Policy Wordings for the Insurance of Stock Held for Third Parties

Article by Stuart Hall and Andrew Forsyth

Stuart Hall and Andrew Forsyth recently acted in a Court of Appeal hearing on behalf of the Insurers of a warehousing and retail business. The Insurers successfully opposed the Assured's appeal against a decision of the Commercial Court on a preliminary issue of policy construction which concerned the insurance of stock that had been bailed to the Assured by third parties.

A policy wording which has been used in fire†insurance risk policies for well over a century†has recently received the attention of the†Court of Appeal in a judgment handed†down in May. In Ramco UK Limited v†International Insurance Company of†Hannover, the Court was required to†consider wording contained in the definition†of ''stock'' insured by the policy. The policy†was expressed to cover ''goodsÖheld in trust†for which the Assured is responsible'', a†wording which is intended to apply to†situations of bailment, where an Assured†holds goods belonging to another party. The†disputed issue in Ramco turned on the†meaning of the words ''for which the†Assured is responsible''. Insurers maintained†that these words connoted a legal liability on†the part of the Assured to the bailor in†respect of the goods that had been damaged.†The Assured argued that the ordinary†meaning of the phrase was broader and did†not necessarily require the existence of a†legal liability. The Court agreed with the†Assured that the natural construction of the†policy wording would not be that contended†for by Insurers. However, the Court†recognised that a line of legal decisions†established clear authority that the addition†of words such as ''for which he is†responsible'' will restrict Insurers' liability for†damage to goods held by the Assured as†bailee for third parties to circumstances†where the Assured bailee is liable to the†bailor for the damage.

Wording of this type seems to have been†introduced in response to an 1859 case in†which the Court had indicated that Insurers†would have to use precise words in order to†limit their liability under the policy to the†responsibility of Assured bailees. Two†subsequent judgments of the lower courts†dating from 1871 and 1925 had recognised†that such wording could limit Insurers'†liability. The Court of Appeal in Ramco†therefore ultimately concluded in favour...

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