OUTOKUMPU STAINLESS Ltd v (1) AXA GLOBAL RISKS (UK) Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Tomlinson |
| Judgment Date | 08 November 2007 |
| Neutral Citation | [2007] EWHC 2555 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 08 November 2007 |
| Docket Number | Case No: 2006 Folio 206 |
[2007] EWHC 2555 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Hon. Mr Justice Tomlinson
Case No: 2006 Folio 206
Christopher Symons QC, Sophie Mallinckrodt (instructed by Messrs DLA Piper UK LLP) for the Claimant
Colin Edelman QC, Richard Harrison (instructed by Messrs Davies Lavery) for the Defendants
Hearing dates: 15–17 October 2007
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.
THE HON. MR. JUSTICE TOMLINSON
Mr Justice Tomlinson
This is a coverage dispute between an insured and its insurers.
The Claimant was at all material times, 1999 and 2000, known as Avesta Sheffield Limited. It is and was itself a wholly owned subsidiary of Outokumpu Stainless AB, previously Avesta Sheffield AB. The Claimant owns and operates what was at all material times known as the Avesta Sheffield Steelworks. I shall call the Claimant Avesta. One of its activities at the Sheffield steelworks was and still is the smelting of scrap metal and other materials in an electric arc furnace in order to produce stainless steel. Avesta's claim for an indemnity from its underwriters arises out of an incident at the steelworks on 31 March 2000 when it inadvertently melted in its furnace a “shielded” i.e. encased and protected source of radioactive plutonium 238. This was probably a discarded old-style heart pacemaker which had been included in a compressed bale of scrap metal. In consequence of the radioactive material being encased in lead, and because plutonium 238 is before it decays principally an emitter of alpha particles which are non-penetrating, its presence was not detected either on leaving the scrap suppliers or on arriving at Avesta's premises, at both of which sophisticated detectors were in place. However after the source had been melted in the furnace at temperatures in excess of 1,400 degrees centigrade radiation was detected during further routine testing of the products of the melt, those products being principally molten steel and slag. In fact it was low level gamma radiation in the slag which was first detected. However in-depth examination of the problem revealed the associated presence in the slag of a much larger level of alpha radiation. Alpha radiation is as I have already mentioned non-penetrating, and, if the source of radiation is external to the body, human skin is sufficient to protect the underlying tissues. However if alpha emitting radioactivity is inhaled or ingested, then it comes into intimate contact with the living tissues of the body and can be very damaging. There was a risk that the operatives at the plant could have inhaled or ingested some of the plutonium, principally by breathing in contaminated dust associated with the manufacturing process. The steel itself was not contaminated.
By the time the alarm went off at the “tapping” stage of the melt, i.e. when the products are drawn off and tipped into a ladle before slag is “decanted” off the top of the ladle into slagpots, the next load of scrap metal was already in the furnace. Avesta continued the melting, refining and casting process for a further two melts. By the end of the third of these four melts the radiation level in the slag was inconsequential.
It is accepted on all sides that Avesta could not have prevented this incident and that, once they were aware of it, which was the earliest realistically they could have been so aware, they acted in the best possible manner to eliminate or reduce any risk of harm both to their own workforce and to others. They received the immediate and close co-operation of the Health & Safety Executive.
There was no serious damage to or contamination of the smelting plant and equipment. Avesta suffered only inconsequential interruption to its production. However it was left with a substantial quantity of contaminated slag which it was unable to dispose of via its slag processing contractors. Slag is ordinarily disposed of to landfill or, if suitable, used as roadstone. In the ordinary way Avesta's slag contractors remove the slag from the site and retain the proceeds of sale of any slag used in road construction, thus offsetting the disposal costs which Avesta might otherwise incur. There is therefore no claim by Avesta for the value of the contaminated slag. However the slag had to be disposed of under tightly controlled conditions. Since it was classified as “Low Level Radioactive Waste” by the UK Environment Agency it had to be taken to the only available licensed landfill site in the UK which is at the British Nuclear Fuels facility at Drigg in Cumbria. It is the costs of this exercise which form the bulk of the claim, which is said to be of the order of £6.38million. The claim is thus largely for the costs incurred of testing, handling, safely storing, quarantining, transporting and disposing of the contaminated material.
I am not concerned with the quantum of the claim but I must just go into a little more detail in order that its precise nature may be understood.
i) Contaminated slag from the three affected melts was decanted directly into four “slagpots,” part of Avesta's existing plant. The contaminated slag solidified. Since the four slagpots contain Low Level Radioactive Waste both they and their contents must be disposed of at a licensed site. The slagpots have therefore been rendered incapable of future use. The underwriters accept that the slagpots are to be regarded as having suffered physical damage in the form of radioactive contamination and so I do not need to consider whether that conclusion is scientifically sound.
ii) Beneath the arc furnace there is a pit. During melts slag routinely overspills into the pit, such overspill to be distinguished from the subsequent deliberate decanting of slag from the ladle. Approximately two tonnes of contaminated slag ran off the top of the ladle during the three affected melts and entered the pit where it in turn contaminated the approximately two hundred tonnes of non-contaminated slag which was already there. The pit slag would in due course have to be dug out as a routine operation. Due to the presence of radiation this routine operation had on this occasion to be conducted under controlled conditions. The pit slag was transported first to concrete storage pens and ultimately into nine special ISO containers which Avesta purchased from British Nuclear Fuels which were duly sealed, quarantined and taken to Drigg for disposal. It is not suggested that the furnace pit was itself damaged.
iii) Residues of irradiated material might have been expected to adhere to the brick lining of the arc furnace but in fact sampling and subsequent testing of the furnace lining revealed no significant contamination, very possibly because it had been removed by the three casts subsequent to that in which the radioactive source was melted. The brick lining is renewed every four weeks in any event. On this occasion routine wrecking was merely brought forward by two or three days. Notwithstanding the reported absence of contamination the wrecking was conducted under controlled conditions, the main focus of which was to suppress the dust and fumes and minimise the risk of employees inhaling or ingesting them.
The foregoing is sufficient to set the scene for the dispute between Avesta and its insurers whether the various costs incurred are recoverable under the insurance cover afforded by the latter to the former. That cover would ordinarily be described as cover against property damage and business interruption. There is no claim for business interruption. Such part of the claim as is in respect of damage to property traditionally and strictly so-called is confined to the costs of the four slag pots. However that amount by itself falls below the relevant deductible. The nine ISO containers were not insured property, being acquired subsequent to the incident, and indeed only filled in July 2001, as it happens after the expiry of the two policies with which I am concerned. The great bulk of the claim is in respect of costs incurred by Avesta in dealing with the incident and in particular disposal costs. The question for decision is whether costs of this nature fall for indemnity under the policies. There are two potentially relevant policies because by chance the 1999/2000 cover expired at 11.01pm UK time on 31 March 2000. That cover, to which I shall refer as “the 1999 policy” was subscribed to by the First to Sixth Defendants. The 2000 policy incepted at 11.01pm UK on 31 March 2000. It was in material respects identical. It was subscribed to by the Second and Third and Sixth to Twelfth Defendants. I shall refer hereafter to the 1999 policy alone.
The 1999 policy was led by the First Defendants to whom I shall refer as “Axa”. The underwriter at Axa was Mr David Wisdom. During the year in question Mr Wisdom also wrote cover for British Steel. Avesta's broker was CE Heath (Insurance Broking) Limited trading as Heath Corporate Risks. I shall refer to the brokers as “Heath”. The previous year's equivalent coverage for Avesta had been written by Commercial Union and Royal Sun Alliance. There was some suggestion...
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