Commercial Court rules on meaning of “Product” in contractors’ combined policy wording

Colin Wynter QC and Alison Padfield recently acted for the insured in Aspen UK Insurance Ltd v Adana Construction Ltd [2013] EWHC 1586 (Comm), in which the Commercial Court considered whether insurers were in principle liable to indemnify the insured, a construction company, in respect of liability for loss and damage resulting from the collapse of a tower crane on a construction site. The insured, which constructed the crane base, has not been prosecuted or found liable, and is defending its position in pending liability proceedings.  The case came before the Commercial Court as a claim by the insurer for declarations that the insured was not entitled to an indemnity under a contractors’ combined policy wording which included public and products liability sections.

The insured constructed the base of the crane on site, and HHJ Mackie QC decided that the crane base did not fall within the policy definition of ‘Product’: it was not ‘any product or goods’, as the definition required;  it was created at the customer’s premises, not at a factory, and was part of the work on site, not something ordered from a product range and sent to the site. The Court also rejected the insurer’s arguments that (1) other items either were or formed part of a product of the insured; and (2) that, as soon as the crane base was handed over following construction, all cover under the public liability section of the policy ceased.  The insurer’s argument that cover was only available, if at all, under the products liability section of the policy therefore failed.

The Court also considered the application of an exclusion in the products liability section of the policy in respect of liability ‘arising in connection with the failure of any Product to fulfil its intended function’ (commonly known as an ‘efficacy exclusion’). The Court held that this exclusion did not apply because the crane base had not failed to fulfil its intended function:  the crane base had transmitted the forces it was designed to transmit, down into the piles below, and had been uprooted, intact, following the collapse.

A clause headed ‘foundation clause’, which excluded liability for loss of or damage to any ‘superstructure’ arising from the failure of the insured’s ‘foundation works’ to perform their intended function and which applied to the whole policy, was also held not to apply.  This was on the grounds that the clause applied only to permanent features supporting a building, not a base supporting a temporary crane. 

Colin Wynter QC and Alison Padfield appeared for Adana Construction Ltd. They were instructed by Alex Denslow, Neil Winterbourne and Lucy Russell of CMS Cameron McKenna.

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