A narrow interpretation to product liability and the definition of “product”
Aspen Insurance UK Limited v Adana Construction Limited1
Court of Appeal, 5 March 2015
The Court of Appeal interpreted the meaning of a “product” and gave useful guidance on the overlap of product liability and public liability under the building services combined contractors’ liability policy. The High Court had, at first instance, refused to grant the insurer a declaration of non-liability and the Court of Appeal has upheld that ruling on the issue of product liability.
The Court of Appeal favoured a narrow approach to the concept of a “product”, to avoid a situation whereby anything created by a contractor would be deemed to constitute a product.
Regarding damage to the crane itself, the Court of Appeal held that the foundation works constituted a part of the crane superstructure (and, therefore, fell within an exclusion in the policy) and overturned the High Court’s ruling on this point.
The dispute arose out of construction works at King’s Dock Mill in Liverpool and the collapse of a crane in July 2009 which caused severe bodily injury to the crane driver and damage to neighbouring properties. Adana Construction Limited (“Adana“) was a construction sub-contractor. Part of the works carried out by Adana related to constructing (but not designing) a concrete crane base with pile caps and dowels being inserted in each of the corner piles to provide tensile strength and ensure the stability of the crane. Bingham Davis (“BD“) were the structural design engineers who had prepared the design of the crane base.
A number of claims were brought in the aftermath of the accident, the instant one being brought by Aspen Insurance UK Limited (”Aspen“), which insured Adana under a combined contractors’ liability policy. Aspen sought a declaration of non-liability under the policy which was refused at first instance. Aspen appealed that decision.
At the time of this decision, any liability on Adana’s part for the accident had not yet been established. The Health and Safety Executive (“HSE“) prosecuted the contractor and the design engineers (but not Adana) and experts in that prosecution had concluded that the crane collapsed due to overloading in excess of the forces for which it was designed. No court had yet ruled on Adana’s liability and Adana had not admitted any liability. The High Court had also been hesitant to grant a declaration of non-liability to Aspen in advance of any trial on the facts in relation to Adana’s liability – a concern which the Court of Appeal also shared.
The question in this case was whether the public liability cover or the product liability cover were applicable in relation to Aspen.
The policy terms
The policy provided cover for both public liability and product liability, precluding recovery for the same loss under both heads:
- The public liability cover applied to accidental bodily injury and loss of or damage to property except in relation to (among other exclusions) liability arising out of faulty workmanship or product liability.
- The public liability cover also applied to bodily injury and loss of or damage to propertyexcept in relation to liability arising out of a failure of any “Product” to fulfil its intended function.
“Product” was defined as “any product or goods manufactured, constructed, installed, altered, repaired, serviced, processed, treated, sold, leased, supplied or distributed by or on behalf of the Insured…but only after such item has left the Insured’s care, custody or control”.
Aspen argued that (a) any liability on Adana’s part would arise under the product liability heading and not public liability; and (b) Aspen would not be liable under the policy in respect of product liability since the product had failed to fulfil its intended purpose.
Was there a product?
The Court of Appeal first considered whether the entire concrete base could be defined as a “Product” and secondly whether the constituent elements of the base could be a “Product” under the policy.
1. The concrete base
The High Court had held that the concrete base was not a “Product” within the policy definition, as it was a mere “lump of concrete” provided under a contract for work and not something which was manufactured and supplied in a conventional sense. Aspen argued on appeal that the concrete base was a product of skilled workmanship and was a “Product” under the policy definition since it was constructed or installed on the site.
The Court of Appeal commented that Aspen’s arguments had some force but ultimately rejected Aspen’s arguments and confirmed that the concrete base was not a product under the policy. Clarke LJ summarised the “hallmark” of a product in this context as: “something which, at least originally, was a tangible and moveable item which can be transferred from one person to another; and not something which only came into existence to form part of the land on which it was created”. He also favoured this interpretation:
- so as to avoid giving the concept of a product too wide a meaning beyond what parties to such a policy would likely have intended; and
- because the clause being interpreted was an exclusion clause (i.e. the exclusion to public liability where the loss was caused by a “Product”) cover which supports a narrower rather than broad interpretation.
On this interpretation, Adana had not constructed a product but had carried out concreting works for the purpose of securing a foundation for the crane. The fact that the works had created something did not mean that the creation was necessarily a “Product”.
2. The constituent parts of the base
The Court of Appeal took a contrary view to that of the High Court and held that the dowels (as one of the main components of the concrete base and potentially relevant to crane’s collapse) were Products, as they were supplied by Adana, installed in the piles and then, as a result, became a component part of the base. It did not matter that the concrete base as a whole was not to be regarded as a “Product” under the policy.
However, the Court of Appeal held that since the dowels had not failed to fulfil their intended purpose (given that they had not fractured but were pulled out in tact by the crane) Aspen’s arguments in relation to the dowels would not succeed. Any potential argument regarding their defective installation (i.e. whether they were correctly inserted into sufficiently deep or wide holes drilled into the piles) would also not fall within product liability cover – but there could potentially fall within public liability cover for bad workmanship.
Was the concrete base foundation a part of the crane “superstructure”?
Regarding the damage to the crane itself (as opposed to the physical injury and damage to neighbouring properties caused by the collapse), Aspen argued that the following foundation clause in the policy excluded liability:
“It is agreed that this Certificate does not indemnify the Assured in respect of loss of or damage to any superstructure arising from the failure of the Assured’s foundation works to perform their intended function”.
The High Court had accepted Adana’s arguments that the crane was a “superstructure” sitting on top of its foundations and the foundations themselves (being a permanent fixture) were not a part of the crane “superstructure” (being a temporary feature).
The Court of Appeal disagreed, holding that the crane (together with its foundation) was a superstructure, and overturned the High Court’s ruling on this issue for four reasons:
- The policy was intended to operate for a year and substantial building work could be expected including, for example, the erection of a crane (in relation to which Aspen could reasonably want to seek exclusion).
- The clause was drafted to apply to any superstructure and did not need to be interpreted to differentiate between a building and its foundations (and, if this was intended, it could have been stated clearly in the foundation clause).
- The nature of Adana’s work was not confined in any particular way and its foundation works were intended to spread the load of the crane.
- The fact that the crane was a temporary feature was not a good reason to suggest that it could not be considered a superstructure.