Mr. Justice Teare :
Introduction
- The Defendant is a specialised construction contractor with experience of and expertise in the removal of asbestos from commercial and government property, in particular from major underground facilities worldwide. In 2004 the Defendant was engaged as a sub-contractor to AMEC who had been contracted by BT to work on BT's Deep Level Tunnel Facility in Manchester. The Defendant commenced work on the South Tunnel on 9 February 2004 and preparatory work on the North Tunnel was commenced on Monday 22 March 2004 in the crossover section where both tunnels meet. Work did not continue over the weekend of 27 and 28 March 2004. It is not disputed that the Defendant's employees (of whom there were seven) were asked to suspend their preparatory work in the crossover section because there had been no "pre-start" meeting for the work in the north tunnel. Thus no employee of the Defendant was present in the crossover section over the weekend. On the morning of Monday 29 March 2004 there was a fire in the cross over section of the tunnels.
- On 6 March 2007 AMEC sent to the Defendant a copy of a letter from BT's solicitor in which it was alleged that AMEC, by reason of the actions of its sub-contractor, the Defendant, was liable for the fire. It was said that the source of ignition was a fluorescent light fitting, or the cable leading to it, which had been damaged during the preparatory work on the north tunnel. Further, it was said that the materials used by the Defendant in the preparatory work were easily ignitable and did not meet the required specification. Damages in an approximate sum of £15m. were claimed.
- The Defendant had liability insurance cover with the Claimants. On 22 March 2007 the Defendant's broker, Stephen Watts of Holgate Insurance, met the Claimants' agent, Brian Dale of Miles Smith. He informed him of the claim and handed over a copy of the letter from BT's solicitors.
- The terms of the policy provided, by clause 4(a) of the "Conditions", that the assured shall give Miles Smith "immediate written notice with full particulars of any occurrence which may give rise to indemnity under this insurance". The Claimants say that the Defendant failed to comply with this obligation and seek a declaration that they have no liability under the policy.
- This is not the trial of the action but of certain preliminary issues as to whether the Defendant complied with condition 4(a) and whether condition 4(a) was a condition precedent to the Claimants being liable to indemnify the Defendant in respect of its liability arising out of the fire. There was in addition an issue as to whether the fact that work on the Manchester tunnel facility commenced on 9 February 2004 precluded a claim on the grounds that the policy period commenced on 11 February 2004.
The insurance policy
- From August 2003 to August 2004 the Defendant's insurance policy was underwritten by CIC Insurance Company. In early 2004 the Financial Services Authority investigated an allegation that CIC did not have authorisation to underwrite UK insurance business and the Defendant's broker Holgate was advised by CIC that its cover should be replaced with immediate effect. On 11 February 2004 Holgate obtained for the Defendant the policy with which this action is concerned. When advised as to the additional premium for having the policy commence retroactively from an earlier date (which is usual with policies concerning asbestos) the Defendant chose not to have any retroactive cover. Mr. Watts explained that in February 2004 he thought that there might still be some recourse on the CIC policy.
- The policy taken out on 11 February 2004 was described as a Combined Liability Policy No.04028974 dated June 2004. It was issued by Miles Smith on behalf of the Claimants. The policy provided for the assured to be indemnified in respect of employers' liability (section 1), public liability (section 2) and products liability (section 3). Cover was also extended to liability under the Consumer Protection Act, the Defective Premises Act and the Data Protection Act. The schedule to the policy stated the limits of the cover (£10,000,000 any one occurrence for employers' liability, £5,000,000 any one occurrence for public liability and £5,000,000 in all for products liability), the excess (the first £50,000) and the premium (£608,488.53). The period of insurance was from 11 February 2004 to 10 February 2005. There were a number of exclusions from the cover provided by the various sections of the policy. There were, finally, 13 Conditions. The most relevant were the following:
"1) Asbestos Warranty
When the Assured is engaged with materials containing Asbestos, the following are warranted:-
(a) that all conditions set out strictly in accordance with the Control of Asbestos at Work Regulations 1987 (as amended), the Asbestos (Licensing) Regulations 1983 and the approved Code of Practice;
(b) that all Codes of Practice and Guidance Notes issued by the Health and Safety Executive must be understood and followed;
(c) that the MILES SMITH MEDICAL QUESTIONNAIRE (Ref. BH101) is to be implemented at the Employer's expense. All Employees so examined and approved must be approved by Underwriters. In accordance with (b) above, this examination is to be undertaken every two years;
(d) that the Assured must be aware and observe all current legislation and ensure that his Supervisor and operatives are appropriately trained annually in accordance with his legal requirement. This training to be updated as significant changes to current practices occur.
In the event of a breach of this warranty, the Assured shall be liable to refund Underwriters any sums which they have paid to any Employee of the Assured.
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4) Claims Procedure
(a) The Assured shall give to Miles Smith of Birchin Court, 20 Birchin Lane, London, EC3V 9DU immediate written notice with full particulars of:-
(i) any occurrence which may give rise to indemnity under this insurance.
(ii) any injury or disease related absence in respect of any Employee (and arising out of his employment) of more than three working days.
(iii) any impending prosecution, coroner's inquest, or fatal accident enquiry in connection with such occurrence, injury or disease.
(b) Every letter, Claim, writ, summons and process in connection with any occurrence which may form the subject of indemnity hereunder shall be notified or forwarded to Underwriters immediately upon receipt.
(c) The Assured shall neither admit liability for nor agree to settle or repudiate any Claim without the written consent of Underwriters. Underwriters shall be entitled to conduct the defence of any Claim in the name of the Assured and to prosecute in the Assured's name for Underwriters' benefit any Claim for indemnity or damage or otherwise against any third party and shall have full discretion in the conduct of any negotiations and proceedings and settlement of any Claim.
