The judgment of Mr Justice Walker in Bedfordshire Police Authority v Constable  EWHC 1375 (Comm) provides guidance on the interpretation of and liabilities covered under public liability insurance policies. By adopting a commercial and purposive approach, he decided that claims made against the Bedfordshire Police Authority ("BPA") under the Riot (Damages) Act 1886 ("RDA") fell within the terms of the public liability policy under consideration. The purpose of the public liability policy issued to the BPA was to protect the police fund from any third party claims for personal injury or property damage and the policy had to be interpreted to give effect to that purpose.
The case arose out of the riot which occurred on 14-15 February 2002 at the Yarl's Wood Immigration Detention Centre, Bedfordshire which resulted in substantial property damage and losses to the Detention Centre. The property owners and their insurers submitted claims to the BPA for compensation under the RDA. The RDA provides that where property has been damaged due to a riot, the owner of the damaged property (or its insurer) is entitled to compensatory payment from the local police authority for that area.
The BPA had taken out primary and excess public liability cover. The primary insurer accepted that any liability of the BPA under the RDA fell within its policy but the excess insurer refused to accept that any such cover was available under its policy.
Issues in dispute
The clause in the policy which was under dispute read:
"The Company will indemnify the assured in respect of all sums which the assured may become legally liable to pay as damages …for …(b) accidental damage to property … occurring within the Geographical Limits during the Period of Insurance arising out of the Business."
There were two main issues which fell for determination:
- The construction of the words "legally liable to pay as damages". This turned on the meaning of "damages" and whether it included compensation paid under the RDA.
- Whether the liability arose "out of the Business" as defined in the policy.
Decision of the court
Mr Justice Walker held that the BPA was entitled to be indemnified under the excess policy in respect of any liability of the BPA to pay compensation under the RDA. He accepted the BPA's principle submission that the purpose of the policy was to protect the police fund against claims by third parties for personal injury or damage to property.
With regard to the first issue, he held that "damages" in the policy included compensation paid out under the RDA because it was clear that, in the ordinary course, the parties would have every reason to think that a liability under the RDA would be expected to fall within the cover. When putting the policy together, it could not be said that the parties envisaged the policy to provide cover against private liability arising out of private contractual obligations. Therefore the parties must have had it in their minds that the liability of the BPA under the RDA was expected to fall within the scope of the cover.
The judge found that the parties had not given great thought to the policy as it comprised a collection of various standard form provisions which were assembled together to give effect to the BPA's policy needs. In light of this he took a commercial approach, following the judgment in Tioxide Europe Ltd v CGU International Insurance plc  Lloyd's Rep. I.R. 114 where the niceties of language were forced to give way to a commercial construction as this was more likely to give effect to the intention of the parties.
He rejected the excess insurer's submission that damages were, as defined in previous insurance case law, "quintessentially sums which fall to be paid by reason of some breach of duty or obligation". It could not be said that the parties had chosen the words "as damages" to adopt the definitions used in previous case law. The principle that parties to a commercial contract are taken to have contracted against the background of previous decisions upon the construction of similar contracts could not stand in this case. Since the parties had not given much thought when putting the policy together, they could not reasonably be expected to have been aware of the previous relevant case law.
The judge also made some useful comments on the scope of liabilities covered under public liability policies. In Tesco Stores Ltd v Constable  EWCA Civ 362, the Court of Appeal had held that a public liability policy should rightfully cover claims arising in tort; it is not meant to cover private liability arising from contracts entered into by private individuals. Mr Justice Walker further commented that since public liability policies cover "typically tortious" claims, there might be other types of non-typical liabilities which are also covered. With this he was able to conclude that claims made under the RDA were covered by the public liability policy even though the RDA imposed a strict liability on the BPA.
With regard to the second issue, the judge held that "arising out of the Business" should rightfully include policing generally, otherwise the insurance cover provided to the BPA would be worthless. Moreover this phrase had to be read in order to give effect to the purpose of the public liability policy.
Moreover, he concluded that he would have come to the same decision on a legalistic analysis of the policy because the words used in the policy did not exclude claims made under the RDA. The fact that Parliament had used the words "damages" in the title of the RDA which is essentially a statute providing for compensatory payment was held to be a clear indication that there was no difference in principle between an award of damages and a compensatory payment under the RDA.
This case illustrates the willingness of the court to take a practical and liberal approach when interpreting commercial contracts. The judge's inclination to adopt a commercial approach was persuaded by the fact that the parties had not given much thought to the wording of the policy. Therefore the literal wording of the policy could not be said to reflect the true intention of the parties. If there is evidence that the parties carefully considered the wording of the policy and its precise scope, the court may still embark on a legalistic analysis of the wording when deciding on the scope of coverage. It is therefore advisable for parties, when putting together a policy, to give careful thought to its wording and to make sure that the scope and intention of the policy is clearly evidenced in writing and does not come across as a "cut and paste" job.
The judge also made clear that the scope of liabilities covered under public liability policies generally will extend beyond "typically tortious" claims to those which are akin to tortious claims. This re-emphasises the need to give careful thought to the policy wording and, if there is an intention to exclude specific liabilities from a public liability policy, ensure that this is dealt with expressly within the policy wording.