Commercial Court upholds hot works “exclusion” in Contractor’s Liability Policy
Aspen Insurance UK Ltd & Liberty Mutual Insurance Europe Ltd v Sangster & Annand Ltd is a case that concerns a fire at a Scottish hotel, and liability under a Contractor’s Liability Insurance policy. It was heard by HHJ Waksman QC (as he then was) in the Commercial Court in June and, earlier this week, the Court of Appeal refused permission to appeal.
Aspen Insurance UK Ltd & Liberty Mutual Insurance Europe Ltd v Sangster and Annand Ltd
Aspen and Liberty provided liability insurance to Sangster and Annand Ltd, a roofing contractor, under a policy of Contractor’s Liability Insurance (the insured).
The policy contained a standard hot works clause (Exclusion 10, “Heat Away From the Insured’s Own Premises”), which provided that the public liability cover provided by the policy did not apply to legal liability:
“…where the Insured is using any process which involves the application of heat, oxyacetylene, electric arc or similar welding cutting grinding or other spark emitting equipment away from the Insured‘s own premises unless:
A. the immediate area in which the operation is to be carried out has been segregated to the greatest practicable extent by the use of screens made of metal and/or fire retardant material;
B. the whole of the segregated area has been adequately cleared and freed from combustible material before operations commence;
C. combustible floors, substances in or surrounding the segregated area have been liberally covered with sand or protected by overlapping sheets of incombustible material before operations commence;
D. where work is being carried out in any enclosed area an additional employee of the Insured or an employee of the occupier or of the main contractor is present at all times to guard against the outbreak of fire;
E. specifically authorised and signed for by the occupier or the main contractor who must also approve the safety arrangements;
F. the following are in readiness for immediate use at the scene of the operations:
(i) suitable fire extinguishers by number and size for the scope of the operations; and
(ii) where practicable, hoses connected up with the water supply turned on for immediate use and successfully tested prior to the commencement of the operations;
G. a thorough examination has been made in the vicinity of the operations approximately one hour after the termination of each operation. In the Event that it is not practicable for such examination to be carried out by the Insured‘s own employee, then appropriate arrangements must be made with and signed off by the occupier…”
On 9 June 2016, there was a major fire at the Britannia Hotel in Bucksburn, Aberdeen, owned by Britannia Hotels No.2 Ltd. On the day of the fire, the insured had been carrying out hot works on a section of flat roof at the hotel.
On 13 October 2017, Britannia issued a summons against the insured in the Court of Session seeking to recover damages of just over £9 million (the Scottish action). In the Scottish action, Britannia made allegations against the insured that overlapped to a large extent with failures to comply with the requirements of Exclusion 10. The insured did not deny the allegations that amounted to failures to comply with the requirements of Exclusion 10 in the Scottish action. Its case was that it had taken reasonable care and the fire had started elsewhere.
Therefore, insurers brought proceedings in England against the insured seeking a declaration that they had no liability to indemnify the insured in respect of any legal liability that might attach to the insured as a result of the fire. The insured failed to serve an acknowledgment of service, so insurers applied for judgment in default under CPR 12.4(2). Picken J indicated he was willing to make the order sought, but the order was not perfected because Britannia issued an application to be joined to the proceedings under CPR 19.2(2)(a) in order to defend them.
Britannia’s application was heard by HHJ Waksman QC on 15 June 2018. The issues for the court to decide were as follows:
- What was the test to apply in relation to Britannia’s application to be joined?
- Did Britannia satisfy that test?
The test to apply
CPR 19.2(2)(a) provides:
“The court may order a person to be added as a new party if – (a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings.”
The ambit of CPR 19.2(2) was considered by the Court of Appeal in In re Pablo Star Ltd in which Sir Terence Etherton MR (with whom Longmore and Irwin LJJ agreed) said:
“In considering whether or not it is desirable to add a new party pursuant to CPR r 19.2(2) two lodestars are the policy objective of enabling parties to be heard if their rights may be affected by a decision in the case and the overriding objective in CPR Pt 1.”
Insurers accepted that Britannia’s rights might be affected by a decision in the proceedings, but contended that that alone was insufficient and that the application should only succeed if it would be consistent with the overriding objective for Britannia to be joined.
