Lancashire County Council v Municipal Mutual Insurance Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SIMON BROWN |
| Judgment Date | 03 April 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0403-11 |
| Docket Number | QBENF 94/1025 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 April 1996 |
[1996] EWCA Civ J0403-11
Lord Justice Staughton
Lord Justice Simon Brown
Lord Justice Thorpe
QBENF 94/1025
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION (MANCHESTER DISTRICT REGISTRY)
MR JUSTICE KERSHAW
Royal Courts of Justice
Strand
London WC2
MR MICHAEL COLLINS QC and MS PHILIPPA HOPKINS (Instructed by Lancashire County Council PRL 8XJ) appeared on behalf of the Respondent.
MR EDWIN GLASGOW QC and MR CHRISTOPHER RUSSEL and MR HENRY DE LOTBINIERE (Instructed by L Watmore & Co WC2A 1QU) appeared on behalf of the Appellant.
Wednesday, 3rd April, 1996
By a policy of insurance in force from 1st April 1987 to 1st June 1992 (the Policy) the Municipal Mutual Insurance Ltd (the Company) insured the Lancashire County Council (the Council) against third party liability in certain events. This appeal concerns the scope of indemnity under the Policy, in particular with regard to claims for exemplary damages.
Section A, the primary insuring clause in the Company's standard printed form for public liability insurance for local authorities provides as follows:
"Section A
THE INDEMNITY
1. The Company agrees to indemnify the Insured in respect of all sums which the Insured shall become legally liable to pay as compensation arising out of
(a) accidental bodily injury or illness (fatal or otherwise) to any person other than any person employed under a contract of service or apprenticeship with the Insured if such injury or illness arises out of and in the course of the employment
(b) accidental loss of or accidental damage cause to property
when such injury illness loss or damage occurs during the currency of the Policy and arises out of the exercise of the functions of a Local Authority.
2. The Company will also pay any costs awarded against the Insured in any proceedings solely for the recovery of compensation aforesaid.
3. In addition the Company will pay all costs and expenses incurred with its written consent
(a) in defending any claim for compensation
(b) for representation at any Coroner's Inquest or Fatal Inquiry in respect of any death
(c) in defending any proceedings in respect of any act or omission or alleged breach of statutory regulations causing or relating to any event
which may be the subject of indemnity under the Policy."
(the numbering of Section A is mine for convenience)
By Endorsement No. 5, operative as part of the original Policy, the Company agreed also to indemnify the Chief Constable of Lancashire (the Chief Constable) and further, so far as material, as follows:
"5(c)(i) The Company agrees to regard bodily injury or illness caused by assault committed by a constable as being accidental.
(ii) Section A of this Policy shall read as if there were a reference incorporated therein to wrongful arrest, malicious prosecution and false imprisonment by a constable.
(d) The reference to a person under contract of employment or apprenticeship with the Insured appearing in Section C [which extends indemnity under the Policy inter alia to such persons] shall not include a constable but at the request of the Chief Constable the Company will indemnify any constable.
Provided that
(i) the claim to which such request relates is one for which the Chief Constable would be entitled to indemnity hereunder had such claim been made against him.
(iii) the constable was at the time of the incident giving rise to the claim acting within the scope of his authority.
(e) (i) Notwithstanding anything contained in Provisos (i) or (iii) of (d) above but subject otherwise to the Policy, terms and conditions and exclusions the Company will indemnify a constable in respect of a claim resulting from an act which was committed by him outside the scope of his authority, but which he genuinely believed he was authorised to carry out or which having regard to all the circumstances it was not unreasonable for him to have carried out.
(ii) In the event of an unauthorised act by a constable resulting in a claim against the Chief Constable in respect of any of the matters referred to in (c) above and the circumstances being such that had the claim been made against the constable he would not under the terms of the preceding paragraph have been indemnified by the Company, the Company shall be entitled to take such proceedings as it may think fit in the name of the Chief Constable to recover compensation or secure indemnity from the constable."
