IN THE SUPREME COURT OF JUDICATURE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
29th November 2000
Before:
Between:
Claimants
-and-
Defendants
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Mr. R. Stewart (instructed by Hextall Erskine)
for the claimants.
Mr. R. Ter Haar, Q.C. and Ms. J. de Camp (instructed by Messrs. Vizards Staples
& Bannister) for the defendants.
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1. The claimants are Bovis Construction Ltd. ("Bovis"), a construction management contractor, and Eagle Star Insurance Co. Ltd. ("Eagle Star"), an insurance company which at the material time insured Bovis under a public liability policy. The defendant, Commercial Union Assurance Ltd. ("CU"), is another insurance company which at the material time had issued a policy to Rosehaugh Estates Plc ("Rosehaugh"). Bovis were also an assured under this CU policy. The claim is brought under the CU policy for an indemnity in respect of, or contribution towards, agreed damages and costs paid by Bovis to General Accident Life and Assurance Co. Ltd. ("GA"), assignees of Rosehaugh in the total sum of £420,000.
2. In September, 1988, Bovis entered into a contract with Rosehaugh to manage the construction of an office block known as Friendly House in London, EC3. It was a term of the contract that Rosehaugh would obtain and maintain, in the joint names of Rosehaugh and Bovis, an insurance policy to cover their respective liabilities in respect of injury or damage to property arising out of or in the course of or by reason of the carrying out of the contract works. In addition, Rosehaugh were also obliged to insure, in the joint names of Rosehaugh and Bovis, all the executed works, goods and materials to be incorporated into the works and all construction work and other materials.
3. It was in compliance with its obligations that Rosehaugh took out the policy in the joint names of itself and Bovis with CU. The policy concerned included a contractors "all risks" section (section 1) and a public liability section (section 3). It is the claimants' primary case that they are entitled to an indemnity under section 3 of the policy. Their secondary case is that by reason of the Civil Liability (Contribution) Act, 1978, they are entitled to an indemnity or contribution under section 1 of the policy.
4. The parties have helpfully agreed the facts. The management contract contained provisions as to certification of practical completion with a 12 months defects liability period from that date. In the result, practical completion of the project took place on the Mar. 6, 1990 and a certificate to that effect was issued on Apr. 6, 1990. A month later, on May 7, 1990, it was discovered that a flood had occurred in the building which had originated in the rooftop plant and boiler room. The water had escaped on to the floor of the plant room from a pressure release valve on one of the heating boilers and from there it had penetrated in to the building below via an inadequately sealed cable hole in the floor slab. The building was 11 stories high and the water penetrated as far as the fourth floor causing substantial damage.
5. It was discovered after the incident that a switch on the hot water pressurisation unit had been switched to manual that was, in fact, its test mode. The effect of this was that the unit kept pressurising the system rather than automatically cutting out when the correct pressure was reached. The result was the boiler pressure release valve operated, letting the water escape on to the floor, and this continued until the switch was turned off.
6. Following the flood, extensive remedial works were required to repair the damage. The costs of the work were about £310,000 and GA, Rosehaugh's insurer, paid these pursuant to a policy that was not in evidence. In addition, GA paid Rosehaugh about £113,000 in respect of lost rental while the remedial works were being carried out.
7. Rosehaugh then intimated a claim against Bovis, alleging various design and supervision failures and breaches of specification. However, Rosehaugh went into administrative receivership. By deed of assignment dated the Aug. 23, 1994 GA took an assignment of Rosehaugh's rights against Bovis and issued proceedings against Bovis on Oct. 4, 1994 in respect of the damage to Friendly House. On Apr. 3, 1998 these proceedings were compromised pursuant to an agreement whereby Bovis agreed to pay GA £350,000, plus costs which were subsequently agreed in the sum of £70,000.
8. When GA originally made its claim, Bovis referred the matter to CU claiming an indemnity under the project policy. CU handled the claim under a reservation of rights. Subsequently CU repudiated the claim on the grounds that the claim was not covered by the policy. As a result Bovis referred the claim to its own liability insurers Eagle Star who duly indemnified Bovis in respect of the sums paid to GA.
9. Nonetheless Bovis did not accept CU's repudiation of the original GA claim and these proceedings were brought to recover an indemnity against, or contribution towards, the sums paid to GA. CU maintained its position that the claim was not covered under either section 1 or 3 of the policy. By way of an amended defence CU also contended that, since Eagle Star had indemnified Bovis prior to the commencement of the proceedings, Bovis were thereby barred or precluded from seeking any contribution. In response, by an order dated Mar. 17, 2000, Eagle Star was added as a claimant to the action.
