[2007] EWHC 2088 (Comm)

Public liability insurance polices provide cover against claims by third parties for personal injury or damage to property and are generally regarded as not affording cover against liability in contract for pure economic loss. The clauses of such a policy should be construed with this in mind. Accordingly it was inappropriate in this case to focus on words such as “liable at law” and “all sums” - previous cases concerning such words which did not concern this type of insurance were not helpful.

During Tesco’s construction of a supermarket over a railway tunnel at Gerrards Cross, the tunnel collapsed and the line, which was owned by Network Rail, was closed for 51 days. Tesco was liable to indemnify the train operator, Chiltern, under a contractual deed of indemnity for their revenue loss during this period and sought to recover this sum from their insurers. The claim failed. The policy only covered the liability of the claimant to third parties who, as a result of the construction works in question, had suffered the kind of harm that would give rise to an action in tort. The effect of the contractual liability extension under the policy was only to provide cover for liability in contract for harm which could have been recovered in tort. Had Chiltern owned the track, there would not have been a problem since the claim would have been covered as loss consequent upon physical damage to the track. Liability for what was, however, pure economic loss was not covered by the policy – the contractual liability extension needed to be more explicit to have that effect.

Comment: the type of policy may be the most important factor when it comes to construing its terms. The court’s approach to construing this policy was therefore quite different to that which would be appropriate where similar words appear in a third party legal and contractual liability policy, a products liability policy or a products liability extension to a public liability cover. This may benefit insurers, as in this case, but the opposite may also be true. Earlier this year in C A Blackwell (Contracts) Ltd v Gerling Allegemeine Verischerungs-AG insurers were held liable because an “all risks” policy is presumed to cover all risks which have not been clearly and unambiguously excluded