Union Camp Chemicals Ltd v ACE Insurance SA-NV [QBD (TCC)]
| Jurisdiction | England & Wales |
| Judge | HHJ Thornton |
| Judgment Date | 20 June 2001 |
| Court | Queen's Bench Division |
| Date | 20 June 2001 |
Queen's Bench Division (Technology and Construction Court).
HHJ Thornton QC.
George Leggatt QC (instructed by Hextall Erskine) for the claimant.
Anthony Edwards-Stuart QC and Ian Swan (instructed by Davies Lavery) for the defendant.
The following cases were referred to in the judgment:
AIG Europe (UK) Ltd v Anonymous Greek Co of General Insurances, The Ethniki [1999] Ll Rep (IR) 221.
Annefield, TheUNK [1971] 1 Ll Rep 1.
Antaios Compania Naviera SA v Salen Rederierna ABELR [1985] AC 191.
Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] CLC 1243; [1998] 1 WLR 896.
Miramar Maritime Corp v Holborn Oil Trading LtdELR [1984] AC 676.
Prenn v SimmondsWLR [1971] 1 WLR 1381.
Reardon Smith Line Ltd v Yngvar Hansen-TangenWLR [1976] 1 WLR 989.
Youell v Bland Welch & Co LtdUNK [1992] 2 Ll Rep 127.
Insurance — Public liability insurance — Excess insurance — Explosion at boiler being converted from burning oil to burning gas — Claimant recovered from primary liability insurers — Excess insurer declined to pay relying on condition in primary policy requiring subcontractors to have public liability insurance — Whether subcontractors condition incorporated into excess insurance — Whether condition required all subcontractors to have insurance — Whether subcontractors had required level of cover.
This was a claim by a chemicals company (“UCC”) against an insurance company (“ACE”) exercising the rights that an insured contractor (“Todd”) previously had against ACE which had been transferred to UCC by the operation of the Third Parties (Rights Against Insurers) Act 1930.
UCC retained Todd to convert a boiler at its distillation plant from burning oil to burning gas and gasoil. An explosion occurred when the boiler was used because of a defect in the gas control valve. UCC obtained judgment against Todd for £3.5m for the loss and damage resulting from the explosion. Todd was insured under a primary public liability policy with Independent. The limits of indemnity under the policy were £1m for public liability, £1m for product liability and £25m for employers' liability. Todd was also covered by an excess liability policy issued by ACE with a limit of indemnity of £4m in excess of £1m. The excess policy covered public liability but not employers' liability. Todd recovered a judgment for £1m against Independent on the basis that Independent was liable under the products liability section of the primary policy. Todd then went into liquidation and UCC pursued Todd's rights against ACE under the 1930 Act. ACE declined liability in reliance on the “subcontractors condition” in the primary policy which was a “condition precedent” requiring the insured to ensure that all subcontractors had employers' liability and public liability insurance “in respect of their liability at law” with a limit of indemnity not less than that provided by the policy. The excess liability policy was expressed to be subject to the same terms and conditions as the primary policy. ACE said that the subcontractors condition was therefore incorporated into the excess insurance and that Todd's subcontractors did not have the necessary levels of cover.
Held giving judgment for UCC:
1. The primary liability and excess liability policies were intended to be “back to back” and an obligation imposed on Todd by the primary policy which, when complied with, would or might reduce ACE's liability under the excess liability policy could not be regarded as ancillary to the excess liability policy. The subcontractors condition was a relevant term which was clearly intended to be incorporated into the excess policy by the wide words of incorporation. Any ambiguity in the clause as incorporated had to be resolved in the same way as it would in relation to the clause in the primary policy, but was not a reason for not incorporating the clause in the first place.
2. The words “all subcontractors” could not be interpreted literally since the result would be unworkable. As suggested by UCC a plausible restriction on the meaning could be achieved if the words were governed by the following words “in respect of their liability at law”. On that basis the only subcontractors being referred to were those who had already incurred a liability at law. Further the condition was a condition precedent to liability and thus the time when the fulfilment of the condition was to be considered was after a claim had been made for indemnification under the insurance. Todd's obligation was therefore to ensure that only such subcontractors had appropriate insurance as were liable at law for the damage for which Todd was claiming an indemnity.