10. It is convenient to start by considering the claim from the perspective of Bovis before turning to the Eagle Star claim. The first hurdle to be overcome, regardless of the question under which section of the policy it was said that CU should respond, was the plea that, since Bovis had been fully indemnified by Eagle Star, they were thus precluded from making a claim under another policy of insurance. Reliance in this respect was placed by CU on the Scottish decision in Sickness & Accident Assurance Association v. General Accident Assurance Corporation Ltd., (1892) 19 R. 977 where the Court of Session upheld the decision of the Lord Ordinary. His opinion contained the following passage:
In marine insurance a rule which has long been recognised is that when the insured has recovered to the full extent of his loss under one policy, the insurer under that policy can recover from other underwriters who have insured the same interest against the same risks a rateable sum by way of contribution. The foundation of the rule is that a contract of marine insurance is one of indemnity, and that the insured, whatever the amount of his insurance or the number of underwriters with whom he has contracted, can never recover more than is required to indemnify him ... There is no reason in principle in my opinion why the same rule should not be applied to other classes of insurance which are also contracts of indemnity ... The right of an underwriter who has indemnified the insured to claim contribution from the other underwriters cannot be founded upon the doctrine of subrogation, because an assignee can have no higher right than his cedant and a shipowner who has received full indemnity from one underwriter can never make a claim against another underwriter. The answer, therefore, to the claim of an underwriter who had paid, if made only in the right and as assignee of the assured, would be that the contract was one of indemnity, and that the insured had already been indemnified.
11. The principle thus set out was recognised as valid in the decision of the English Court of Appeal in Austin v. Zurich General Accident and Liability Insurance Co Ltd., (1945) 78 Ll.L.Rep. 185; [1945] 1 K.B. 250. As I understood it, the answer advanced on behalf of Bovis was that there was no double insurance because the cover furnished by the two policies was not co-extensive. But this is not to the point. The right to contribution as between insurers exists where more than one policy covers the risk that has given rise to the claim: see Albion Insurance Co. Ltd. v. Government Insurance Office of N.S.W., [1969] C.L.R. 342. Of course, if the risk is covered by the Eagle Star policy and is not covered by the CU policy, no issue arises. I see nothing in the recent decision of the Scottish Court of Session in Caledonia North Sea Ltd. v. London Bridge Engineering (The Times Feb. 8, 2000) to detract from or modify this approach. In these circumstances, I conclude that Bovis are unable to surmount this threshold issue and that their claim must fail on that ground alone.
12. Turning now to the claim advanced by Eagle Star, it in turn faces a threshold hurdle raised by the defendant. The Eagle Star policy contained the following condition:
6. If at any time any claim arises under this Policy there be any other insurance covering the same liability the Company shall not be liable to pay or contribute more than its rateable proportion of any such claim and cost and expenses in connection therewith.
13. As I have already recorded, Eagle Star in fact provided a full indemnity to Bovis. Leaving aside the implications of the fact that the claim included a sum representing the loss of rent during the course of the repairs, it follows that Eagle Star was a volunteer in respect of half the indemnity it afforded to Bovis. Indeed, the claimants conceded as much in the amended points of reply. In these circumstances, the defendant contended, Eagle Star could not look for a contribution under the Civil Liability (Contribution) Act, 1978 or otherwise to cover that part of the indemnity in respect of which it had no legal liability: see Weddell v. Road Transport and General Insurance Co. Ltd., (1931) 41 Ll.L.Rep. 69; [1932] 2 K.B. 563, Legal and General Assurance Society Ltd. v. Drake Insurance Co. Ltd., [1991] 2 Lloyd's Rep. 36; [1992] 1 Q.B. 887.
14. I accept that submission and conclude that the claim by Eagle Star is, in this respect, misconceived and must fail. This conclusion is fortified by the terms of cl. 3 of the general conditions attached to the CU policy:
3. This Policy other than is required under the Contract Conditions shall not inure to the benefit of any other Insurer and shall only pay claims that are not recoverable from or are in excess of amounts recoverable under any other policy of insurance.
15. It was contended for the claimants that the phrase "other than as required under the Contract Conditions" did not mean, as the defendants submitted, "save as provided by the Contract Conditions". On the claimants' construction, the exclusion had no application where the policy was provided for under the terms of the underlying contract: i.e. it meant "save where the policy itself was called for by the Contract Conditions". I am unable to accept the claimants' construction since it does not accord with the natural meaning of the words used.
16. The conclusions that I have already reached are sufficient to dispose of the claim. But in order to satisfy any concerns that the merits of the claimants' case have been submerged in the somewhat technical defences discussed above, I turn to the scope of the cover afforded under the CU policy. The claimants' primary case was that relevant cover was provided by section 3 (third party liability). But since this cover was expressed to be against sums paid as damages in respect of "loss of or damage to material property not insured under Section 1", it is necessary to consider the scope and applicability of section 1 first.