(d) The Assured shall give to Underwriters all such information and assistance as Underwriters may require.
(e) Underwriters may at any time pay to the Assured the Limit of Indemnity (after deducting any sums already paid) or any less amount for which any Claim(s) can be settled and thereafter Underwriters shall have no further liability under this insurance in connection with such Claim(s) except for Defence Costs incurred under Sections 2 and 3 prior to the date of payment.
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8) Excess
Underwriters may require the Excess to be paid at any time during the investigation defence or settlement of any Claim. Notwithstanding this Excess the Assured shall comply with Condition (4) "Claims Procedure" as if no Excess applied.
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10) Disputes
Any dispute concerning the interpretation of the terms of this insurance is to be subject to English Law.
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13) Observance
The liability of Underwriters shall be conditional on:-
(i) The Assured paying in full the premium demanded and observing the terms and conditions of this insurance."
- There were then four endorsements, all of which formed part of the original policy. The first endorsement related to burning welding and cutting and provided that "it is a condition precedent to liability under this Policy" that certain specified precautions were taken when burning, welding or cutting.
- There was no dispute as to the meaning of condition 4. It was common ground that "immediate" meant "with all reasonable speed considering the circumstances of the case"; see Re Coleman's Depositories [1907] 2 KB 798 at 807 per Fletcher Moulton LJ. It was also common ground that "any occurrence which may give rise to indemnity under this insurance" meant that there must be a real as opposed to a fanciful risk of the underwriters having to indemnify the assured and that in determining whether there was such a risk the court applied an objective test, taking into account the knowledge that the assured possessed in order to determine the extent to which the assured was aware of, and hence capable of notifying, occurrences which may give rise to an indemnity; see Rothschild v Collyear [1999] 1 Lloyd's Reports 6 at p.22 (per Rix J.) and HLB Kidsons v Lloyds Underwriters [2008] Lloyd's Rep IR 237 at paragraphs 72 and 73 (per Gloster J.) and [2008] EWCA Civ 1206 at paragraphs 72 and 141-142 (per Rix and Toulson LJJ.).
- There was however a dispute as to whether compliance with condition 4(a) was a condition precedent to the underwriters being liable to indemnify the assured so that if, which was denied, the Defendant failed to give immediate notice to the Claimants in respect of the fire the Claimants had no liability to indemnify the Defendant in respect of such liabilities as it had arising out of that fire.
The work in the tunnels
- A Framework Agreement dated 18 December 2002 was made between BT and AMEC for work on BT's tunnels. It envisaged that a Project Specific Order would be issued in relation to each project. The Defendant was engaged by AMEC to act as its sub-contractor with regard to the removal of asbestos from the north and south tunnels in Manchester. I was told that the tunnels were 1-2 miles long so this must have been a substantial task. The value of the Defendant's work on both tunnels was, in aggregate, about £2.5m.
- Work commenced in the south tunnel on 9 February 2004. There were about 30-40 employees of the Defendant working in the south tunnel. That work had not been completed by the time of the fire on 29 March 2004.
- It was not until 18 February 2004 that BT issued to AMEC a Project Specific Order, pursuant to the Framework Agreement, for work on the north tunnel. The Defendant's method statement for work on the north tunnel was issued on 16 March 2004 and revised on 22 March 2004.
- The north and south tunnels met at a location known as the crossover section. The middle part of the crossover section contained a pit through which ran telecommunication cables covered by timber flooring. There was a fluorescent light (with associated cabling) in the crossover section.
- The preparatory work for the work in the north tunnels commenced on 22 March 2004. It involved the construction of a polythene screen and timber structure to block the entrance to pit from the north tunnel. Any gaps due to uneven surfaces, cabling or lighting areas were to be sealed with tape to avoid the escape of asbestos fibres. To this structure were added airlocks. The aim was to allow workers (who would work with breathing apparatus) to carry out the asbestos removal work in a confined secure space to prevent the spread of asbestos fibres into the environment.
- The Method Statement for the work in the north tunnel made provision for the type of materials to be used in the construction which blocked the entrance to the north tunnel: 1000 gauge flame retardant polythene on 4" x 2" class "O" treated part timber secured using staples, glue and class "O" 75mm tape.
- The preparatory work came to a halt on Friday 26 March 2004 when BT and AMEC called off the works on the grounds that there had been no pre-start meeting. Mr. Tim Allen, the Defendant's project manager, therefore decided that the crossover section should be tidied up and the Defendant's equipment packed up. The 7 employees of the Defendant who had been working in the crossover section left on the afternoon of 26 March 2004. No electrical equipment of the Defendant was in place in connection with the construction at the entrance to the pit from the north tunnel. There was a negative pressure unit (designed to maintain air pressure in the air locks) in the vicinity of the construction which was damaged in the fire. Close to the entrance to the pit from the south tunnel were two further negative pressure units which were not damaged in the fire. At the time of the fire the negative pressure units were not in operation.
The fire
- It is now common ground that the fire occurred in the early hours of Monday 29 March 2004 in the vicinity of the crossover section of the tunnels.
- BT has commenced proceedings against AMEC. It has been pleaded by BT that the cause of the fire was an electrical fault, the most likely source of ignition being an incendive fault associated with the fluorescent light fitting or with the cabling to that fitting. It has been alleged that in the course of the construction of the airlock the Defendant damaged the light fitting or the cable (by cutting or otherwise damaging it while cutting the plastic sheeting or adhesive tape used to construct the tight air seal). This caused electrical arcing or resistive heating to occur which gave rise to a risk of ignition over time. Further, the materials used by the Defendant ignited easily.
