Lumbermens Mutual Casualty Company and Bovis Lend Lease Ltd
| Jurisdiction | England & Wales |
| Judge | Colman J.,Mr Justice Colman |
| Judgment Date | 05 October 2004 |
| Neutral Citation | [2004] EWHC 2197 (Comm) |
| Date | 05 October 2004 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2003 FOLIO 795 |
[2004] EWHC 2197 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Colman J.
Case No: 2003 FOLIO 795
Mr Gavin Kealey QC and Mr David Allen (instructed by Messrs Kendall Freeman) for the Claimants
Mr Roger Stewart QC and Mr Paul Sutherland (instructed by Messrs Masons) for the Defendants
Hearing dates: 26–27 July 2004
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.
Introduction
There are before the court four preliminary issues ordered to be tried by an order of Colman J. dated 7 May 2004. At least two of those issues raise matters of some importance in the field of liability insurance and in particular as to its application to the construction industry.
The defendants, "Bovis", were insured by the claimants, "the Insurers", under a construction, engineering and design professional liability policy and a commercial excess liability policy. The Insurers claim declarations that they are under no liability under either policy in relation to the design and construction by Bovis as contractor of the Braehead Retail and Leisure Centre in Glasgow between May 1996 and September 1999. The employer was Braehead Glasgow Ltd, a retail property developer. The works were carried out by Bovis under a building contract dated 18 December 1997.
Disputes arose under the building contract and Bovis commenced proceedings in the Technology and Construction Court in which it claimed £37,778, 266 allegedly due under that contract. This was a balance outstanding from a total of £254,153,124 after giving credit for amounts paid by Braehead totalling £216,374,898. The gross amount was made up of six elements, namely amounts due and payable in respect of common user, post novation design fees, an amount due in respect of preliminaries and loss and expense, a management fee and interest.
Braehead served a defence and counterclaim. The latter included a claim for mismanagement of the project by Bovis in the sum of £49,524,189 made up of £43,911,439 being the difference between Bovis' claim under the contract and the amount which the works would have cost if the project had been properly managed together with a number of additional items said to be caused by defective management. The claim for mismanagement was put in the alternative in the sum of £21,700,047. This was calculated by reference to the cost of eight specific instances of mismanagement plus further additional costs on nine sub-contract packages together with additional professional and management fees.
The counterclaim also included a claim for £46,685,178 in respect of defective and non-compliant work and a claim for liquidated damages in the sum of £7,385,000. The Insurers contend that some parts of the counterclaim were in respect of liabilities outside the scope of the cover.
Thus, whereas Bovis' total claim amounted to £37,778,226, Braehead's counterclaim totalled £103,594,367 or alternatively £75,770,225.
The trial having been fixed to commence in October 2002, the litigation was settled by an agreement, "the Settlement Agreement", dated 11 January 2002. Under that Settlement Agreement Braehead agreed to pay Bovis £15 million in full and final settlement of all disputes under the building contract. The method of calculation of that global sum was not identified in the agreement. In particular, there was no indication as to what extent if any Bovis's claim of £37,778,226 had been treated as validly in excess of £15 million or which if any of the many detailed elements of Braehead's counterclaim had been treated as valid. Indeed, the terms of the Settlement Agreement gave no indication as to whether the parties agreed that there was any substance in any of the elements of Braehead's counterclaim that is to say whether there was any common position that the claim by Bovis fell to be reduced because it was partly intrinsically defective or because part of Braehead's counterclaim could be set off against Bovis's claim. Nor does it contain any indication as to whether any particular amount was paid to settle such part of the counterclaims as the Insurers could not dispute fell within the scope of the indemnity.
In addition to the terms relating to payment of the settlement amount, the Settlement Agreement contained other terms, some of which varied the building contract, as well as additional indemnities from Braehead for the benefit of Bovis and from Bovis for the benefit of Braehead. There were other terms designed to facilitate the settlement and the continuation of the building contract.
So far as Bovis's perception is concerned there is evidence that it had received advice from its solicitors, Masons, in a report dated 18 August 2001 to the effect that it was likely to recover £12,741,625 from Braehead. This figure had been arrived at by reducing to £248,579,744 the gross amount Bovis was entitled to claim for the contract works and by very heavily discounting the three main elements of Braehead's counterclaim which could be set off against the amount of above £32 million due to Bovis after giving credit for prior payments. However, this was a unilateral assessment of the value of the claim and counterclaim and there is no evidence that Braehead accepted it.
Bovis's policies with the Insurers included a primary policy for the period 28 October 1999 to 28 November 2000 (by subsequent extension). It was subject to a limit of £5 million per claim and a self-insured retention of £525,000 per claim. There was also an excess of loss policy for the same period which protected up to US $75 million per claim excess of the primary policy with an aggregate cover of US$75 million.
