Omega Proteins Ltd v Aspen Insurance UK Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Christopher Clarke J |
| Judgment Date | 10 September 2010 |
| Date | 10 September 2010 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Christopher Clarke J.
George Leggatt QC (instructed by Clyde & Co) for the claimant.
Andrew Prynne QC and Angus Withington (instructed by Kennedys) for the defendant.
The following cases were referred to in the judgment:
Bradley v Eagle Star Insurance Co LtdELR [1989] 1 AC 957.
Bruns v Colocotronis (The Vasso)UNK [1979] 2 Ll Rep 412.
Carroll v FearonUNK [1998] PIQR P416.
Commercial Union Assurance Co plc v NRG Victory Reinsurance Ltd [1998] CLC 920.
Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] 1 CLC 33.
Hayter v Nelson Home InsuranceUNK [1990] 2 Ll Rep 265.
Hollington v F Hewthorn & Co LtdELR [1943] 1 KB 587.
Horbury Building Systems Ltd v Hampden Insurance NV [2004] 2 CLC 453.
Hurst v EvansELR [1917] 1 KB 352.
Kitchin, ReELR (1881) 17 Ch D 668.
London Borough of Redbridge v Municipal Mutual Insurance Ltd [2001] Ll Rep IR 545.
Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd [2005] 2 CLC 617.
MDIS Ltd (formerly McDonnell Information Systems Ltd) v SwinbankUNK [1999] 1 Ll Rep 98; [1999] CLC 1800 (CA).
Mills v CooperELR [1967] 2 QB 459.
& Co v War Risks AssociationELR [1918] 2 KB 78.
Post Office v Norwich Union Fire Insurance Society LtdELR [1967] 2 QB 363.
Rodan International Ltd v Commercial Union [1999] Ll Rep IR 495.
Sabah Shipyard (Pakistan) Ltd v PakistanUNK [2007] EWHC 2602 (Comm).
Sacor Maritime SA v Repsol Petroleo SAUNK [1981] 1 Ll Rep 518.
Secretary of State for Trade & Industry v BairstowELR [2004] Ch 1.
Sun Life Assurance Co of Canada v Lincoln National Life Insurance Co [2005] 2 CLC 664.
West Wake Price & Co v ChingWLR [1957] 1 WLR 45.
Young,ex parte(1881) 17 Ch D 668.
Insurance — Third party rights — Exclusion of liability arising solely in contract — Meat processing — Failure promptly to comply with new EU requirements — Summary judgment on claim for breach of contract — Defendant insolvent and unable to satisfy judgment — Claim against insurer — Exclusion of liability arising under contract unless such liability would have attached in absence of contract — Judgment based on breach of contract not foreclosing finding of tortious liability — Tortious liability would have attached in absence of contract — Insurer failed to show that absent contract there would have been no liability in negligence — Third Parties (Rights against Insurers) Act 1930.
This was a claim under the Third Parties (Rights against Insurers) Act 1930.
The claimant, Omega, carried on business processing by-products from animal carcasses used in the meat industry which it then supplied to pet food manufacturers and others. Omega obtained carcasses from a meat processing company, Northern Counties, which failed promptly to comply with EC Regulation 1774/2002 and as a result supplied carcasses which, unknown to Omega, were fit only for disposal.
Omega mixed that material with other material thereby contaminating the whole bulk that was then supplied by Omega to one of its customers, Pears. Pears processed it and sold it as bone meal to pet food manufacturers and as tallow.
In proceedings by Pears against Omega and by Omega against Northern Counties HHJ Mackie QC held that Omega was liable to pay damages to Pears for breach of contract and that Northern Counties was liable to indemnify Omega against its liability to Pears. No claim or allegation was made in the proceedings that Northern Counties had been negligent or that it was liable to Omega by virtue of any non-contractual duty or obligation.
The defendant, Aspen, provided Northern Counties with insurance under a combined liability insurance policy which provided cover against employers' liability, public liability, product liability and pollution liability.
Northern Counties was in liquidation and unable to satisfy any judgment against it. Omega claimed against Aspen under the Third Parties (Rights Against Insurers) Act 1930 pursuant to which Northern Counties' rights under the policy had vested in Omega.
The product liability section of the policy contained an exclusion which provided the company would not indemnify the insured against any liability arising under any contract or agreement unless such liability would have attached in the absence of such contract or agreement.
Omega sought a declaration that Aspen was liable to indemnify it under the terms of the policy with Northern Counties for the liability that it had incurred as a result of the judgment.