- Mr. Scott Murray, the current managing director of Pectel Limited, told me that this account of the cause of the fire is not accepted. He said that it was ludicrous to suppose that an employee of the Defendant would cut polythene close to a light fitting. So far as the criticism of the materials was concerned he said that they were specified by Redhill, who worked for AMEC, and the Defendant supplied that which had been specified by Redhill.
The witnesses
- Before narrating what happened after the fire it is necessary to comment upon witnesses who gave oral evidence concerning them.
- The Claimants called three witnesses. The first was Alun Gwatkin who was a liability adjuster. In that role he interviewed representatives of the Defendant in 2007 after the Claimants had been informed of the fire. He gave his evidence in a straight forward manner. There was no reason to doubt that he was seeking to do other than give a truthful account of those interviews. The second witness called by the Claimants was John Edwards. Until June 2007 he was an employee of AMEC and was in charge of the pre-contract negotiations and eventual award of the Framework Agreement to AMEC by BT. Until 29 March 2004 he was not involved in the management of the contract. However, on that date, by coincidence the day of the fire, he took over management of the contract. He was an independent witness and gave his evidence carefully and fairly. Again there was no reason to doubt that he was seeking to answer the questions put to him other than honestly. For example, although he said in his written evidence that the "Pectel team on site were certainly aware of their potential involvement with the fire and were part of the discussions in Manchester regarding the potential cause that immediately followed the incident" he accepted in cross examination that he had had no discussions with the Defendant's employees. Thus what he said in his statement can have been no more than an expression of opinion. The third witness called by the Claimants was Alan Burtenshaw, the first Claimants' claims manager. He was somewhat defensive. For example, it was suggested to him that the advice in a pamphlet which was issued by his company to assureds (though not, it seems, to the Defendant) entitled "Helping us to help you – procedures when an accident occurs", did not correspond to the terms of the policy. In response he said that he did not expect an assured to rely upon what was said in the pamphlet. Whilst this caused me to question his reliability as a witness (because the pamphlet was in the nature of advice from the Claimants and therefore the Claimants must have intended that an assured would rely upon it) it is fair to say that his evidence was somewhat peripheral to the issues at the heart of this case.
- The Defendant called four witnesses. The first was Scott Atholl Murray, who in 2004 was the Defendant's operations director. Since then he has become the managing director and part owner of the company by means of a management buy out completed on 20 December 2005. He is very experienced in and knowledgeable of the dangerous work of asbestos removal operations. But it was not part of his duties as operations director to concern himself with the procurement or maintenance of appropriate insurance cover. Thus, in 2004, as he himself accepted, he did not know much about the Defendant's insurance policy. He gave his evidence with confidence and in a manner which suggested that he was seeking to be frank with the Court; and in many respects he was. However, he accepted that certain statements made by him to Mr. Gwatkin in 2007 were not accurate. For example, he told Mr. Gwatkin that if he had appreciated in 2004 that it was being said that the Defendant might be to blame for the fire he would have informed the Claimants. In his oral evidence he said that he had nothing to do with insurance in 2004, that such matters were the responsibility of Lee Brown and that if he had appreciated in 2004 that it was being said that Pectel might to be to blame for the fire he would have taken the matter up with Mr. Brown. His explanation for his statement to Mr. Gwatkin was that his statement to Mr. Gwatkin was made by reference to his present role as managing director, not by reference to his more limited role in 2004. Whilst this explanation is difficult to accept because it lacks sense (and is therefore improbable) I was satisfied that in 2004 he had little if anything to do with insurance matters. Why then did he tell Mr. Gwatkin that had he appreciated in 2004 that Pectel was being blamed for the fire he would have reported the matter to insurers ? I consider that he was, misguidedly, seeking to give an answer which he thought might best explain why the Defendant had not informed the Claimants of the fire in 2004, notwithstanding that insurance and the making of insurance claims was not his responsibility in 2004. I must therefore regard his evidence with a degree of caution notwithstanding that the answers he gave in cross-examination and his demeanour suggested that he was seeking to be frank with the court.
- The second witness called by the Defendant was Tim Allen who was the project manager on site in Manchester. He was an entirely straightforward witness. Whilst there was little about which he could give evidence, I considered that he was reliable about those matters upon which he was able to give evidence.
- The third witness called by the Defendant was Lee Brown. In 2004 he was the Defendant's commercial director. Following the management buy out he is now a part owner of the company and continues to be responsible for commercial matters. His duties included the procurement and maintenance of insurance cover for the Defendant's activities. I am compelled to say that he was not an impressive witness. His demeanour was not such as to encourage the thought that he was anxious to assist the court. He was unable to explain why, in his statement dated 25 June 2008, he had given an account, withdrawn at the beginning of his oral evidence, of his telephone call with Mr. Gwatkin in June 2007. That inability was striking. The statement was only four months before the trial and the correction was not of a minor detail. In the absence of an explanation from Mr. Brown the likely explanation is that he wished to give the impression in his statement that Mr. Gwatkin had said nothing to suggest that the claim on the policy would not be accepted by the Claimants and that when the Claimants did deny liability he, Mr. Brown, was very surprised. Again, in the absence of an explanation from Mr. Brown, it seems likely that he must have known that this impression was untrue. I must therefore treat his evidence with extreme caution.
- The final witness called by the Defendant was Mr. Stephen Watts. He is a director of Holgate Insurance who acted as insurance broker for the Defendant. He had little material evidence to give but within its narrow compass there was no reason to doubt its reliability.
