A recent case shows how contractors wishing to insure against liabilities need to be clear about the meaning of key words
Contractors are frequently able to insure against their liabilities. In the event of a claim, it is in all parties’ interests to know the extent, if any, of the insurers’ indemnity as soon as possible. This is not always easy, especially when identifying the cause of the accident is difficult and not yet established. This was the situation which the Court of Appeal faced when delivering its judgment in Aspen Insurance UK Limited vs Adana Construction Limited in March 2015.
The case followed from the collapse of a crane at King’s Dock Mill in Liverpool in July 2009, operated by Adana Construction Limited (“Adana”) when the crane driver was gravely injured. The crane was damaged as well as some adjoining properties. Adana’s policy with Aspen Insurance UK Limited (“Aspen”) covered public liability for faulty workmanship and product liability, subject to exceptions. The court had to consider the meaning of “product” and “superstructure” within the policy.
Adana was appointed as subcontractor to Bowmer and Kirkland Limited for work which included the casting and fixing of a reinforced concrete pile cap, to form the base for the crane. The four corners of the crane base were to rest on the four piles at each corner of the square. The design was undertaken, separately, by structural design engineers Bingham Davis Limited. After Adana completed its works, it left the site. The tower crane was subsequently erected. In or about April 2009 the first crane erected on the base was removed and a heavier crane erected upon it.
The judge was sceptical of making any negative finding of liability in advance of any trial of liability
Following the accident, a number of claims were issued in the High Court as well as the county court against Bowmer and Kirkland, Bingham Davis and Adana. In one instance, Bowmer and Kirkland paid £1.75m in
settlement of a claim for the damage to the crane and might seek a contribution from Bingham Davis and Adana.
Experts had concluded that the collapse was due to a failure of the connections between the crane base and the piles caused either by overloading or by Adana’s failure to place the dowels deeply enough into the piles. Adana has not admitted liability, and there has been no ruling either to this effect by any court.
It is in these circumstances that Adana’s insurers, Aspen, sought a declaration from the court that that it had no liability to indemnify Adana under its policy. The judge at first instance was sceptical of making any negative finding of liability in advance of any trial of liability, or a statement of assumed facts, a view shared by the Court of Appeal. It proceeded nonetheless, hoping that it would serve a useful purpose. Aspen relied on two main arguments. Firstly, that the concrete base was a “product”. Thus it fell within an exclusion within the policy. The judge at first instance held that the concrete base was not a product and the Court of Appeal agreed. Adana’s contract was for the supply of labour and materials. The concrete base was thus created on site and not in a factory. It could not be purchased as a component. Adana had carried out the concreting works for the purpose of securing a foundation for the crane on the site. The fact that the works created something did not mean it was to be regarded as a product. Product liability does not extend to defective installation. The two are different. If the product was satisfactory but installed in the wrong way, there is no cover for product liability but there is for damage caused by bad workmanship within the public liability section.
However, the appeal was allowed in part due to the success of Aspen’s second argument. It held that the damage to the crane was to be regarded as loss or damage to “any superstructure arising from the failure of Adana’s foundation works to perform their intended function”. Thus this definition did not merely include buildings above the ground but they extended as well to a crane which was to sit on the top of the foundations even though it was intended to rest temporarily. The Court of Appeal rejected the argument that the superstructure was a reference to the building above the foundations.
This decision did not determine any liability on the part of Adana, but will have assisted the insurers to determine their own liability under the policy. It also brings clarity to the meaning of key words.
Jeffrey Brown is a partner in the London office of Veale Wasbrough Vizards