(again, the numbering of Clause 5(e) is mine for convenience)
The legal liability of a Chief Constable—the first pre-condition of his entitlement to indemnity under the Policy—arises pursuant to section 48 of the Police Act 1964 which so far as material provides:
"48 Liability for wrongful acts of constables
(1) The chief officer of police for any police area shall be liable in respect of torts committed by constables under his direction and control in the performance or purported performance of their functions in like manner as a master is liable in respect of torts committed by his servants in the course of their employment, and accordingly shall in respect of any such tort be treated for all purposes as a joint tortfeasor.
(2) There shall be paid out of the police fund—
(a) any damages or costs awarded against the chief officer of police in any proceedings brought against him by virtue of this section
and any costs incurred by him in any such
proceedings so far as not recovered by him in the proceedings; and
(b) any sum required in connection with the settlement of any claim made against the chief officer of police by virtue of this section, if the settlement is approved by the police authority."
In effect, therefore, Chief Constables are made vicariously liable for the torts of constables in essentially the same way as employers for their employees. With section 48 in mind the effect of Clause 5(d) can accordingly be seen to be that in cases where the Chief Constable is not himself sued, but would be liable if he were, he is entitled to ask the Company to indemnify any constable who is sued. The effect of Clause 5(e)(i) is essentially that the Company will also indemnify a constable, even where the Chief Constable would not himself be liable under section 48, in certain specific circumstances where the officer has acted reasonably. As to Clause 5(e)(ii), this allows the Company in certain circumstances to bring indemnity or contribution proceedings in the Chief Constable's name against a constable whose unreasonable behaviour has exposed the Chief Constable to liability.
It will readily be appreciated that the police fund from which damages are to be paid under the provisions of section 48 is itself funded by the relevant local authority, here the Council.
The present litigation was prompted by the Company's repudiation of liability for exemplary damages in two particular cases: first, a claim by a solicitor called Ratner for false imprisonment, wrongful arrest, malicious prosecution, assault and trespass to the person; second, a group of claims by plaintiffs alleging abuse whilst they were in care at one of the Council's childrens' homes.
By Order made in Originating Summons Proceedings on 23rd May 1994, Judge Kershaw QC, sitting as a High Court Judge in the Mercantile List at Manchester:
1. Declared, in favour of the Council, that on the true construction of the Policy the indemnity provided by Section A "includes such sums as the Insured may become legally liable to pay by way of exemplary damages (whether or not separately identified as such) in relation to an insured event"; and
2. Dismissed the Company's counterclaim for a declaration that it would be contrary to public policy to provide indemnity "against an award of exemplary damages in respect of oppressive, arbitrary or unconstitutional action of a servant of government".
The Company now appeals against both limbs of that Order, its arguments being essentially threefold:
1. The critical words in Section A—"all sums which the Insured shall become legally liable to pay as compensation" (hereafter "compensation")—unambiguously exclude awards of exemplary damages. These by definition "are not paid to compensate the plaintiff, who will be fully compensated by the ordinary measure of damages. They are paid to punish or deter the defendant, to mark the disapproval which his conduct has provoked. For the plaintiff such damages represent a bonus, an addition to the sum needed to compensate him fully for the loss he has suffered as a result of the wrong done to him"—per Sir Thomas Bingham, M.R. in AB v South West Water Services Ltd [1993] QB 507 at 528, in one of many such authoritative statements on the point.
2. Even if, contrary to argument 1, "compensation", could and would otherwise be construed to include exemplary damages, so to construe it would be contrary to public policy: those liable for exemplary damage awards ought not to be indemnified against such liability. "Compensation" should accordingly be more narrowly construed.
3. Even if, contrary to arguments 1 and 2, the Policy on its true construction provides indemnity against liability for exemplary as well as compensatory damages, public policy renders the Policy unenforceable in exemplary damage cases.
Before examining each of these arguments in turn it is convenient first to set out afresh the terms of Section A(1) of the Policy, this time extending it to accommodate Endorsement 5(c) in the way that both sides agree it falls to be incorporated:
"1. The Company agrees to indemnify the Insured...
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