17. Section 1 of the policy was in respect of the "contract works":
The Insurer will indemnify the Insured against loss of or damage to the Insured Property from any cause other than as hereinafter excepted.
The "Insured Property" included the whole of the contract works making up the structure of Friendly House. On one view (to which I subscribe) this of itself is enough to exclude the application of section 3 on the basis that the relevant property was insured under section 1. Any other construction would shift cover for loss or damage which, by definition, was expressly excluded from section 1 (the "Contract Works" insuring clause) into section 3 which is in respect of "Third Party Liability". This would be a surprising outcome, made all the more odd given the exclusion of consequential loss from section 1 (see cl. 5) but not from section 3.
18. The claimants, however, contended that cover under section 3 was only excluded where the relevant loss or damage was not insured under section 1. For the sake of completeness I turn to the implications of that proposition on the assumption that it is correct.
19. The focus of debate in this context was whether cover under section 1 was excluded by exception 2:
The Insurers shall not be liable in respect of ...
2. Maintenance
Loss of or damage to the permanent works or any part thereof erected in performance of the Project in respect of which a Certificate of Practical Completion has been issued to the Principal Contractor unless such loss or damage
i. be occasioned during the Defects Liability Period specified in the contract and arising from a cause occurring prior to commencement of such period.
20. In construing this exception upon an exception, it was the defendants' case that the flood provided a paradigm example of damage occurring during the defects liability period but attributable to a pre-existing cause, namely the defective construction of the boiler room. The claimants, however, contended that the sole, or at least the proximate, cause of the damage was the escape of water during such period. In my judgment, it is plain that an effective, if not dominant, cause of the damage was the defective work which preceded the date of practical completion. Indeed any other approach would neuter the exception from the exclusion.
21. In this context, the defendants relied upon the decision in The Miss Jay Jay [1987] 1 Lloyd's Rep. 32 where the loss of the vessel concerned was attributable to unseaworthiness, an uninsured peril. The claim was held nonetheless to be within the policy on the basis that what happened in the adverse sea conditions was a proximate cause of the loss. So also in the present case, in my judgment, while the flood during the defects liability period (an uninsured peril) was a cause of the damage, the defective work was also an effective cause. It may not have been proximate in time but it was proximate in efficiency. It follows that, even on this alternative basis, the claim fell within section 1 and was, accordingly, excluded from section 3.
22. This conclusion makes it strictly unnecessary to consider a further argument advanced on behalf of CU that the claim under section 3 was excluded by cl. 3 of the exceptions:
3 Product Supplied
loss of or damage to any commodity article or thing supplied installed or erected by the Insured if such loss or damage is attributable to any defect therein or the harmful nature or unsuitability thereof.
23. For my part, I would not regard the phrase "commodity article or thing" as apt to apply to Friendly House itself. This is a further pointer to the conclusion that section 3 is not concerned with coverage of the works. The clause would appear to be the equivalent of an Inchmaree clause in a marine context.
24. In summary, therefore, Rosehaugh and Bovis were (dependent on who had borne the loss) insured in respect of damage to the building under section 1. Accordingly, there was no cover under section 3 and the primary case must fail on this basis as well.
25. The secondary case advanced by the claimants was they were entitled to a contribution from CU under the Civil Liability (Contribution) Act, 1978, on the basis that both Bovis and CU were liable to Rosehaugh, the former under the management contract and the latter under the policy.
26. The relevant sections of the Act are as follows:
1. (1) ... any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage whether jointly with him or otherwise ...
2. (1) ... in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question ...
6. (1) A person is liable in respect of any damage for the purposes of this Act if the person who suffered it ... is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise).
27. The short answer is that CU was not liable to Rosehaugh "in respect of the same damage" as Bovis. Rosehaugh had no claim against CU for compensation by reason of the latter's breach of duty. Indeed, apportionment of liability would not be possible since CU had no "responsibility for the damage" sustained by Rosehaugh. Furthermore, any other conclusion, on the facts of the present case, would involve overriding the principles relating to contribution as between insurers.
28. Bovis was liable for the flood damage to Friendly House: CU was liable under a policy of insurance. It is a misconception to describe those as liabilities "in respect of the same damage". The damage inflicted by the builder was a defective building susceptible to flooding damage and consequential loss of rent. CU has not inflicted that damage: the only damage it could inflict would have been a refusal to pay on the policy (which in any event excluded consequential loss), thereby imposing financial loss. This is not the same damage: see Royal Brompton Hospital National Health Service Trust v. Hammond [2000] Lloyd's Rep. PN 643.
29. For all these reasons, the claim must be dismissed.