3. The words “a limit of indemnity not less than that provided by this policy” in the subcontractors condition had to be read as referring to the primary liability policy and thus the level of cover required was £1m. The submission that the level should be that under the excess policy of £5m was rejected. That would impose a different and more onerous obligation on Todd than the equivalent obligation under the primary policy.
4. Todd had fulfilled the condition precedent so far as liability cover was concerned since the relevant subcontractor had primary liability cover of at least £1m.
5. The requirement in the primary liability policy for subcontractors to have employers' liability cover was not carried into the excess liability policy because that requirement was not relevant to the subject matter of the excess liability policy which did not provide any cover for employers' liability. Even if the employers' liability obligation was incorporated into the excess policy it was immaterial in this case because the claim was on the products liability cover.
1. This judgment concerns a claim made by the claimant (“UCC”) against an insurance company, ACE Insurance SA-NV (“ACE”), exercising the rights that Todd Combustion Ltd (“Todd”) previously had against ACE which have now been transferred to UCC by the operation of the Third Parties (Rights Against Insurers) Act 1930 (“the Act”). For much of the relevant period between 1992 and the present, ACE was known by its previous name of CIGNA Insurance Co of Europe SA-NV), but it is more convenient to call the defendant ACE throughout irrespective of its name at the time being referred to. The claim arises out of a judgment in UCC's favour dated 4 May 2001 that had been given in an action brought by UCC against Todd claiming damages for the loss resulting from an explosion of a boiler at its plant that had occurred whilst Todd was carrying out gas conversion work to that boiler. The judgment was for a sum, inclusive of interest, of £3,526,985 with costs in addition. This judgment had been preceded by an earlier judgment in UCC's favour against Todd dated on 4 August 2000 for an interim payment of £2m.
2. UCC's claim against ACE arises because Todd carried both public liability and excess liability insurance that covered the liability to UCC giving rise to the two judgments and because, since 20 September 2000, Todd has been in liquidation. Its primary liability cover was under a primary public liability policy provided by Independent Insurance Co Ltd (“Independent”) and its excess liability cover was under an excess liability policy provided by ACE and to which this claim relates. Before Todd went into liquidation, it had claimed under both policies. Independent had repudiated liability under the primary liability policy, having relied on various exceptions in the policy and, following a trial of Todd's claim under that policy, I gave judgment in favour of Todd on 18 May 2000 for £1m. I held that Independent was liable to indemnify Todd under the products liability section of the policy and that the various exceptions relied on by Independent were inapplicable.
3. Todd's claim against ACE under the excess liability policy was rejected by ACE because ACE relied on what it alleged was an applicable condition precedent which Todd had not fulfilled. ACE maintained that the excess liability policy contained a requirement that all Todd's subcontractors should have taken out public and employers' liability insurance cover with a limit of indemnity not less than that provided for by the excess liability policy. As a result, Todd, as insured, should have ensured that all subcontractors to Todd carried public liability insurance cover to a minimum limit of £5m. If ACE was wrong and Todd was only required to ensure that all subcontractors' liability cover was at least £1m, ACE contended as an alternative ground of rejecting UCC's claim that Todd was also required to ensure that all of its subcontractors carried employers' liability insurance cover with an indemnity limit of at least £25m.
4. ACE has identified at least one subcontractor to Todd, EPC Marine Automation Ltd (“EPC”) who supplied the control panels for the gas burner management system for the boiler that exploded, whose insurance cover for the relevant period was only £1m for public liability and, as I find later in this judgment, whose employers' liability cover was only £10m.
5. Todd was insured for the period of 12 months from 1 February 1996 by Independent under a business liability policy. The limits of indemnity under this policy were £1m for public liability, £1m for products liability and £25m for employers' liability. Todd was also insured for the same 12-month period under an excess liability policy issued by ACE with a limit of indemnity of £4m in excess of an underlying limit of £1m.
6. The claim against Todd had arisen following a catastrophic explosion on 28 January 1997 of a Gibson Wells vaporising boiler at UCC's tall oil distillation plant located at Chester-le-Street, County Durham. This boiler provided heat for the distillation process of tall crude oil, a resinous material recovered from...
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