On 15 May 2003 Bovis sent to the Insurers a formal letter of claim for an indemnity under the policies. The total claim was for £19,222,722.40. It broadly replicated the assessment by Masons in their report of 24 August 2001, which had estimated the valid counterclaim by Braehead at £19,463,221. In other words, Bovis deployed their own solicitor's assessment of the substance of their own claim and of Braehead's counterclaim as the basis of their proof of an insured loss.
The Insurers issued their claim form for negative declaratory relief on 8 September 2003 and Bovis served its Defence and Counterclaim on 19 December 2003. The counterclaim was for the same figure as shown in the letter of 15 May 2003. It claimed that it had suffered insured losses in that amount caused by its liability to Braehead in relation to its breaches of duty under the building contract.
The preliminary issues now before this court are as follows:
" Issue 1
a. Has Bovis' liability to any third party been ascertained by judgment, award or settlement?
b. If the Answer to (a) above is 'No', can Bovis nevertheless establish that it has become legally liable to pay a sum to Braehead, within the meaning of insuring clause (a), so as to give rise to an entitlement to an indemnity from the claimant?
Issue 2
a. Whether Bovis' alleged loss in respect of Braehead's heads of counterclaim as identified in section 11 and schedules 1 to 4 of the Defence and Counterclaim is properly measured on a "subjective approach", as referred to in paragraph 11.5 of the Defence, or on any other basis and if so what?
Issue 3
a. Do the words ".. as a result of any neglect error or omission" in insuring clause 1 of the primary policy require Bovis to establish liability in negligence in order to trigger coverage under the policies?
b. Can coverage be triggered under the same insuring clause if it is proved that:
i there is a liability for breach of contract which is not deliberate (without more);
ii there is liability for breach of contract, a proximate cause of which was a negligent act, error or omission for which Bovis was responsible?
Issue 4
a. What is the meaning and effect of insuring clause, paragraph 2, of the primary policy?
b. In particular, and with regard to Bovis' claim for liability in respect of defects, is there any coverage for breach of warranty, in particular for any claims in respect of an alleged breach of clause 2.5.2.5 of the contract which warrants that … the Works comprise or will comprise only materials and goods which are new and of sound and satisfactory quality.." in light of the fact that the defendant failed to declare the contract to the claimant in accordance with memorandum 7(i) of the primary policy?"
With reference to Issue 2, it was pleaded by paragraph 11.4 of the Defence as follows:
It is Bovis' case that the appropriate breakdown of the aforesaid sum of £15 million is as follows, and as more fully detailed below and in schedules 1 to 4 hereof. The £15 million payment represented:
11.4.1 a payment by Braehead to Bovis of about £32,204,846.00 in respect of monies due under the Main Contract;
2 less a payment by Bovis of £19,463,221.00 in respect of Braehead's counterclaims;
3 The effect of the foregoing is a net payment of £12,741,625 by Braehead to Bovis;
4 The balance of £2,258,375 (ie £15m less £12,741,625) is attributable to Bovis' legal costs, ie this sum represents a reasonable recovery by Bovis of its legal costs, that is about 77% of Bovis' actual legal costs (which were £2,947,010.32 as described below)."
By paragraph 5 of the Defence it was pleaded:
In support of the aforesaid breakdown, Bovis relies upon the fact that:
1 Subjective attributability This breakdown reflects Bovis' own contemporaneous assessment of the value of the claim and counterclaims, on...
To continue reading
Request your trial
- Kernaghan v Corrections Corporation of Australia Staff Superannuation Pty Ltd (No.2)
-
Omega Proteins Ltd v Aspen Insurance UK Ltd
...law and the facts”. 67 Aikens J disagreed with the decision of Colman J in Lumberman's Mutual Casualty Co v Bovis Land Lease Ltd [2005] 1 Lloyd's Rep 494 to the effect that it was a precondition for recovery under a liability policy that the insured had ascertained, by virtue of the wordin......
-
Enterprise Oil Ltd v Strand Insurance Company Ltd
...there are two answers. Its primary submission is that the court should follow the decision of Colman J in Lumbermen's Mutual Casualty Co v Bovis Lend Lease Ltd27. In that case Colman J was dealing with a claim on a liability policy based on a comprehensive settlement agreement with a third ......
-
Astrazeneca Insurance Company Ltd v XL Insurance (Bermuda) Ltd and Another
...with that part of the analysis of Colman J in the controversial case of Lumberman's Mutual Casualty Co v Bovis Lend Lease Ltd [2005] 1 Lloyd's Rep 494, where that learned judge held that where a settlement agreement did not specify the cost to the (re)insured of discharging insured (as oppo......
-
Follow The Settlements? The Liability Of Insurers And Reinsurers To Contribute To A Settlement Payment
...Cooper and Alex Kershaw The recent decision of the English Commercial Court in Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd [2004] EWHC 2197 (Comm) has added to the body of case law which defines when an insurer will be liable to contribute to a settlement which its assured has made......