Ramco (UK) Ltd and Others v International Insurance Company of Hannover Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller |
| Judgment Date | 27 May 2004 |
| Neutral Citation | [2004] EWCA Civ 675 |
| Docket Number | Case No: A3/2003/2315 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 May 2004 |
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Andrew Smith
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Waller
Lord Justice Jonathan Parker and
Lord Justice Longmore
Case No: A3/2003/2315
Pierre Janusz (instructed by Roythorne & Co, Solicitors) for the Appellant
Alexander Gunning (instructed by Barlow Lyde & Gilbert, Solicitors) for the Respondent
This is the judgment of the Court.
Introduction
1. This is an appeal from the decision of Andrew Smith J dated 15 th October 2003. It raises a question of construction under an all-risks insurance policy and in particular whether, when a bailee takes out such a policy covering goods in his possession and the policy expresses the cover to be on goods "held by the insured in trust for which the insured is responsible", the addition of the words "for which he is responsible" restricts the insurers' liability to those goods damaged in a way which imposes liability on the bailee, but not otherwise. The insurers submit that the authorities show that the addition of these words has been so understood for many years and that this court should not disturb that understanding. The insured submits that the wording on its plain meaning does not so restrict liability and that the authorities have been misunderstood, and should not now be followed. Andrew Smith J decided the issue in favour of the insurers.
The facts
2. The facts can be taken shortly and from the judge's judgment. The claim was brought by insureds under a Combined "All Risks" Policy of insurance issued by the defendant insurers and dated 12 April 2001. The insurance covered the loss, destruction or damage to property insured as a result of fire. On about 16 May 2001 there was a fire in Skegness, Lincolnshire at industrial premises occupied by the first claimant, Ramco (UK) Limited ("Ramco") and the second claimant, Resource Industries Limited ("RIL") . It is common ground that the fire occurred without fault on either of their parts.
3. Stock and other goods were destroyed or damaged in the fire. The insurers do not dispute their liability in respect of property owned by the claimants. However, some of the goods that were damaged or destroyed were bailed to the claimants, in particular goods owned by the Ministry of Defence were bailed to Ramco and goods had been entrusted to RIL by a businessman called Mr Neville Murray. The dispute between the parties is whether the insurers are liable in respect of those goods, and if so on what basis. The appeal is in fact only concerned with the goods said to have been entrusted by Mr Neville Murray, but there being a possible distinction between the basis on which the goods were bailed to the respective claimants we will not ignore completely the goods bailed by the MOD to Ramco.
The Policy
4. The insurance policy comprises seven sections and also general conditions, general exclusions and a schedule. The period of insurance is from 1 February 2001 to 31 January 2002. The insured include Ramco and RIL. The relevant section of the policy is section 1, which is headed "Material Damage-'All Risks'" It provides as follows:
"IN THE EVENT OF the Property Insured described in the Schedule being accidentally lost, destroyed or damaged during the Period of Insurance the Insurers will pay to the Insured the value of the property at the time of its loss or destruction or the amount of the damage or at the Insurers' option reinstate or replace such property or any part of it… "
There is a definition of Property Insured:
"a) Buildings…
b) Contents
Contents therein and thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible including
i) tenants' improvements alterations and decorations
ii) so far as not otherwise insured employees' directors' and visitors' personal effects of every description…
c) Stock
Stock and Materials in Trade therein or thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible."
Provisions described as "Supplementary Conditions—applicable to section 1" include a "Condition of Average (Underinsurance)", which reads as follows:
"The sum insured by each item of this Section… is declared to be separately subject to Average. Whenever a sum insured is declared to be subject to Average, if such sum shall at the commencement of any DAMAGE be less than the value of the property covered within such sum insured, the amount payable by the Insurers in respect of such DAMAGE shall be proportionately reduced".
There is also a provision that as far as Buildings and Contents are concerned – and it will be noted that "Contents" include property held by the Insured in trust for which the Insured is responsible– the basis for calculating the amount payable be the reinstatement of the property lost destroyed or damaged.
The Issues
5. On 11 April 2003 the court ordered the trial of preliminary issues. Before the judge these were redefined to two issues, and they were set out in an appendix to the judge's judgment. It is only the judge's decision on the first issue which is under appeal, but although his decision on the second issue is not appealed, it is of some interest how he decided that issue. We append to this judgment both issues, and simply say that on the first issue i.e. whether in order to recover under the policy the bailee must show that there was a liability for the damage to the goods, the judge was in the insurers' favour; as regards the amount that the bailee could recover if the goods were covered, he did not limit recovery to the amount of any liability, but found that it was the value of the goods which should be recovered, the bailee holding that value in trust for the owner of the goods. It might be thought that there was some inconsistency between those two views, indeed Mr Goudie QC for the claimants submitted there was. Since the insurers do not appeal the judge's decision on the second issue, we have not explored whether if the judge's decision were right on the first issue, his decision on the second issue should stand. In this case we fully understand how it may well be that the monetary difference between the rival contentions on the second issue makes it academic to explore that question, but we put down a caveat that if the judge is right on the first issue, we are not necessarily satisfied that his answer on the second issue would stand.
6. The issue which we must address accordingly is simply whether where the policy it provides for the payment to the insured of the value of the property at the time of its loss, and the property is defined to include contents held by the insured "in trust for which the insured is responsible" provides cover only if the insured has some legal liability in respect of the damage or destruction.
The Starting Point
7. The starting point is common ground between the parties, and both parties recognise as accurate the following passage from the judge's judgment.
"Undoubtedly bailees in the position of Ramco and RIL may insure goods in their possession for their full value and in the event of their loss or destruction recover their full value: see Tomlinson v Hepburn, [1966] AC 451. The courts have acknowledged since the middle of the nineteenth century the commercial convenience of bailees being able to effect such insurance regardless of whether or not they are liable, or potentially liable, in respect of the goods: Waters v Monarch Fire and Life Assurance Company, (1856) 5 E&B 870. If a bailee insures goods bailed to him and recovers from insurers more than any loss that he suffers, he is required to account to the owners of the goods (or other persons bearing the loss) for the excess. The law does not object to this, or strive to avoid this result. In Tomlinson v Hepburn (cit sup) at p.471A, Lord Reid said that if this is an exception to the contractual principle of the common law preventing jus quaesitum tertio, "I do not think that we are bound to be astute to extend it [the contractual principle] on a logical basis so as to cut down an exception, if it be an exception, which has stood unchallenged since the decision in Waters case more than a century ago."
8. Of course as the judge points out the question whether the bailee has insured the goods of others and which goods must depend on the wording of the policy. But Waters not only approved the principle that enabled bailees to insure the goods held by them whether or not there was any liability for the damage, but had considered the language which could bring about that result. Once again the summary by the judge of the decision in Waters demonstrates the position:-
"The claimants were flour merchants, warehousemen and wharfingers, whose warehouse was destroyed by an accidental fire, together with goods in it of which they were bailees. They had taken out two policies of insurance covering, under one, "goods in trust or on commission therein" and, under the other, "property of the assured or held by them in trust or on commission". The court held that:
"i) As a matter of interpretation, the policies covered goods of third parties of which the claimants were bailees. Lord Campbell CJ said (at p.880), "What is meant in those policies by the words 'goods in trust'? I think that means goods with which the assured were entrusted; not goods held in trust in the strict technical sense, so that there was...
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