important words "on the part of GNER or any employees other than drivers or guards". For the purpose of the preliminary issues ordered to be tried in this case, it is agreed that the derailment was caused by faulty manufacture of one of the wheels on the engine unit and that that was faulty workmanship on the part of one or more non-GNER employees; it was thus within the Fenchurch exception but not the Jardine exception. His Honour Judge Dean QC has held that the insurance was on the terms of the Fenchurch wording. GNER now appeals from that decision.

Facts

2

Following privatisation of the railway system, GNER placed material damage and business interruption cover with Avon Insurance Plc ("Avon") for the period 29th March 1996 31st March 1997 through their brokers Fenchurch Insurance Brokers Ltd ("Fenchurch"). I gratefully adopt the judge's account of the underwriting history with references to the chronological correspondence bundle.

3

On 2nd April 1996 Mr Florence, Avon's underwriter who was involved with all the material placement negotiations for all three periods, initialled a slip presented to him by Mr Knowles of Fenchurch on behalf of GNER, pp. 12–1This afforded cover for

"All Risks of Physical Loss or Damage howsoever arising including breakdown …..

Period 29th March 1996 to 31st March 1997 both dates inclusive

Section 2 Business Interruption

Loss of Gross Revenue and increased cost of working following interruption to the business as a result of loss or damage to any part of the UK rail network and associated property, including but not limited to roads, bridges, tunnels, signalling or overhead transmission lines whether owned by the Insured or not."

4

The slip provided for the broker to provide the form, ie, the policy wording.

5

At the request of Mr Florence Fenchurch agreed to arrange reinsurance for the breakdown risk at a premium of £40,000 so that Avon merely fronted for this element of the cover.

6

Fenchurch prepared and sent to Avon for signature policy wording; Avon signed this on 30th August 1996 and returned the signed wording to Fenchurch on 2nd September 1996, pp. 38, 39 and pp. 41–91. The Schedule described the insured events as "All Risks" with no reference to breakdown cover as such, p. 47. The consequential loss provision was £295,800,000. The exclusions extended to:

"Damage or Consequential Loss caused by: -

a) i) faulty or defective design, materials or workmanship, inherent vice, latent defect, gradual deterioration, wear and tear or frost," p. 52

The policy also excluded by exclusion 5 a) damage to "railway locomotives and rolling stock", p. 54. This was a mistake on the part of Fenchurch in drawing up the wording because it had always been intended to cover these items and it was later agreed that the policy should be amended to delete this exception from inception. From time to time this caused some misunderstanding as to whether the cover included locomotives and rolling stock but nothing turns on this so far as the present claim is concerned; indeed two claims for damage to locomotives were made and settled during the first year of cover in 1996. These claims did not involve any consideration of the exclusion clause.

7

In his witness statement of 10th February 2000, Mr Knowles stated that he did not approve the signed wording because it did not include breakdown cover as required by the slip. However, he never raised this with Avon and never sought to have the wording amended while Fenchurch were still acting as brokers to GNER. It is right to say that Avon have never sought to contend that breakdown was not covered, subject only to the effect of what I will call the faulty workmanship exclusion. Their case is that the all risks cover is apt to cover breakdown of locomotives once these were deleted from the exception in Clause 5(a) of the policy wording.

8

On 17th February 1997 GNER appointed Jardines as their brokers and they immediately contacted Mr Florence about provision of cover for 1997/9Negotiations were conducted by Mr Mountain on behalf of Jardines. On 14th February 1997 at a meeting with Mr Florence Mr Mountain was handed a copy of the Fenchurch slip and wording, p. 107.

9

Mr Mountain sought market quotations from other insurers as well as Avon upon a number of different bases as regards deductibles and also sought alternative quotations with or without breakdown cover. Mr Mountain prepared a presentation document in this connection, p. 97–102. This document mentioned "Jardine Policy Wording". The evidence failed to identify any such wording prepared by Jardines. The document contained no reference to any form of faulty workmanship exclusion. After canvassing other insurers Mr Mountain recommended renewal with Avon inclusive of breakdown cover, p. 105. Thereafter, Mr Mountain left the final renewal negotiations to Mr Aylett of Jardines. Mr Aylett concluded these negotiations at a meeting with Mr Florence on about 29th April 1997, pp. 110–113. There was no discussion of the faulty workmanship exclusion and it was expressly agreed that the existing wording, ie the Fenchurch wording, should remain but that Jardines could come back to Avon if they wanted alterations, p. 112. They never did so unless the events of October 1997 or February 1998 considered below can be so construed.

10

On 23rd July 1997 Avon issued a schedule to Jardines for the 1997/98 period of cover. This schedule made no reference to the policy wording and no wording was signed for this period. The premium was paid on 23rd July 1997 although Jardines miscalculated the amount which resulted in an under payment which had to be accounted for on the renewal for 1998/99.

11

On 6th October 1997 Mr Aylett faxed Mr Florence referring to an attached document described as a "draft property register sheet" for his attention and requesting that the attached pages be checked and amended as necessary, pp. 126–134. He also raised eight specific lettered questions relating to details of the cover, none of which referred to the faulty workmanship exclusion. The attached document ran to nine pages and was headed "Summary of Cover" and referred to the period of insurance as "12 months from 31st March 1997", ie the existing period of cover. The whole tenor of the document suggests an existing cover, e.g. in referring to "What is insured", p. 126. In his oral evidence Mr Aylett made it very clear that he did indeed regard this document as an attempt to summarise the cover as it existed at the time in October 1997. In one respect at least this was inaccurate because at page 9 of the document, (p. 133) the "Principal exclusions applying to the whole package" were described in these terms:

"No cover is provided for damage or consequential loss caused by or consisting of:

inherent vice, latent defect, gradual deterioration, wear and tear, frost, change in water table level, its own faulty or defective design or materials

faulty or defective workmanship, operational error or omission, on the part of Great Eastern Railways or any employees other than drivers and guards."

GNER relied on this document as an intimation to Avon that Jardines were proposing a change in the underlying policy terms particularly as to the faulty workmanship exclusion.

12

Mr Florence delegated the task of dealing with the eight specific inquiries, lettered (a) to (h) in Mr Aylett's fax, to Mr Lord, a clerk in the underwriting department of Avon. Mr Lord did so by reference to the Fenchurch policy wording annotating the fax with his answers to Mr Aylett's specific inquiries, p. 135. On 4th November 1997 Mr Lord spoke to Mr Aylett on the telephone and followed this up with a memorandum which he sent to him on the same date, p. 138. This document referred to the telephone conversation and commenced with the observation, "I understand that the wording for 1997 is to be the same as for 1996 and will try to reply to your fax of 6th October 1997 accordingly, using the Fenchurch wording for 1996". This he proceeded to do, making express reference to the appropriate pages and clauses of the Fenchurch wording. Mr Aylett responded by a fax on 9th December 1997 saying that he felt that the wording still had "some areas where the wording need amendment" but did not refer to the faulty workmanship exclusion, although he did mention the exclusion of railway locomotives and rolling stock, p. 141–142. It is abundantly clear from this exchange that Mr Aylett had the Fenchurch...

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