Events after the fire
- Mr. Murray was informed of the fire on the morning of Monday 29 October 2004. He visited the site of the fire shortly afterwards, observed the fire damage and formed the view that the greater part of the damage was in the north tunnel adjacent to the crossover area. He gave his consent to witness statements being taken by Kennedys (who had been instructed on behalf of AMEC) from employees of the Defendant. He was in the hotel where they were being taken. He was aware of Mr. Allen's belief that the fire had occurred in the pit in the crossover area. Knowing the site of the fire and that employees of the Defendant had been working in the crossover area until midday on Friday 26 March 2004 he accepted that he could not rule out the possibility that the Defendant was involved in the cause of the fire. He had a conversation with Mr. Daljit Dhanda of AMEC on site and asked whether there was anything that the Defendant should be worried about concerning the fire. He said there was not and Mr. Murray concluded that the Defendant would not be blamed for the fire. But he also appreciated that AMEC had not by that stage investigated the cause of the fire and did not know what its cause was.
- By an e-mail dated 7 April 2004 Mr. Dhanda asked Mr. Murray if the Defendant could provide a negative pressure unit ("NPU") of the same type as the one which had been lost in the fire. Whilst Mr. Murray did not believe that the NPU had anything to do with the cause of the fire because no NPU had been in use at the time of the fire, he appreciated that AMEC were investigating the cause of the fire and wanted to test an NPU to rule it out as a cause of the fire. His appreciation was correct. Mr. Dhanda said in written statement that BT had commenced an investigation into the fire and that this request had emanated from AMEC's forensic engineers who were assisting in the investigation into the cause of the fire.
- The Defendant was engaged by AMEC to carry out emergency repair works on the tunnel which commenced on 4 May 2004.
- On or about 24 May 2004 Mr. Dhanda telephoned Mr. Murray and asked for a folder containing a list of all the staff who had attended Manchester up to two months before the fire with relevant training certification and signed method statement confirmation sheets. Mr. Murray gave evidence that he believed that this request related to an audit. It was put to him that it plainly related to AMEC's investigation into the cause of the fire. Mr. Murray did not accept that it did. He said that it never crossed his mind that it did.
- Mr. Dhanda did not mention this request in his statement. However, its terms strongly suggest that it was part of BT's and AMEC's investigation into the fire, in particular the reference to the fire and the request for the signed method statement confirmation sheets (which would confirm that the employees had been made aware of the work they were required to do). Moreover, that would be in accordance with the probabilities. Although Mr. Murray did not accept that, at the time he received this request, he appreciated that it was part of the investigation I nevertheless consider that the possibility that it was must, at the very least, have crossed his mind. In the context, and having regard to the terms of the request, this is more probable than not. I do not consider that Mr. Murray was giving evidence that he knew to be untrue. Rather, it is more likely, having regard to the passage of time and the importance of this case to him personally and to the Defendant, that he had convinced himself that the request had nothing to do with an investigation into the fire.
- By an e-mail dated 19 August 2004 headed "Manchester Programme" Mr. Dhanda requested Mr. Murray to produce "a list of ALL materials used in the type of timber and its fire treatment, adhesives, sheeting, tapes etc. and details of how it complies with the statement in your Method Statement Sections 1.1 Scope of Works and 1.4 Enclosure of Work". These were supplied by letter dated 23 August from the Defendant's Group Health and Safety Director. He enclosed "details of the materials used by Pectel (Midlands) Limited at the Manchester Tunnel System George Street Manchester in the construction of airlocks."
- Mr. Dhanda said in his statement that this was another request from BT (by implication with regard to their investigation into the fire). Mr. Murray gave evidence that he regarded this request as relating to a future project, namely, the Guardian tunnel in the Manchester tunnel complex. However, he ultimately accepted that it occurred to him at the time that it was a possibility that it was concerned with the investigation into the fire. I consider that it is more likely than not that this did indeed occur to him. That is consistent with the terms of the request, the response and the probabilities.
- By an e-mail dated 25 October 2004 from Mr. Dhanda to the Defendant and its competitor Forrest Mr. Dhanda enclosed a copy of a document dated 12 October 2004, headed Dr.J.H.Burgoyne & Partners LLP and entitled Fire Test Material Conclusions. The document stated as follows:
"The fire performance of samples of the orange coloured plastic sheet ("Tuffreel") and the blue adhesive tape used in the airlock construction in the Manchester Tunnel have been tested to BS476 part 7 and BS476 part 12 by a well known United Kingdom Research Centre. They have reported that:
1. Neither sample satisfied the requirements for Class O as defined in Part B of schedule 1 of the Building Regulations for England and Wales.
2. In the BS476 part 12 test ignition source "C" was used. Both materials failed to meet the ignitability requirements of the "Small Flame Test" as set out in the British Standard and paragraph 3.12 in the Loss Prevention Standard LPS1207: Issue 2 "Fire Requirements for the LPCB Approval and Listing of Protective Covering Materials." "
- Mr. Dhanda said, in the email, that he did not have a copy of the full report but would request a copy form BT. He asked both the Defendant and Forrest how they intended to overcome "this serious issue".
- This e-mail was not addressed to Mr. Murray but he accepted that he was aware of it and that materials had been tested by fire specialists and failed. He said that the materials used in the test came from London. Indeed they had been requested of him and he had personally taken them from London to Mr. Chandler of BT. Although it was suggested that this evidence was made up and untrue I accept it; a related e-mail from Mr. Chandler to Mr. Dhanda dated 13 October 2004 refers to the materials used "in the London DLT system". However, the test report itself expressly refers to the Manchester Tunnel and it is probable that the test was in connection with the fire in the Manchester Tunnel albeit that the sample of materials which were tested came from London.
