Abstract

Article

Cover as to defective work or product in breach of contract

A Liability policy provides cover for only injury to or accidental damage to property of third parties: James Longley & Co v. Forest Giles Ltd [2002] Lloyds L R (IR) 421; Tesco Stores Ltd v Constable [2008] Lloyd’s Rep IR 636. It does not apply to a claim for no more than remedial work as the result of the insured’s tender of defective work under a contract when no harm was inflicted on other property since the insured’s liability would have been incurred through pure economic loss by his simple failure to perform a business obligation and not through damage to property, and  restitutionary relief is not a legal liability for damages:. The relationship of a builder and client is contractual and his only duty in tort to its client is one of reasonable care to prevent any defective work from causing personal injury to or damage to other property of the client. However, there may be circumstances where the builder assumes a responsibility by way of a tortious duty of care to avoid causing economic loss: Robinson v PE Jones (Contractors) Ltd [2011] 3 WLR 815. If the insurer promises to indemnify the insured against all sums that he is liable in tort to pay as damages for accidental injury to third parties or accidental physical damage to property other than property being constructed by him, the indemnity does not extend to liability for economic loss from simple breach of the contract: James Longley & Co v. Forest Giles Ltd [2002] LLR (IR) 421; AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).

A Liability policy provides cover against liability to the public at large, whereas a contract  between individuals creates private liability between themselves. Such public liability arises in tort but cannot do so only in contract. Generally, tort cannot be founded upon pure economic loss from a simple failure to perform. So public liability insurance does not generally cover liability in contract for pure economic loss. The language may extend cover to contract even for pure economic loss but it should say so clearly and  be suitably described.

In the insuring clause, "shall be liable at law" is wide enough to include liability in contract, but other words will make clear that the cover is against liability in tort, and it is that which gives rise to a liability "at law for damages". Although breach of contract gives rise to a liability at law for damages the damages must be "in respect of" the classes of liability set out, each of which corresponds with the law of tort, or its effect, from physical interference with a third party's person, property or property rights and is typical of the harm associated with the kind of activity contemplated: Tesco Stores Ltd v Constable [2008] Lloyd’s Rep IR 636.

 

Geographical limitation

A geograpical limitation on cover may be imposed but extended to the relevant geographical locus only during periods defined by certain activities so that the extension would not apply in their absence: AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).

Exclusion as to costs of repairs or rectification

An exclusion of Liability cover in respect of property comprising the permanent or temporary works undertaken by the insured and/or in respect of the cost or value of the works executed by it or the replacement, repair, rectification or reinstatement thereof and/or in respect of contractual claims including the claim for breach of warranty is triggered if the claim is for loss or damage to property comprising the permanent or temporary works undertaken by the insured in the course of a contract with the claimant where the works were under the control of the insured and it was responsible for them: AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).

Exclusion as to defective condition

An exclusion of liability for the costs necessary to replace repair or rectify any insured property which is in a defective condition owing to any defect in design or workmanship on the part of the insured save that the exclusion does not apply to property which is free of such defective condition but is damaged as a consequence of such defect is plainly triggered if the claim is for the costs of replacing, repairing or rectifying any insured property: AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).

Condition Precedent as to notification

If the insured fails to notify the insurer of any claim either at all or timeously, there will have been a breach of notification requirements under the policy, and if it is expressed to be a condition precedent to the liability of the insurer to provide indemnity, the insurer is entitled rely upon the breach. Absent statutory intervention such as s 54 of the insurane Contracts Act 1984 (Cwth), it is not necessary for the insurer to show any prejudice, for it is widely acknowledged that, particularly in the context of liability claims, insurers are dependent upon prompt notification to enable them to undertake investigations before matters of evidence or witnesses are lost. If the policy does not expressly state that it is to be a condition precedent but a general condition provides that due observance of the conditions of the policy is a condition precedent to the insurer’s liability, it is effective to create conditions precedent: Pilkington United Kingdom Ltd v CGU Insurance Plc [2004] Lloyd’s Rep IR 891. A clause may have the effect of a condition precedent without using such words, but it must use language which clearly requires a conditional link between the provision’s obligation and the insurer’s obligation to indemnify: Aspen Insurance UK Ltd v Pectel Ltd [2009] Lloyd’s Law Rep 440; George Hunt Cranes Ltd v Scottish Boiler & General Insurance Co Ltd [2002] Lloyd’s Rep IR 178.   Strictly formal notification is not required, but any specific requirements must be met: Kidsons v Lloyds [2009] Lloyd’s Rep IR 178; AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).

Restitution

Restitution or regurgitation is not be within the scope of Liability cover since it is concerned with the reversal of a gain and not with compensating a claimant for its loss: AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).

Whether summary judgment should be considered

The principles governing whether summary judgment should be orderedare as follows: It is necessary to consider whether the respondent has a realistic rather than a fanciful prospect of success; realistic means that is more than merely arguable; it is not a mini-trial, but this does not mean that everything that a party says must be taken at face value; that there is no real substance in factual assertions may be clear, particularly if they are contradicted by contemporaneous documents; but the evidence that can reasonably be expected to be available at trial as well as the evidence adduced on the application must be taken into account; although at trial the action may not turn out to be complicated, it may still be desirable that the facts should not be decided without their investigation more fully at trial if reasonable grounds exist for believing that it would add to or alter the evidence available to a trial judge; if one part of the claim is to go to trial it may be more appropriate for the entirety to go to trial: Attrill & Ors v Dresdner Kleinwort Ltd, Commerzbank AG [2011] EWCA Civ 229. Relief is discretionary: Padden v Arbuthnot Pensions [2004] EWCA Civ 582. Some caution is necessary as to negative declaratory relief: Messier-Dowty v Sabena [2000] 1 WLR 2040, but less so if an insurer is seeking a declaration of non-liability.

If a declaration could have implications for third parties, the Court should consider whether it is necessary to the Claimant, and if so, whether it would be preferable that it be granted only on the basis of findings of fact in the following trial: Hayim & Ors v Couch [2009] EWHC 1040.

If foreign proceedings are threatened and potentially imminent when the application is commencd, the applicant’s potential liability substantial, the court has jurisdiction to hear the issues, the Policy is governed by domestic law and the issues are those of policy construction in that context,they may be best determined by a domestic court which would avoid  lengthy and costly proceedings abroad: AXA Insurance UK Plc v Thermonex Limited (in liquidation)_[2012] EWHC B10 (Mercantile).