Pilkington United Kingdom Ltd v Cgu Insurance Plc

Introduction

This is an appeal from the judgment dated 25 June 2003 of His Honour Judge Michael Dean QC, sitting in the commercial court as a judge of the Queen's Bench Division. The judgment relates to the construction of a Global Liability Policy in respect of the business of the appellant ("Pilkington") and its subsidiary and associated companies in relation to their business as glass manufacturers and any other business undertaken by them. The claim arose out of the installation of heat-soaked toughened glass panels manufactured by Pilkington and installed in the roof and vertical panelling of the Eurostar Terminal at Waterloo, a small number of which proved defective in that they fractured in situ.

The work of installation was undertaken pursuant to contracts between Eurostar as owners and operators of the terminal and various companies in the Tarmac Group. Pilkington were sub-contractors and had no direct contractual relationship with Eurostar. However Pilkington were consulted by Tarmac and the architects to the project as to the suitability of the panels and allegedly made representations and/or gave collateral warranties as to their suitability. Tarmac then ordered the panels from Pilkington who supplied them.

Following the failure of various panels in the roof (at most 13 out of some 3000 panels), Eurostar alleged that the cause of such failure was the presence of nickel sulphide introduced into the manufacturing process which had not been removed by the heat-soaking treatment. No personal injury was caused to anyone, nor was there any damage to the fabric of the terminal other than the fractures in the panels themselves. However, Eurostar were concerned that passengers or staff might be injured if further breakages occurred and they commissioned a technical investigation, closing the terminal for a time. Eurostar did not elect to remove and replace the panels but instead installed safety features such as transparent material under the panels and metallic channels designed to prevent any fractured glass falling into areas of the terminal frequented by the public or staff.

In November 1999 Eurostar commenced proceedings against the Tarmac companies, the architects and the overall construction managers of the project claiming £5.93 million damages for loss and expense. On 2 February 2000 Tarmac's solicitors notified Pilkington of their intention to claim indemnity in respect of any liability of Tarmac to Eurostar. In May 2000 Tarmac served a Part 20 claim on Pilkington in the Eurostar proceedings, and thereafter Tarmac commenced separate proceedings against Pilkington claiming an indemnity or contribution in respect of their liability to Eurostar under the Civil Liability (Contribution) Act 1978 based on alleged misrepresentations and/or breaches of collateral warranty by Pilkington to Eurostar and/or Tarmac. It was not alleged that the defects in the panels had caused any physical damage to the terminal apart from the failure of certain of the panels themselves. The claim was in respect of investigation and management costs relating to various proposed remedial schemes and the costs of the remedial scheme adopted which did not involve removal or replacement of the panels, but the installation in the building of the safety features already mentioned.

On 18 May 2000, Pilkington's brokers first notified CGU of the claims. On 27 July 2000, CGU rejected Pilkington's claims as falling outside the policy cover. Thereafter all the parties to the Eurostar litigation took part in a mediation resulting in settlement of Eurostar's claims on 13 February 2001. Pilkington contributed £330,000 to the overall settlement and incurred legal costs of £709,435.71 plus Swiss Francs 18,746.50. Subsequently, Pilkington sued its professional indemnity insurers, which claim was settled for £700,000. On 16 July 2002 Pilkington commenced these proceedings against CGU claiming £495,506.63 and Swiss Francs 20,081.50 after giving credit for their recovery against their professional liability insurers.

The Terms of the Policy

The relevant policy terms were as follows.

By the insuring clause, CGU agreed to indemnify Pilkington against

"a. all sums which the Insured shall become legally liable to pay for compensation and claimants' and costs and expenses in respect of any Occurrence to which this Policy applies as stated in the Specification and in connection with the Business.

b. all costs and expenses of litigation incurred with the written consent of the Company in respect of a claim against the Insured to which the indemnity expressed in this Policy applies."

The relevant part of the Specification provided:

"3. Products Liability

a. Bodily injury to or illness or disease of any person except that arising out of and in the course of his employment by the Insured under a contract of service or apprenticeship

b. Loss of or physical damage to physical property not belonging to the Insured or in the charge or under the control of the Insured or any servant of the Insured

caused by any commodity article or thing supplied installed erected repaired altered or treated by the Insured and happening during the Period of Indemnity elsewhere than at the Insured's premises."

This cover was subject to a limit of £10 million for any one period of indemnity.

There were a number of "Particular Clauses" two of which were material. Particular Clause No. 6 headed "Contractual Liability (Product)" stated:

"This Policy shall not apply to liability assumed by the Insured by agreement in respect of injury illness disease loss or damage caused by any commodity article or thing supplied installed or erected by the Insured unless such liability would have attached in the absence of such agreement except as may otherwise be overridden in any other Particular Clause herein."

Particular Clause No. 16 headed "Damage to Goods Supplied", stated:

"This Policy shall not apply to liability in respect of recalling removing repairing replacing reinstating or the cost of or reduction in value of any commodity article or thing supplied installed or erected by the Insured if such liability arises from any defect therein or the harmful nature or unsuitability thereof.

Provided always that this clause shall not apply to liability for damage as defined in this Policy to any component supplied by a third party and incorporated in a product supplied by the Insured."

The "Claims Provisions and Procedures" section of the policy provided, inter alia, as follows:

"Notice of Claims

1. Any one occurrence which might give rise to a claim under the Policy shall be reported in writing to the company as soon as possible and as far as practicable no alteration or repair shall be carried out until the company has had an opportunity of investigating. The Insured shall give immediate notice of any impending prosecution inquest fatal injury or civil proceedings in connection with the occurrence and shall send to the Company immediately every relevant document"

General Condition 7 headed "Observance of Conditions" provided:

"The due observance and fulfilment of the terms and provisions and conditions insofar as they relate to anything to be done or complied with by the Insured and the truth of the statements in the proposal made by him which shall be the basis of this contract and held to be incorporated herein shall be conditions precedent to any liability of the Company"

The Issues

When the parties came before the judge, they had prepared a list of some ten issues. However at the hearing the argument was limited to two issues:

i) Was the claim one in respect of "loss of or physical damage to physical property not belonging to" Pilkington and not falling within the exception in Particular Clause 16?

ii) Had Pilkington complied with their obligation to give notice of the occurrence or of impending civil proceedings and, if not, did such failure relieve CGU from liability?

The proceedings below

Before the judge, as in this court, Pilkington maintained that, in principle, and also by reference to certain American authorities, the terminal was physically damaged by the very installation of the defective glass panels and before any breakage in the panels occurred, let alone a breakage which actually caused damage to other parts of the structure or personal injury to users of the terminal. It was submitted that the effect of the installation of glass panels which were potentially liable to fracture was not merely to make the building less desirable or unsuitable for its particular use but to render it too risky for use by the public without the taking of precautions and that this was sufficient to bring it within the insured cover.

It was argued for CGU on the other hand that, on the plain and ordinary meaning of the words of the cover ("physical damage to physical property not belonging to" Pilkington caused by "any commodity article or thing supplied by" Pilkington) the mere installation of the panels and their incorporation in the building did not, simply because of a risk of future fracture, amount to physical damage to...