This decision concerned the interpretation of a Combined Contractors’ Liability policy (the “Policy”), which included cover in respect of the insured’s product and public liability.
The insured defendant, Adana Construction Limited (“Adana”) was a sub-contractor commissioned to construct a concrete base upon which a temporary crane was to be erected. Under the sub-contract, Adana was responsible for the “supply of all necessary labour plant and materials to carry out the Supply, Delivery and Installation of the Insitu Concrete & Drainage Works…”. Adana’s job was to construct a structural link (which had been designed by engineers) between the base of the crane and the crane piles.
Adana’s work was completed by mid-December 2008, and on 6th July 2009 one of the cranes erected on the base collapsed, causing serious injury to the crane driver and substantial property damage.
The insurer claimant, Aspen Insurance UK Limited (“Aspen”) sought a declaration that it was not liable to indemnify Adana under the Policy for any liability which it might have arising out of the collapse of the crane. Adana responded by seeking declarations that (i) it was covered by the Policy, and (ii) it was entitled to have its associated defence costs paid by Aspen.
The Commercial Court was required to consider whether Aspen was, in principle, liable to indemnify Adana since, although the Health & Safety Executive (the “HSE”) had prosecuted the main contractors and the structural engineers involved in connection with the collapse, Adana had not been prosecuted or found liable by the HSE and was in the process of defending its civil liability in other proceedings. On this basis, and relying upon the Court of Appeal decision in Horbury Building Systems v Hampden Insurance1, Adana contended that the trial was premature since the court did not have sufficient evidence to determine the issues.
The Policy provided cover in respect of Adana’s public liability but excluded (amongst other things) cover for any “liability arising … caused by any Product”. It also provided cover in respect of product liability caused by any “Product” but not where such liability arose from “the failure of any Product to fulfil its intended function”. “Product” was defined in the Policy 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 from or within Great Britain… but only after such item has left the Insured’s care, custody or control”.
Aspen sought a declaration that the crane base (and/or its constituent parts as constructed and installed by Adana) was a “Product” and, therefore, excluded under the public liability section of the Policy. In support of its contention, Aspen relied upon the broad Policy definition and the meaning given to “Product” in the Oxford English Dictionary. However, Adana contended it was an improper use of language to describe the crane base as a “Product” since the definition in the Policy applied to items usually considered to be products such as items that have been manufactured and then distributed and sold.
Following the established rules of construction as restated in Chartbrook Ltd v Persimmon Homes Ltd2, the court determined the meaning of “Product” by looking at what a reasonable person with all relevant background knowledge of the parties at the time when the contract was made would have understood “Product” to mean given the language of the Policy. In applying the usual principles, the court found that the parties would expect there to have been cover in circumstances where the insured incurs liability for defective work and also where it provides a defective product.
As regards the meaning of “Product,” the court agreed with Adana and held that there are two stages involved in defining a “Product”: first the way it emerges into a particular state, and second how it leaves the insured’s control. The court held that the base of the crane could not form a “Product” since it does not form part of the Adana range, you cannot buy it, it is created at the premises of the customer and is not typically considered to be a “Product” when arranging a construction contract. Furthermore, the concrete base has no component parts which could be considered Adana’s products.
Aspen also sought a declaration that any liability on the part of Adana would be caused by a “Product” failing to fulfil its intended function. As such, the court was also required to consider whether, even if Aspen was wrong on the meaning of “Product” and the loss fell to be covered under the product liability section of the Policy, any claim by Adana would not be covered because it fell within the product liability exclusion in the Policy.
In respect of this alternative argument. the court held that the purpose of the crane base was to transfer the loads being generated by the crane into the piles and that this purpose had been fulfilled. As such, the attempt to apply the product liability exclusion also failed.
Aspen put forward a further alternative argument that, even if there was any liability on the part of Adana, then it would be partly excluded by the Foundation Clause in the Policy which excluded liability for “… loss of or damage to any superstructure arising from the failure of the Assured’s foundation works to perform their intended function”. Aspen contended in support of this that the crane base formed part of the “superstructure”. This argument was rejected by the court on the basis that the crane base was never intended to form part of the “superstructure” and the Foundation Clause was only to be applied to permanent features supporting a building and not to the base of a temporary crane.
Adana was, therefore, successful on all counts and consequently the judge held that no finding of fact was required by the commercial court in relation to Adana’s defence costs.
It should be noted that the commercial court made it clear in this case that courts should generally be cautious about granting negative declarations of this type, particularly in circumstances where the insured’s liability has not yet been established and before a trial has taken place.
This decision provides a useful analysis of the meaning of “Product” within a Contractors’ Liability policy. However, it should be borne in mind that disputes of this type will often turn upon specific facts and the wording of the relevant policy – if insurers wish a specific word or phrase to have a specific meaning then that must be made clear in the policy wording. We also understand that the decision is being appealed so this may not be the last word on the matter.