Public Liability Insurance - Coverage For Contractual Liabilities

The Court of Appeal has affirmed the controversial decision

of the High Court in Tesco Stores Ltd v Constable and Others,

which took a narrow view of a contractual liability extension,

effectively restricting cover to liabilities in tort.

The court held that, although there was no reason per se why

contractual liability could not be covered in a public

liability policy, the particular wording used in the policy was

insufficient to do so.

This decision reaffirms the message that any insured or broker

who wishes to secure cover under a public liability policy for

purely contractual liability must take steps to ensure that

specific wording is agreed to cover the potential claims

envisaged by the contract in question.

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Public Liability Insurance - Coverage For Contractual

Liabilities

Background

Tesco had obtained public liability cover under a project

policy in respect of works at Gerrards Cross which included the

construction of a tunnel over a railway line. The relevant

insuring clause 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 physical property... (c) obstruction, loss of

amenities, trespass, nuisance or any like cause".

A Contractual Liability Extension 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 that section only if the conduct or control

of any such claim was vested in the insurers.

The dispute arose following the collapse of the tunnel just

outside Gerrards Cross station, which resulted in 51-day

closure of the line. The Chiltern Railway Company, the operator

of the train line, brought a claim against Tesco under an

indemnity given in a contractual Deed of Covenant for the

losses caused by this collapse. Tesco settled the claim with

Chiltern Railways in June 2007, with the settlement including

sums for lost revenues suffered as a consequence of the

collapse following the re-opening of the line.

First instance decision

Tesco argued that the sums they had paid out in settlement

(which arose solely under the Deed of Covenant) were sums which

Tesco was "liable at law" to pay and that this

liability arose out of "obstruction, loss of amenities,

trespass, nuisance or any like...