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 ‘‘goods…held 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 of Insurers that it would be wrong to meddle with established usage in the insurance world by overruling these two previous decisions.
In addition to the helpful confirmation that has now been provided by the Court of Appeal as to the legal effect of the wording, a few additional points are worth noting. First, brief forms of wording will likely only limit Insurers’ liability in such cases if they closely resemble the actual wording used in Ramco that has previously achieved judicial recognition. A more comprehensive wording will otherwise be required to achieve the same objective. Secondly, the Court of Appeal noted it had not explored the issue of the amount which could be recovered under the policy, and specifically the question of whether this amount was limited to the amount for which the Assured was liable to the bailor. This issue was determined late last year by the court below in Ramco, at which time the Judge had found that Insurers would be liable for the full value insured. The Court of Appeal remarked that it did not necessarily accept that this finding was correct. We suggest, however, that courts are unlikely to limit recoveries for goods under bailment to the amount of the Assured bailee’s liability, where to do so would effectively involve converting a property risk policy to a liability policy.
The Assured in Ramco, having failed in their appeal, were also unsuccessful in their application to the Court of Appeal for leave to appeal to the House of Lords.
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