- On 14 November 2004 Mr. Dhanda sent to Mr. Murray draft witness statements of the Defendant's employees taken after the fire in Manchester. Although they had been sent to Mr. Murray it was not in fact he who dealt with this matter. Mr. Murray said it was Mr. Brown who would have dealt with it, although when the statements were returned on 31 May 2005 it was Mr. North, the Group Surveying Director who did so.
- In or about December 2005 AMEC compensated the Defendant for the equipment it had lost in the fire. AMEC continued to engage the Defendant on other projects involving BT.
- The next event of direct relevance to the issues in this case was not until November 2006 when BT informed AMEC that they were to make a claim arising out of the fire. Mr. Edwards of AMEC discussed the matter with Kennedys and was advised that AMEC ought to notify the Defendant of the potential claim by BT.
- Mr. Edwards gave evidence that he sent a letter dated 12 January 2007 to the Defendant for the attention of Mr. Murray in which he informed the Defendant that BT was intending to make a claim against AMEC in connection with the fire and recommended that the Defendant advise its insurers. Both Mr. Brown and Mr. Murray said that such a letter was never received by the Defendant. The possibility that it was not in fact sent was explored with Mr. Edwards. However, in a letter dated 4 April 2007 to AMEC, for the attention of Mr. Edwards and Mr. Walls, Mr. Brown acknowledged receipt of "your recent correspondence dated 12 January 2007 and 14 March 2007". This is clear evidence that the letter dated 12 January 2007 had been received. Mr. Evans suggested that in a telephone conversation with Mr. Edwards he must have been asked to acknowledge receipt of those two letters and he did so without checking the file. It is clear that there was a telephone call with either Mr. Edwards or Mr. Walls because the second paragraph of Mr. Brown's letter refers to one. However, it is inherently improbable that Mr. Brown would acknowledge receipt of letters without referring to them in the Defendant's correspondence files. He was not, for the reasons I have given, an impressive witness and where the contemporaneous evidence is clear I must prefer the clear contemporary evidence. Although Mr. Murray also denied seeing the letter dated 12 January the explanation for his not seeing the letter may well have been that, as he explained on oral evidence, the post was first seen by Mr. Brown. Since the letter concerned an insurance matter it is possible that Mr. Brown did not pass it on to Mr. Murray. I therefore find that the letter dated 12 January 2007 was received by the Defendant.
- Shortly before 6 March 2007 Mr. Edwards of AMEC telephoned Mr. Murray and advised him that the Defendant would shortly receive a letter from AMEC's "insurance people". That letter was dated 6 March 2007 and was marked for the attention of Mr. Murray. Mr. Murray accepted that he saw that letter. He said that it was brought to him by Mr. Brown. It contained BT's letter of claim against AMEC and suggested that it be passed onto the Defendant's insurers. Mr. Brown and Mr. Murray discussed the fire and Mr. Brown said that he would arrange a meeting with Mr. Watts, the Defendant's insurance broker.
- Mr. Brown met Mr. Watts on either 8 or 9 March 2007. Mr. Watts agreed that he would forward the letter from AMEC to the Defendants. He decided to meet Miles Smith in person for that purpose. On the following Monday, 12 March, Mr. Watts had appointments all day and on Tuesday 13 March he travelled to Cheshire on business. On Wednesday 14 March he telephoned Brian Dale of Miles Smith. Mr. Dale was not available and so on Thursday 15 March Mr. Watts went to Miles Smith's offices but again Mr. Dale was not available. On Friday 16 March telephone contact was established and a meeting was arranged for 22 March 2007. That was the first day on which Mr. Dale could see Mr. Watts. On that day Mr. Watts met Mr. Dale to inform him of the letter from AMEC. A copy was left with him.
- Accordingly, it was on 22 March 2007 that the Defendant informed the Claimant about the fire in Manchester on 29 March 2004.
The date on which notice of the fire ought to have been given by the Defendant to the Claimant to the Defendant
- In essence the Claimant submitted that notice ought to have been given in early April, alternatively by November 2004, alternatively in January 2007.
- The Defendant was obliged to give immediate notice of an occurrence which may give rise to an indemnity under the policy. As I have said it is common ground such an occurrence is one which gives rise to a real as opposed to a fanciful risk of the underwriters having to indemnify the assured and that in determining whether there was such a risk the court applies an objective test, taking into account the knowledge that the assured possessed in order to determine the extent to which the assured was aware of, and hence capable of notifying, occurrences which may give rise to an indemnity. It is also common ground that the requirement for "immediate" notice of such an occurrence means that notice must be given with all reasonable speed considering the circumstances of the case.
- It was common ground that knowledge of Mr. Murray was knowledge of the Defendant for the purpose of considering whether the Defendant complied with condition 4(a).
March/April 2004
- Mr. Murray was aware that a fire had occurred in or in the vicinity of the crossover area of the north and south tunnels on the morning of 29 March 2004. It is common ground that the fire was and was regarded as a serious fire. He was aware that employees of the Defendant had been working in the crossover area until Friday 26 March 2004. He was also aware that the Defendant had a good safety record and was familiar with the method of work involved in the removal of asbestos. He was unaware of whether anybody else had entered the crossover area over the weekend. He gave his consent to statements being taken from the employees of the Defendant concerning the fire.
