Public Liability Insurance: Cover For Contractual Liabilities

In its judgment in the case of Tesco v. Constable & Others, handed down on 14 September 2007, the High Court has considered the availability of cover for contractual liabilities under the public liability section of a project policy. The judge took a very narrow view of a Contractual Liability Extension, effectively restricting cover to losses of a tortious type.

The Facts

Tesco's claim for indemnity arose out of the collapse of a tunnel outside Gerrard's Cross Station, which led to the line through Gerrard's Cross being closed for 51 days. Chiltern Railways, who operate on the line through Gerrard's Cross, made a claim against Tesco under a contractual Deed of Covenant. The claim was settled in June 2007 and the settlement included amounts for lost revenue suffered as a consequence of the tunnel collapse after the line had re-opened.

The Policy

The Insuring clause of the PI section provided that "The Insurers will indemnify the Insured against all sums for which the Insured shall be liable at law for damages in respect of (a) death of or bodily injury to or illness or disease of any person (b) loss or damage to material propertyÖ (c) obstruction, loss of amenities, trespass, nuisance or any like causeÖ"

There was also a Contractual Liability Extension, which provided that liability assumed by the insured under contract which would not have attached in the absence of such contract would be the subject of indemnity under the PL section of the policy only if the conduct of the claim were to be vested in the Insurers.

The Decision

Tesco argued that the amounts paid to Chiltern in settlement represented sums which Tesco was "liable at law" to pay, and that the liability arose out of "obstruction, loss of amenities, trespass, nuisance or any like cause", because the line closure following the tunnel collapse should be understood as obstruction or loss of amenity" Alternatively, the Contractual Liability Extension should respond.

Mr Justice Field rejected Tesco's submissions. Agreeing with the position argued by the insurers, he found that:

The starting point for analysing the policy was to look at the type of policy; in this case, it was a public liability policy, which was (per Mr Justice Field) generally understood to be intended to cover tortious, rather than contractual, losses.

The Insuring clause clearly listed well-known torts, albeit using the typical shorthand language of a public liability policy. Obstruction, loss of amenity etc are...