Whether or not there was cover depended on whether the contractual liability “would have attached in the absence of such contract or agreement”. Aspen argued that the Mackie judgment determined that Northern Counties was liable in contract and not in tort.
Held, giving judgment for Omega:
1. The Mackie judgment did not foreclose any question as to whether the liability of Northern Counties came within the cover of the policy. It was no part of Judge Mackie's function to decide whether it did, much less to decide the hypothetical question as to whether or not, in the absence of a contract, Northern Counties would have come under any liability. His judgment established that Northern Counties had suffered a loss and it was then open to either party to show what the cause or causes of the loss was or were. The insurers were at liberty to seek to show that the loss was not (in whole or in part) caused by a peril insured against and Northern Counties to show that it was. (London Borough of Redbridge v Municipal Mutual Insurance Ltd[2001] Ll Rep IR 545 doubted; Enterprise Oil Ltd v Strand Insurance Co Ltd[2006] 1 CLC 33 followed.)
2. Northern Counties would have been liable in the absence of the contract pursuant to which it supplied the product. It failed to take reasonable care to see that the product which it was supplying to Omega was both something which it could lawfully supply and safe in the sense that it could be used without unacceptable risk to human health and without damaging, by rendering unusable, any product with which, as would foreseeably happen, it was mixed. In the absence of any evidence that the change in the law was not widely known and not discoverable by reasonable means, it ought to have been known and acted upon by Northern Counties.
3. In the light of the fact that this was an exclusion clause with an exception, in order for the insurer to bring itself within the exclusion it had to show that the liability in question arose under a contract and that the exception was inapplicable. In the present case that would involve showing that, absent a contract, there would have been no liability in negligence. Insurers had not established that that was so. (Munro Brice & Co v War Risks AssociationELR[1918] 2 KB 78.)
4. Accordingly, Omega was entitled to be indemnified by Aspen under the terms of the policy in respect of such legal liability as Northern Counties would have owed towards Omega on the assumption that there had been no contract between Northern Counties and Omega.
Christopher Clarke J:
1. The claimant, Omega Proteins Limited (“Omega”), carries on business processing by-products from animal carcasses used in the meat industry which it then supplies to pet food manufacturers and others. Northern Counties Meat Limited (“Northern Counties”) was a meat processing company which operated a cutting plant in Sunderland. Northern Counties supplied Omega with animal carcasses which were contaminated in the manner that I shall describe. Omega intermingled the contaminated material supplied by Northern Counties with sound material supplied by others. The effect was that the entire bulk was unfit for any commercial use. Unaware of the contamination Omega supplied the bulk to one of its customers — JG Pears (Newark) Ltd (“Pears”). Pears used the material and suffered losses in consequence. Pears had on-sold the material as meat and bone meal to pet food manufacturers and as tallow to Webster Thompson Limited.
2. The animal material which Northern Counties processed and sold was subject to EC Regulations (in particular, EC Regulation 1774/2002) introduced following the BSE crisis. This regulatory regime was introduced in an attempt to control and eradicate transmissible spongiform encephalopathies in animals.
3. EC Regulation 1774/2002 divides animal material into three categories, of which two are relevant:
(a) “Category 1” material — this must be labelled “for disposal only”, must be indelibly colour-stained bright blue or green, is not permitted to enter any food chain and must either be incinerated and burnt as fuel or buried as land fill; and
(b) “Category 3” material — this must be labelled “not for human consumption” but can be used to manufacture other products and is not colour-stained.
4. EC Regulation 1774/2002 also:
(a) classifies any “specified risk material” (or any mixture including such material) as Category 1; and
(b) classifies the vertebral column of cattle aged over 24 months as “specified risk material”.
5. Originally, the United Kingdom had the benefit of a derogation from the latter provision which allowed the use of the vertebral column of cattle and did not require it to be classified as “specified risk material” until the age of 30 months.
6. In 2006 the European Union agreed to lift the export ban on British beef which had been imposed following the BSE crisis. As part of the price of this agreement, the UK agreed to bring its classification of “specified risk material” into line with that which applied elsewhere in the EU. By Commission Regulation (EC) No 657/2006 of 10 April 2006, published in the Official Journal on 29 April 2006 and in force on 3 May 2006, and the Transmissible Spongiform Encephalopathies (No. 2) Regulations 2006 (2006/1228) made on 2 May 2006 and taking effect on 3 May 2006, the age of animals for the purposes of Category 1 was reduced in the United Kingdom to 24 months. The...
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