John Reilly (Claimant/Appellant) v National Insurance and Guarantee Corporation Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick:,Lord Justice Thomas,Sir Anthony May |
| Judgment Date | 19 December 2008 |
| Neutral Citation | [2008] EWCA Civ 1460 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 December 2008 |
| Docket Number | Case No: A3/2008/0944 |
[2008] EWCA Civ 1460
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Mr. Justice Burton
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Sir Anthony May Pqbd
Lord Justice Thomas and
Lord Justice Moore-Bick
Case No: A3/2008/0944
Mr. Nigel Tozzi Q.C. and Mr. Alexander Gunning (instructed by Dewey & Leboeuf) for the appellant
Mr. Graham Eklund Q.C. (instructed by Keoghs LLP) for the respondent
Hearing date: 4 th November 2008
Judgement
This is an appeal against the order of Burton J. made on the trial of a preliminary issue in proceedings between the appellant, John Reilly, and the respondent, National Insurance and Guarantee Corporation Ltd (“the insurer”). Mr. Reilly carries on the business of supplying and installing fire protection and detection systems under the name J & J Services. The present proceedings relate to a policy of insurance described as a “Tradesmen Insurance Policy” under which he was insured against employer's liability and public liability for the period 1 st March 2004 to 28 th February 2005.
The policy documents consisted of the standard form of policy and a schedule identifying those sections applicable in the present case together with certain endorsements and warranties. Section 2 of the policy provided cover in respect of public liability, subject to certain specific exclusions. Exclusion 8 provided that the insurer should not be liable in respect of liability arising out of products supplied by the insured, save in two cases which are immaterial for present purposes. However, the Section was subject to a number of extensions, including the following:
“ K Products Liability
Despite Exclusion 8 of this Section the Company will indemnify the Insured against liability in respect of
1…
2 accidental Damage to Property
… caused by any Products Supplied …”
The schedule contained a number of endorsements and warranties applicable to the cover in respect of public liability, of which only the following is material:
“TP34S
This section does not does not indemnify the Insured in respect of any claim arising out of:-
(i) … ;
(ii) the failure of any fire or intruder alarm switchgear control panel or machinery to perform its intended function .”
In January 2001 Mr. Reilly entered into a contract to supply and install fire suppression equipment to three printing presses owned by one of his customers, Print Design & Graphics Ltd. (“PDG”). The equipment consisted of cylinders of carbon dioxide gas which could be discharged through fixed pipes to the likely seats of fire in each press. On 12 th May 2004 a fire occurred in one of the presses and steps were taken to activate the system, but it failed to operate as intended and as a result the fire spread, causing considerable damage to the press itself and surrounding property. PDG made a claim against Mr. Reilly and on 21 st November 2006 obtained judgment against him by consent in the sum of £2 million.
Mr. Reilly made a claim under his policy of insurance, but the insurer declined to indemnify him on a number of grounds and so on 12 th April 2007 he started proceedings against it in the Commercial Court. At a case management conference held on 11 th September 2007 Flaux J. ordered that the following question be determined as a preliminary issue:
Is the claimant's claim excluded from cover under tradesmen's policy numbered GLA/003910953 issued by the defendant by operation of clause TP34S?
and for that purpose he directed that the parties produce a statement of those facts that were agreed and those that were to be assumed for the purposes of the trial.
The facts agreed for the purposes of the trial included the following:
“2. Each such CO2 system consisted of a main and a reserve supply. Each supply comprised a bank of 3 gas cylinders (one master and two slave cylinders) which were connected to distribution pipework by a manifold.
3. The systems were to be operated either:
(a) by the breaking of a glass call point which should in turn have activated an explosive activator fitted to a valve actuator mounted on to the discharge valve in the head of the master cylinder of the relevant system; [or]
(b) manually using a mechanical release lever fitted to the master cylinder.
4. The principle of operation of the explosive actuator was to force a piston in the valve actuator on to a pin that protruded from the top of the master cylinder discharge valve, which should in turn have caused the cylinder valve to open and allow the cylinder contents to be discharged into the pipe manifold via a siphon tube inside the cylinder. A “detent” pin in the valve actuator housing was intended to latch the piston, and thus the cylinder valve, in the fully open position.