- In my judgment the fire was, in those circumstances, an occurrence which gave rise to a real risk that the Defendant might claim an indemnity under its policy of insurance in respect of claims made against it in connection with the fire. Such a risk was one which would have been recognised by a reasonable man having the knowledge that Mr. Murray possessed. A reasonable man would appreciate that BT and/or AMEC were likely to investigate the cause of a serious fire. Such an investigation would inevitably focus upon the work done in the crossover area by employees of the Defendant in the week before the outbreak of the fire. The interviews being conducted of the Defendant's employees would suggest to the reasonable man that those investigating the fire were already focusing upon the work done by those employees. In circumstances where the reasonable man was not aware of a cause of the fire having been identified he would be unable to dismiss as fanciful the possibility that the cause of the fire was in some way connected with the work of the Defendant's employees, notwithstanding their good safety record. He would further apprehend that there was therefore a real possibility that a claim might be brought against the Defendant and that, in order to protect itself from that claim, the Defendant would seek an indemnity under its policy of insurance. .
- Mr. Murray candidly accepted that in late March/early April he could not rule out the possibility that the Defendant was involved in the cause of the fire. Counsel for the Defendant therefore relied heavily upon the conversation which Mr. Murray had with Mr. Daljit Dhanda of AMEC on site. Mr. Murray asked whether there was anything that the Defendant should be worried about concerning the fire. Mr. Dhanda said there was not and Mr. Murray concluded that the Defendant would not be blamed for the fire.
- However, I do not consider that this conversation enables the Defendant to say that thereafter the fire was not an occurrence which may give rise to a claim for an indemnity under the policy. Mr. Murray appreciated that AMEC had not by that stage investigated the cause of the fire and did not know what its cause was. In those circumstances Mr. Dhanda's reply could not have been regarded as the last word on the subject. Further, much would depend on BT's attitude and Mr. Murray had not spoken to them. Shortly after his conversation with Mr. Dhanda Mr. Murray received the e-mail dated 7 April 2004 from Mr. Dhanda concerning the Defendant's NPU. He appreciated that AMEC were investigating the cause of the fire and wanted to test an NPU to rule it out as a cause of the fire. In my judgment a reasonable man would still conclude that there was a real possibility of the Defendant making a claim for an indemnity arising out of the fire notwithstanding the conversation with Mr. Dhanda.
- I have therefore concluded that by early April 2004 the Defendant was obliged to give written notice to the Claimant of the fire and of the possible claim for an indemnity. The Defendant did not do so. It is likely that the reason for this failure was that Mr. Murray's responsibilities did not extend to insurance matters and that Mr. Brown, who was responsible for insurance matters, did not consult the terms of the Defendant's insurance policy or seek advice from Mr. Watts as to what action was appropriate.
November 2004
- If I am wrong in concluding that notice should have been given in early April 2004 then notice should have been given in November 2004. By this time Mr. Murray had had the telephone conversation with Mr. Dhanda on 24 May requesting a list of staff and method statement confirmation sheets, he had received the e-mail dated 19 August requesting details of the materials used and he was aware that a sample of materials used by the Defendant in the construction of airlocks had not passed the tests carried by Burgoynes. These matters were an objective indication that BT and/or AMEC were investigating the cause of the fire and examining closely the Defendant's employees and materials. In circumstances where the Defendant did not know the cause of the fire and appreciated that the cause was being investigated by others there must have been a real risk that the Defendant would be alleged to have caused the fire.
January 2007
- I have found that the letter dated 12 January 2007 from AMEC was received by the Defendant. That letter informed the Defendant that BT was intending to make a claim against AMEC in connection with the fire and recommended that the Defendant advise its insurers. Plainly, if notice had not yet been given of the fire as an occurrence which may give rise to a claim for an indemnity under the policy then such notice should have been given immediately on receipt of this letter. It was not so given.
The retroactive date
- Before considering the effect of the Defendant's failure to comply with condition 4(a) I will deal with the Claimants' contention that there is in any event no cover because the relevant works commenced before 11 February 2004. Section 2 of the policy contains the following proviso:
"Provided always that the Underwriters will not indemnify the Assured in respect of any Claim arising from activities commenced by or on behalf of the Assured prior to the Retroactive Date specified in the Schedule."
- It was submitted that this proviso provided a short answer to the Defendants' claim because, it was said, the activities from which the claim arises, namely the removal of asbestos from the Manchester tunnel complex, were commenced prior to 11 February 2004, namely, on 9 February 2004.
- However, whilst it is true that work commenced on the south tunnel on 9 February 2004, it was not until 18 February 2004 that BT issued to AMEC a Project Specific Order, pursuant to the Framework Agreement, for work on the north tunnel. The Defendant's method statement for work on the north tunnel was issued on 16 March 2004 and revised on 22 March 2004. Whilst the Defendant no doubt had every expectation on 9 February 2004 that it would do the work on the north tunnel in due course AMEC was not in a position to instruct the Defendant to commence such work on 9 February 2004. It certainly could not do so until AMEC had received a project specific order. Indeed it is unlikely that instructions could be given until the method statement for such work had been approved. That did not happen until March 2004. In those circumstances I do not consider that it can fairly or realistically be said that the activities which commenced on 9 February 2004 included the work on the north tunnel. Since the claim for an indemnity arises out of the work on the north tunnel I am not satisfied that the Claimants are able to deny liability on the basis of the retroactive date provision.
Condition precedent
- The consequence of the Defendant's failure to comply with condition 4(a) depends upon the true construction of condition 13 as applied to condition 4(a). The Claimants say that it makes compliance with condition 4(a) a condition precedent to the Claimant's liability to indemnify the Defendant in respect of the fire.
- I begin by noting two general points. The first is that made by Phillips J., quoting MacGillivray and Parkington on Insurance Law, in Cox v Bankside [1995] 2 Lloyd's Rep 437 at p.453:
"It is not always easy to decide whether Clauses requiring notice of a claim are conditions precedent to the liability of the insurer under the policy, or merely terms of the policy for breach of which the insurer's only remedy is to claim damages for the extra expense flowing from the insured's failure to give notice within the proper time. Little more can be said than that it is a matter of construing the policy as a whole."