Insurers submitted that joining Britannia as a party would have the effect of depriving them of the default judgment that they had obtained (or would have obtained but for Britannia’s application). As noted in the White Book at 13.3.1:
“The major consideration on an application to set aside [a default judgment] is whether the defendant has shown a real prospect of successfully defending the claim or some other good reason why judgment should be set aside or they should be allowed to defend the claim. The defendant is seeking to deprive the claimant of a regular judgment which the claimant has validly obtained in accordance with Pt 12: this is not something which the court will do lightly.”
The judge noted that there was no authority on the test to be applied, and decided to give Britannia the benefit of the doubt and apply a lower merits test, which he expressed as follows:
“There has got to be real utility in the third party being joined and, in this context, that utility can only be achieved if there is at least a seriously arguable defence which could be put forward so as to avoid the policy being repudiated after a trial.
I use that wording advisedly on the basis that while it is something less than a real prospect of success, that there is nonetheless a merits threshold which has to be passed and it has certainly got to be something which is more than barely, or speculatively, arguable. I do not propose or need to elaborate on that further.”
Did Britannia satisfy the test?
HHJ Waksman QC accepted that the precautions set out in Exclusion 10 were “redolent of the typical industry guidance which applies to the undertaking of hot work”. He also noted that they were very similar, although not identical, to the complaints made by Britannia in the Scottish action. The judge accepted that Exclusion 10 was not an exclusion as such, but defined the scope of cover.
He rejected Britannia’s argument that recklessness was required in order to establish a breach of Exclusion 10. The decisions on recklessness (including Tate Gallery (Board of Trustees of) v Duffy Construction Ltd and another), were all concerned with general “reasonable precautions” clauses, whereas Exclusion 10 was a:
“…highly defined and circumscribed set of particular safeguards which have to be put in place, drawn from industry guidance.”
He also rejected Britannia’s argument that there had to be a causal connection between any breach of Exclusion 10 and the fire. The policy had been entered into prior to the coming into force of section 11 of the Insurance Act 2015. As such, the causative impact of any breach was irrelevant (for example, see Vesta v Butcher  2 All ER 488).
On the facts, the judge found that it was not seriously arguable that the insured was not in breach of Exclusion 10. He accepted that the suggestion that further evidence might come to light in the Scottish action was Micawberish.
Finally, the judge dealt with Britannia’s argument that it was entitled to rely on a contractual indemnity in its claim against the insured to which the policy would have to respond, irrespective of any breaches of Exclusion 10. The judge rejected this argument, because:
- The requirements of Exclusion 10 would have to be satisfied in any event.
- Public liability insurance of this kind only covers tortious claims: Tesco Stores Ltd v Constable and Others.
The Court of Appeal
On 19 November 2018, the Court of Appeal dismissed Britannia’s application for permission to appeal. Simon LJ noted:
“The Judge considered carefully and appropriately the test to be applied on Britannia’s application to intervene in proceedings brought by the insurers seeking a declaration of non-liability to the assured contractors: see -, , -.
Two broad grounds are advanced in support of the application.
(1) It is said that the insurer’s proceedings were premature, given that there had been no claim against them on the policy by the assured, Britannia’s Scottish proceedings against the contractors had not progressed to any significant extent and there was the possibility of further evidence from assured contractors.
The Judge considered this at - of the judgment; but was entitled to the view that no further relevant information would become available. It was for the assured contractors to produce evidence in answer to each claim and they had not done so. At  he set out, on the basis of his prior reasoning, why Britannia’s contentions before him failed.
(2) The Judge was wrong to place the reliance he did on clause 10 of the policy wording. The Judge was plainly right in his conclusion that the clause prescribed the limit of cover (it was not properly speaking an exclusion clause, although a contra proferentum construction would not have assisted either Britannia or the assured). The Judge dealt with Britannia’s arguments from , and in particular -. The construction arguments did not cross the favourably low threshold of arguability that the Judge was prepared to accept.”
Simon LJ concluded that there was no realistic prospect of a successful appeal on these points, or any other compelling reason for granting permission to appeal.
Crispin Winser appeared for insurers, instructed by Clyde & Co. A copy of HHJ Waksman QC’s judgment is available here and Simon LJ’s reasons for dismissing the application for permission to appeal are available here.
Published by Thomson Reuters Practical Law Construction Blog.