5. In each supply, the discharge valves of the two “slave” cylinders were connected to the pipe manifold by flexible hosing. The pressure generated in the manifold by the release of liquefied CO2 from the master cylinder was supposed to force pneumatic valve actuators to open the discharge valves of the slave cylinders, which would discharge their contents into the manifold.
6. The contents of the cylinders were supplied to the presses via rigid branched pipework. Nozzles were located at the ends of pipe branches along the length of the presses. The purpose of the nozzles was to distribute CO2 effectively into the semi-enclosed volume of the presses.”
The parties also agreed that the following facts were to be assumed for the purposes of the trial:
“A. Following the discovery of the fire … members of PDG's staff activated the fixed CO2 system supplied by [Mr. Reilly] by the breaking of a glass call point.
C The cause of the failure of the fixed CO2 system for press K2 was either:
(a) insufficient pressure in the master cylinder in the main CO2 system for press K2, resulting either from the master cylinder having been incorrectly filled or pressurised or leakage from the discharge valve of the master cylinder; or
(b) failure of the actuator piston on the cylinder valve of the master cylinder in the main CO2 system for press K2 to latch. As a consequence of this, CO2 escaped through the pilot orifice in the cylinder valve and not the main orifice. This in turn resulted in there being pilot pressure in the manifold but not full pressure and prevented the slave cylinder valves from opening.”
On 11 th April 2008 Burton J. delivered judgment following the trial of the preliminary issue. He held that the system, including the actuator, valves and cylinders, was “machinery” within the meaning of clause TP34S and that the clause was to be construed as referring to fire and intruder alarms, switch gear, control panels and machinery as separate items of equipment. He therefore held that the insurer was not liable to indemnify Mr. Reilly because the failure of the fire suppression equipment arose out of the failure of a piece of machinery to perform its intended function. It follows that in his view the question posed by the preliminary issue was to be answered 'Yes'.
On behalf of Mr. Reilly Mr. Tozzi Q.C. submitted that the judge had reached the wrong conclusion and that the question should be answered 'No'. In essence his submission was that the words “fire or intruder alarm” govern everything that follows, that is, switchgear, control panel, and machinery, so that the clause as a whole is limited to the failure of fire and intruder alarm systems to perform their intended functions. If that is right, the clause would not exclude Mr. Reilly's claim because the equipment he supplied was fire suppression equipment. Mr. Eklund Q.C. for the insurer submitted that the clause is to be read as containing a list of various items of equipment in respect of whose failure to perform as intended cover is excluded. He argued that the failure of the system as a whole, or at any rate of the actuator and valve of the master cylinder, constituted a failure of machinery to perform its intended function with the result that the insurer is not liable under the policy.
The principles to be applied in the construction of a clause of this kind were not in dispute. In paragraphs 13 and 14 of his judgment Burton J. summarised them in uncontroversial terms, referring to the judgment of Longmore L.J. in Absalom v TCRU Ltd [2005] EWCA Civ 1586, [2006] 2 Lloyds Rep 129, the speech of Lord Diplock in Antaios Compania Naviera v Salen Rederierna AB [1985] A.C. 191 and MacGillivray on Insurance Law (10 th ed.). It is unnecessary to repeat them here, but it is worth noting that they include the following: a presumption that the words in question should be construed in their ordinary and popular sense; that a commercial document, such as an insurance policy, should be construed in accordance with sound commercial principles and good business sense; that the commercial object of the contract as a whole, or the particular clause in question, will be relevant in resolving any ambiguity in the wording; and that in a case of true ambiguity, the construction which produces the more reasonable result is to be preferred. I would only add by way of comment that difficulty of construction is not the same thing as ambiguity.
The starting point must be the language of clause TP34S itself. Paragraph (ii) contains a list of items of equipment not obviously related to each other and not separated by commas. The absence of any commas makes it...
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