- The second is that made by Colman J. in Alfred McAlpine v BAI [1998] 2 Lloyd's Rep.694 at p.700 that the effect of non-compliance with a notification clause can sometimes have little impact on the insurer.
"These considerations point against a mutual intention that insurers should have a complete defence to any claim where there has been any breach of the notification clause however trivial in effect."
- Counsel for the Claimants submitted that compliance with condition 4 was a condition precedent to liability because that was the meaning and effect of condition 13. His argument was simple.
i) Condition 13 provided that it was a condition of the underwriters being liable in respect of a claim that the assured observed the terms and conditions of the insurance, one of which was the obligation in condition 4(a) to give immediate written notice of any occurrence which may give rise to an indemnity under the policy. In support of that submission he relied in particular upon the approach to construction described in George Hunt Cranes v Scottish Boiler and General Insurance [2002] Lloyd's Rep IR 178 at paragraph 11 per Potter LJ and Eagle Star Insurance v Cresswell [2004] Lloyd's Rep IR 537 at para.20 per Longmore LJ.
ii) There was nothing in the nature of condition 4(a) which prevented compliance with it being a condition precedent to the underwriters being liable in respect of the claim in question. In this regard reliance was placed on Welch v Royal Exchange Life Assurance (1938) 62 Lloyd's List Law Reports 83 at p.90 per Mackinnon LJ and on the decision in Farrell v Federated Employers [1970] 1 WLR 498.
iii) There was an objective commercial purpose in condition 4(a), namely, to enable the underwriters to investigate the potential claim at the earliest opportunity, to take such steps as are appropriate to minimise liability under the policy and to take charge of any proceedings against the assured. That such is the purpose of a clause such as condition 4(a) is apparent from Pioneer Concrete v National Employers Mutual General Insurance Association [1985] 1 Lloyd's Rep 274 at p.278 per Bingham J., Rothschild Assurance v Collyear [1999] Lloyd's Rep IR 6 at p.22 per Rix J. and HLB Kidsons v Lloyd's Underwriters [2008] Lloyd's Rep IR 237 at paragraph 31 per Gloster J.
- Counsel for the Defendant submitted that condition 13 did not have the effect of making compliance with clause 4(a) a condition precedent to liability. His argument may be summarised as follows:
i) Where the parties intended compliance with a clause to be a condition precedent to liability they said so expressly, see the first endorsement to the policy.
ii) Section 2 of the policy dealing with general public liability does not provide for immediate notice to be given whilst provision for such notice is made expressly with regard to claims arising out of seepage, pollution or contamination. It would be strange therefore if the giving of immediate notice was a condition precedent of liability for general public liability.
iii) There is inevitably a "grey area" in determining when there has been a failure to comply with condition 4(a). That suggests that the parties did not intend compliance to be a condition precedent to liability to indemnity.
iv) Condition 1, which is expressly stated to be a warranty and provides for a particular remedy, would be unnecessary if condition 13 turned compliance with all obligations into conditions precedent.
v) If the effect of condition 13 is to make compliance with all obligations of the assured a condition precedent to liability then it will have a draconian effect. For example, a failure to forward a letter pursuant to condition 4(b) would provide the underwriters with a defence.
vi) The effect of the underwriters' argument is that all cover under the policy is lost, not just liability for a particular claim. That is too draconian to have been intended.
vii) Condition 13 merely gives a remedy of damages for breach. Alternatively, it merely provided that underwriters need not pay a claim until the premium has been paid in full and any other conditions yet to be complied with have been complied with. It does not provide that late compliance will defeat a claim.
- It is well established that a general clause in an insurance policy purporting to make compliance with obligations in the policy a condition precedent to the underwriters being liable in respect of a claim can indeed have that effect; see London Guarantie Company v Fearnley (1880) 5 Appeal Cases 911 at p.916 per Lord Blackburn and p.918 per Lord Watson. The effect of such a general clause is that which the clause would have if it had been set out at the commencement of each particular clause which imposes an obligation upon the assured. This is the "modern drafting technique" see MacGillivray on Insurance Law 10th.ed. paragraph 10-11. Whilst the words "condition precedent" are often used in such clauses, other words can have the same effect so long as the clause is apt to make that effect the clear intention of the parties; see George Hunt Cranes v Scottish Boiler and General Insurance [2002] Lloyd's Rep IR 178 at paragraph 11 per Potter LJ and Eagle Star Insurance v Cresswell [2004] Lloyd's Rep IR 537 at para.20 per Longmore LJ. What has to be found is a "conditional link" between the assured's obligation to give notice and the underwriters' obligation to pay the claim; see Friends Provident v Sirius International [2006] Lloyd's Rep IR 45 at para.31 per Mance LJ.
- Condition 13 states that the "liability of Underwriters shall be conditional on the Assured paying in full the premium demanded and observing the terms and conditions of this insurance." In my judgment this provision, when read in conjunction with condition 4(a), is apt to make clear that the parties intended there to be a conditional link between the assured's obligation to comply with condition 4(a) and the underwriters' obligation to pay the claim in question.
- Moreover, and importantly, the commercial purpose underlying condition 4(a), namely, to enable the underwriters to investigate the potential claim at the earliest opportunity, justifies compliance with condition 4(a) being a condition precedent to liability, notwithstanding that there might in some cases be uncertainty as to whether and if so when there has been a failure to comply.
