Case Alert - [2018] EWHC 834 (TCC)

Court interprets meaning of certain terms used in a property insurance policy

The insured claimed under its insurance policy following a fire at its waste processing plant. The insurers denied liability on the basis of the breach of various conditions precedent and warranties in the policy, and much of the case turns on the underlying facts. However, the judge did consider the meaning of the following terms used in the policy:

(1) "Storage": the policy required the insured "to store materials more than 6 metres from fixed plant and machinery". The insurers argued that materials had to "placed (kept)" 6 metres away, but the judge rejected that argument and instead found that the term "storage" imports "a degree of permanence and a deliberate decision to designate an area to place and keep material".

(2) "Combustible": One of the experts used in the case had noted that some materials which would not normally be considered by a lay person to be combustible would fall under the scientific definition of combustible materials. However, the judge held that: "if the underwriters had intended "combustible" to have a meaning other than that understood by a layperson interpreting the Policy, it was for underwriters to make that express in the Policy. I find that "combustible" as used in the Policy is the meaning which would be understood by a layperson. To take the example given by the experts, a layperson would not consider diamonds and metals to be "combustible"".

On the facts, the judge found that there had not been a breach of any of the conditions precedent or warranties in the policy.

One point of wider significance in the case was the judge's approval of the insured's argument that "In the case of terms such as conditions precedent, the courts generally treat them as onerous or draconian terms". That comment might be contrasted with the decision last year of Denso Manufacturing v Great Lakes in which the judge noted that recent caselaw indicates that "the hostility to conditions precedent manifested in Re Bradley has been somewhat moderated over the years". However, both judges approved the following quote from MacGillivray on Insurance Law: "Such clauses should not be treated as a mere formality which is to be evaded at the cost of a forced and unnatural construction of the words used in the policy but should be construed fairly to give effect to the object for which they were inserted, but at the same time so as to protect the insured from being trapped by obscure or ambiguous phraseology".