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Pollution or Contamination

The Court of Appeal has handed down judgment in Brian Leighton (Garages) Limited v Allianz Insurance PLC  [2023] EWCA Civ 8.  The first instance judgment ([2022] EWHC 1150 (Comm)) was news in May 2022.

This appears to be the first reported judgment of the Court of Appeal on the meaning and effect of a pollution or contamination exclusion typical in all risks cover and material damage cover.

As to the facts, the insured alleged that the forecourt and buildings of a petrol station had been damaged by fuel which had leaked from an underground pipe which had been punctured by a stone or the like.

Cover was provided for damage by “any cause not excluded”.  One exclusion provided:

“Pollution or Contamination

Damage caused by pollution or contamination, but We will pay for Damage to the Property Insured not otherwise excluded, caused by:

(a)    pollution or contamination which itself results from a Specified Event

(b)    any Specified Event which itself results from pollution or contamination.”

Specified Events” were defined in typical terms as:

Fire, lightning, explosion, aircraft or other aerial devices or articles dropped from them, riot, civil commotion, strikers, locked-out workers, persons taking part in labour disturbances, malicious persons other than thieves, earthquake, storm, flood, escape of water from any tank apparatus or pipe or impact by any road vehicle or animal.”

In an insurance policy the words “caused by” usually denote proximate cause but that principle is based upon the presumed intention of the contracting parties and may be displaced by contrary agreement.  The critical issue for decision was whether or not the opening words (“Damage caused by pollution or contamination”) refer only to the proximate cause of the damage and therefore whether those words required the pollution or contamination by fuel to be the proximate cause.  The answer depended upon the effect and weight of the write-backs in (a) and (b).

The Court (Males, Popplewell and Nugee LJJs) held in result that the words did refer only to proximate cause.  However, the Court was split (Males LJ dissenting) and the majority gave different reasons, with different approaches to interpretation.  The outcome was finely balanced, Nugee LJ stating at [55]:

I have had the great advantage of reading in draft not only the judgment of Lord Justice Popplewell above but that of Lord Justice Males below.  Each of them is well reasoned but they reach different conclusions.  Faced with persuasive but divergent judgments written by eminent judges with long experience of construing insurance policies, I have not found it easy to settle on a conclusion.  For much of the time I have been inclined to the same view as that of Lord Justice Males.  But I am ultimately persuaded that Lord Justice Popplewell’s is the better view and that the appeal should be allowed for the reasons he gives.”

It is suggested that the case is significant in a number of respects, including the following:

  • It provides some guidance about construing combined policies, Males and Nugee LJJs agreeing in effect (at [72] and[62], respectively) that because an insured was entitled to select cover under one or more and not all sections of the policy, the meaning of the exclusion in a particular section had to be derived from the terms of that section, without regard to the language of other clauses contained in other sections (cf. Popplewell LJ at [39]).
  • It provides some guidance about construing exclusion clauses with write-backs. Although Popplewell LJ thought the presumption was not to be displaced “unless the wording of the write back cannot be reconciled with it” (see [41]) Males LJ said at [68] (Nugee LJ agreeing at [57]):

“it is going too far in my view to say that the presumption in favour of reading the opening words as referring to damage proximately caused by pollution or contamination can only be displaced if the write-back provisions are inconsistent, and cannot be reconciled, with that meaning (cf. [41] above). Rather, the question is whether Exclusion 9 as a whole would demonstrate to the reasonable reader to whom it is addressed an intention to displace the general rule. That intention may be demonstrated, even if it is possible to give some meaning to the write-back provisions which does not render them redundant.

  • It provides some insight into how lower courts might approach the passage in the Supreme Court’s judgment in FCA v. Arch [2021] UKSC 1 where Lords Hamblen and Leggatt JJSC said at [77]:

“In the case of an insurance policy of the present kind, sold principally to SMEs, the person to whom the document should be taken to be addressed is not a pedantic lawyer who will subject the entire policy wording to a minute textual analysis (cf Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, para 59). It is an ordinary policyholder who, on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting.”

In BLG Popplewell LJ said at [40]:

I do not take what was said in [77] of FCA v Arch as suggesting that the reasonable person in an SME’s shoes should not be taken to be familiar with the basic principles of insurance law and the meaning which has been put on phrases used in insurance contracts by consistent judicial authority.  Many policies of insurance in many fields contain terms of art which have acquired their meaning by consistent use and judicial interpretation, which it is the duty of brokers to understand and, if necessary, advise on.”

  • It produces surprising results. For example, Popplewell LJ said at [49]:

“Mr Evans-Tovey also argued that if BLG were correct in its construction, there would be cover for the pollution or contamination of the forecourt by the gradual effect of the daily occurrence of motorists carelessly allowing fuel to spill from the nozzle whilst filling their vehicles.  I do not know whether the frequency of such occurrences and the composition of forecourts makes it realistic to posit material damage from such a cause.  But assuming that they do, I do not find it self-evident that the parties cannot have intended that there should be cover in such circumstances, in what is in structure an all risks policy with defined exceptions.”

If, by accident a customer with a leaky car, or while filling his car with engine oil, creates and leaves a dark oil patch on the concrete forecourt (perhaps with oil seeping down through the contract), why is that not damage for which the garage can claim an indemnity (perhaps each year) for specialist cleaning costs or to remove and replace the concrete?

Jason Evans-Tovey appeared for Allianz instructed by Caroline Kane of Clyde & Co Claims LLP.

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