- I am not persuaded by the submission that the effect of condition 13 is that a failure to comply by the assured with clause 4(a) is that the underwriters are relieved of all liability under the policy and not just liability in respect of which there was failure to comply with condition 4(a). This would be a literal interpretation of condition 13, when read with condition 4(a), but one which would not be required by the objective purpose of the clause; cf MacGillivray on Insurance Law 10th.ed.paragraph 10-11. The purpose of the condition when it is applied in conjunction with condition 4(a) is to ensure that the underwriters have the opportunity to investigate the occurrence promptly and to take such action as is required to minimise the extent of any required indemnity. Such purpose is not promoted by enabling an underwriter who has not received written notice of one occurrence which may give rise to an indemnity to deny liability to indemnify the assured in relation to any other occurrence which may give rise to a claim. A purposive construction of condition 13, as opposed to a literal construction, would therefore construe condition 13 as follows:- "The liability of the underwriters to indemnify the assured in respect of a claim for an indemnity shall be conditional upon the assured observing the terms and conditions of the policy with regard to that claim." Moreover, the effect of condition 13 as suggested by the Defendant would be so draconian that very clear words would be required to achieve it. In circumstances where the condition can be sensibly construed in a manner which does not have the suggested draconian consequences the required clear words are absent from condition 13.
- In support of the Defendant's construction reliance was placed on the requirement in condition 13 that the liability of the underwriters was conditional on the assured paying the full premium. Premium cannot be allocated to any particular claim (see Friends Provident v Sirius International [2006] Lloyd's Rep IR 45 at para.31 per Mance LJ) and therefore it was suggested that condition 13 could not be construed as referring to the underwriters' liability for a particular claim. The obligation of the assured to pay the premium is the only specific obligation mentioned in condition 13. The purpose of that part of condition 13 which specifically refers to the obligation to pay the premium is to ensure that the underwriters have received the premium before they can be called upon to indemnify the assured. It is true that that must apply to any claim but I am not persuaded that condition 13 must therefore be applied in the same way when read in conjunction with obligations which can relate specifically relate to a single claim to an indemnity.
- Condition 4(a) being apt to make clear that the parties intended there to be a conditional link between the assured's obligation to comply with condition 4(a) and the underwriters' obligation to pay the claim in question, and there being a commercial purpose underlying clause 4(a) which justifies such a construction, it is necessary to examine the policy to see whether any other provision of the policy leads to a different conclusion (since it is necessary to construe the policy as a whole.)
- The first endorsement uses the term "condition precedent" whereas condition 13 does not. This sort of point can be significant; see Alfred McAlpine v BAI [1998] 2 Lloyd's Rep.694 at p.700 per Colman J. However, in the present case I do not consider that it is. The words used in condition 13 are apt to establish the necessary conditional link. I do not consider that the use of the words "condition precedent" in the endorsement and the absence of such words in condition 13 mean that condition 13 must be construed in a manner which removes a conditional link between compliance with condition 4(a) and the underwriter's obligation to pay. The words used in condition 13 are clear, even though they do not use the term "condition precedent".
- Section 2 of the policy provides for notice in respect of claims for seepage, pollution or contamination but not for other claims. It was suggested that it would therefore be very strange if immediate notice pursuant to condition 13 were a condition precedent to liability. However, claims for seepage etc. were to be notified on a claims made basis and section 2 made specific provision for such notice. Condition 4 made provision for notice on an occurrence basis. I do not consider that the terms of section 2 militate against the clearly expressed intention in condition 13 that there is a conditional link between compliance with condition 4 and the underwriter's obligation to pay.
- It was suggested that condition 1, the Asbestos Warranty, which imposes on the assured an obligation to refund to underwriters any sums paid to employees of the assured where there has been a breach of the warranty, shows that condition 13 cannot have been intended to have the effect of a condition precedent because the express obligation to refund in condition 1 would be unnecessary. It is probably correct that the express obligation would be unnecessary because if a payment were made and it were then discovered that a condition precedent had not been satisfied there would be some form of restitutionary claim for repayment. However, it is not unusual to find duplication of rights in commercial documents. I do not consider that the terms of condition 1 require condition 13 to be construed in a manner which militates against the clear conditional link in condition 13 between compliance with condition 4 and the underwriter's obligation to indemnify.
- It was suggested that the consequence of construing condition 13 as making compliance with condition 4(a) a condition precedent must be that it also makes compliance with condition 4(b) a condition precedent. Thus, the failure to forward a letter would result in the loss of a claim under the policy. Such a striking consequence cannot, it was said, have been intended. This is an important point. However, the objective commercial purpose underlying condition 4(a), namely, to enable the underwriters to investigate the potential claim at the earliest opportunity, is of great importance to underwriters. The objective commercial purpose underlying condition 4 (b) is different, though related. If and when a case arises where an underwriter seeks to rely upon a failure to comply with condition 4(b) consideration will have to be given whether the objective commercial purpose underlying condition 4(b) justifies compliance with it as being regarded as a condition precedent to the underwriters' liability. It will be necessary to decide whether the nature of the obligation in clause 4(b) is such that it is appropriate that it be regarded as a condition precedent; cf the discussion in Diab v Regent Insurance Company Limited, a decision of the Privy Council dated 19 June 2006, BAILII: [2006] UKPC 29, at paragraphs 13-17 per Lord Scott. That issue does not arise in this case.
- I have therefore decided that on the true construction of the policy compliance with condition 4(a) is a condition precedent to the underwriters' liability to indemnify. It does not give rise solely to a remedy of damages or merely provide that underwriters need not pay a claim until all conditions have been complied with, however late such compliance is. A condition requiring "immediate notice" cannot be construed as requiring "notice, whenever given".
Conclusion
- It follows that the Claimants are entitled to decline liability in respect of claims arising out of the fire in Manchester in March 2004.
