Negative declarations for insurers and the meaning of 'Product' in construction policies

Negative declarations for insurers and the meaning of 'Product' in construction policies

Published:

Author: Matthew Brown

Applies to: England and Wales

The Court of Appeal has expressed reservations about dealing with applications for declarations of non-liability by insurers in circumstances where the factual interpretation of the claim is contentious.

In Aspen Insurance UK Ltd v Adana Construction Ltd [2015] EWCA Civ 176 (Aspen), Aspen applied for a declaration of non-liability in respect of a construction all risks insurance policy it had issued to Adana.

The dispute related to the collapse of a crane which had been sitting on a crane base upon which Adana had undertaken works. Aspen sought a declaration that any liability of Adana in relation to the collapse of the crane would not be covered under the policy. However, issues of fact which could impact on policy interpretation remained unresolved.

Decision

Both the Commercial Court and the Court of Appeal expressed strong reservations about making any declaration of no policy liability in an 'evidential vacuum' which could impact on policy liability analysis. Both courts made it clear that the appropriate time to consider underlying facts is during any liability trial.

Nevertheless, (apparently motivated by a desire to ensure that the time and cost incurred by the parties would not go to waste) the courts did in each case go as far as each could to provide an analysis of what the policy coverage position would be in the range of possible scenarios apparent on the facts available at the time.

In making their assessments, however, both courts laboured the potential for any preliminary determination to be unseated by later evidence from the liability trial.

The Court of Appeal also provided useful guidance on the definition of a 'product' in the context of construction liability where product is not clearly defined.

The court acknowledged that each case would turn on its own facts and an interpretation of the specific wider policy wording in the light of what a reasonable person with the background knowledge of the parties would take the policy to mean.

However, the court held that a product in this case meant something moveable and tangible that could be supplied by one person to another, rather than something which only came into existence to form part of the land on which it was created.

The court also refused to consider the insurer's claim that there was a market understanding as to the interrelationship between the public and product liability sections of the policy, stating that this was not relevant to the interpretation of the policy.

Comment

The courts have recently become more willing to grant negative declarations, but it is important to remember that such declarations are still a discretionary remedy.

The Aspen case is a useful precedent that a court will be unwilling to make any final interpretations where developments in factual evidence could affect the way the policy is interpreted.

It is clear that there is a place in insurance litigation for declaration proceedings, which can be a powerful tool, but this decision will provide food for thought for insurers.

The following practical points may assist insurers:

  • declaration proceedings will be more powerful in circumstances where the insurer can have sufficient confidence that the underlying facts are not contentious and therefore cannot be later "side-stepped" by factual evidence which places a different slant on the policy.
  • a declaration of non-liability cannot be used to crystallise the factual basis of any liability claim.
  • there is no one-size-fits-all definition of 'product' for construction all risks insurance policies, and insurers will not be able to rely on 'market understandings' to influence the courts to accept their interpretation of a policy. Policies need to contain clear wording wherever practicable to ensure that they operate in the manner intended.

If you are in any doubt as to whether a negative declaration is appropriate in a case you are involved in or you require further information, please do not hesitate to contact the author or a member of the specialist insurance litigation team.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the Author

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Matthew Brown

Solicitor

03700 86 5759

Matthew is a Solicitor in Shoosmiths' Manchester office specialising in commercial disputes and insurance. Matthew works with a diverse range of clients from large global businesses and PLCs and their in-house legal teams, to smaller SMEs and entrepreneurs. He also works with insurers, self-insuring companies, insurance intermediaries and individuals alike on the commercial insurance side.

Matthew is regularly instructed to act on high value and complex disputes. He combines an analytical approach with an ability to understand his clients' key objectives and commercial drivers to develop strategies that achieve the best possible results for his clients.

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