Herbert Smith recently acted for Royal & SunAlliance Insurance plc in successfully arguing that costs owed by an insured to the Environment Agency, and costs incurred through complying with statutory notices served on an insured by the Agency, were not covered by the relevant public liability policy. The judgment on the point as a preliminary issue in Bartoline Limited v (1) Royal & SunAlliance Insurance plc (2) Heath Lambert Limited (2006, unreported) confirms that such costs did not constitute a "legal liability for damages" as required by the wording in the policy. The decision has potential relevance to any public liability policy which contains this wording, particularly where insureds are seeking to recover in respect of environmental clean up costs imposed directly by statute.
Facts
The following alleged facts were assumed to be correct for the purposes of deciding a preliminary issue as to the construction of the policy.
A fire took place at the insured's premises which led to pollution of two watercourses, one of which was immediately adjacent to the premises. As a result, the Environmental Agency carried out various emergency works cleaning up the watercourses themselves and their beds and banks. Pursuant to section 161(3) of the Water Resources Act 1991, the Agency served invoices on the insured in respect of the cost of such works. Further, pursuant to Section 161A of the Act, works notices were served on the insured requiring it to carry out certain clean up works itself. The insured sought to recover from the insurer the amounts contained in the Agency invoices and the cost of the clean up work that it had carried out pursuant to the notices served upon it.
The public liability policy in place provided, amongst other things, that the insured would be indemnified against "legal liability for damages in respect of… damage to property… nuisance trespass to land or interference with any easement right of air light water or way". The preliminary issue considered by the court was whether the amounts claimed by the insured fell within the ambit of this wording.
Decision
HHJ Hegarty QC began his reasoning by analysing the framework of the statutory powers conferred upon the Environment Agency in respect of the clean up of watercourses. He contrasted this with the common law remedies available to individuals whose rights over or in relation to the watercourses and their beds and banks may have been infringed by the pollution. He concluded as follows:-
"In summary, therefore, it seems to me that any liability to repay the expenses incurred by the Agency… and any liability to pay damages in tort are, so to speak, quite different animals. One arises out of the need to protect the public interest in the environment and the other to protect individual interests in property. One gives rise to a right to recover the costs of certain works and operations as a debt; whereas the other confers a right to recover damages by way of compensation for loss and damage."
The judge then went on to consider whether the statutory debt created by the 1991 Act, or the costs incurred further to works notices served pursuant to the Act, could be taken to be liabilities in "damages". It was held that the core meaning of the term "damages" could be described as "the pecuniary recompense given by a process of law to a person for the actionable wrong that another has done him". While tortious claims brought by those with legal interests relating to the watercourses and their bed and banks may fall squarely within this meaning, the statutory debt and costs relating to clean up works would not. The latter were a different species of liability with a different purpose and requiring different circumstances in order to be triggered. The judge saw no obvious reason why the core meaning of "damages" should not be applied directly in the context of public liability insurance. Indeed, in his view, this was the meaning intended by the wording used.
The primary argument (although not the only argument) put forward by the insured to seek to justify a wider definition of the term "damages" was that if the clean up work in question had not been carried out, then a right of action for damages in tort would have arisen on the part of the Environment Agency and third party land owners. The judge recognised that at first blush this broad interpretation was attractive. After all, it was in the end the insured which was liable for the clean up costs when, in other circumstances, it might instead have been liable to third parties in damages in respect of works and operations of a similar kind. However, it was held that this argument was ultimately inconsistent with the wording of the policy. The judge concluded that "read as a whole, it seems quite clear that the indemnity which [the policy] confers extends only to legal liability for damages in respect of certain types of tortious claim".
Further, it was held, applying the reasoning used by the Court of Appeal in Yorkshire Water Services Limited v SunAlliance and London Insurance plc and Others [1997] 2 Lloyd's Rep 21, that the relevant policy wording did not contemplate some legal liability in the abstract but rather a legal liability to a specific third party which had suffered loss and damage in respect of a tortious act. It was not enough to point to an event which may have given rise to a legal liability in tort to one or more parties. The peril indemnified by the policy was the actual legal liability established.
Comments
This decision provides welcome clarification of the legal meaning of the term "damages" in an insurance context. In the particular context of environmental clean up costs, the judgment provides a strong indication that where the relevant statutory framework pursuant to which loss has been suffered by an insured is separate from and different to the principles underpinning common law claims for damages, there will be no "legal liability for damages" for the purposes of public liability insurance policies containing this wording.
On a more general level, the case is another indication of the focus which English courts will put on the precise wording of the insuring clause read in the context of the policy as a whole. Both insurers and insureds would be well advised to consider the exact meaning of the words used in insuring clauses in policies of all types, particularly public liability policies.
The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.
Source:
Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms that have a formal alliance.
