Case Details

Tektrol Ltd v. (1) International Insurance Company of Hannover Ltd (2) Great Lakes Reinsurance (UK) Ltd (CA)

[2005] 2 Lloyds Rep 701

Andrew Burns acted as junior counsel in the Court of Appeal in a significant case concerning the construction of exclusion clauses in an all-risks insurance policy. The insurers denied liability for a £2.5 million business interruption loss caused by the unfortunate co-incidence of a computer virus and a theft over the Christmas holidays. The Appellant lost its backup copies of its highly valuable computer source code due to a virus in an email Christmas card and then the computers which held the remaining copies of the code were stolen over the holidays.

The insurers in a preliminary issue trial relied on exclusions which covered erasure, loss, distortion or corruption of information on computer systems caused deliberately by malicious persons. They said that the virus author was a malicious person who had caused the erasure of the code. Andrew appeared with Nicholas Strauss QC on behalf of the insured business, instructed by Beachcroft Wansboroughs.

The Court of Appeal construed the insurance policy against the insurers to find that for the malicious person to be acting deliberately, he needed to intend to erase information on the particular computer systems covered by the insurance. An intention to cause trouble and erasure all around the world was not enough to exclude cover from an all-risks policy. They also (by a majority of two to one) construed the meaning of loss in the expression “erasure, loss, distortion or corruption” as meaning electronic loss of the information and not including actual physical loss by theft of the computers on which the information was stored. Buxton LJ, giving the leading judgment, took the opportunity to restate the classic contra proferentum rule whereby ambiguous clauses in an insurance policy must be construed against the insurer and also looked at the significance of surplus words when construing a policy.

The case now returns to the Commercial Court for the remaining issues in the case and the assessment of the quantum of the business interruption loss to be decided.