Product Liability: Damage to Property

1 liability : Damage to PropertyCOLIN EDELMAN QCDEVEREUX typical Public and Products liability insuring clause The Insurer will indemnify the Insured against legal liability to pay compensation andclaimants costs and expenses in respect of accidentalInjury to any personLoss of or Damage to material propertyNuisance, trespass, obstruction or interference with any right of way, light, air or wateroccurring within the Territorial Limits during the Period of Insurance in connection withthe Business. in respect of Damage to propertyThe words in respect of in this context mean for and not merely caused by , consequential upon or in connection with (Rodan International Ltd v CommercialUnion[1999] Lloyd s Rep. 495).

2 The liability must therefore be forloss of or Damage to material Property of the personwhose Property it in respect of Damage to Property -RodanRodan International Ltd v Commercial Union: .. A products liability policy in which the cover provided is defined in words such asthose used in the present policy is confined to liability for physical consequencescaused by the commodity or article supplied. The liability of the assured in damages willhave to be expressed in terms of money but that liability must be in respect of theconsequences of the physical loss or Damage to physical Property (or some personal - bodily - injury). in respect of Damage to Property -Rodan Provided that the commodity or article supplied has caused the physical consequence,the compensation payable by the assured to the third party will include, and the liabilityof the insurer to indemnify the assured, will extend to the totality of the loss which thethird party is entitled to recover from the assured by way of damages in respect of thatphysical consequence.

3 Thus, if a defective article supplied by the assured causesbodily injury to the third party disabling him or, for example, causes his premises to bedestroyed by fire, the third party will be entitled to recover from the assured the fullvalue of what he has lost which will, in the two examples I have given, includecompensation for future loss of earnings. They are part of what the third party has lostas a consequence of the physical loss or injury and they are accordingly part of theliability of the assured in respect of that physical consequence.. (Hobhouse LJ and ) lossThe insured s liability for the claimant s consequential losses, such as loss of businessor loss of profit on lost future sales, will not be covered by an insuring clause in theabove insured s liability for financial loss suffered by the claimant as a consequence ofloss of or Damage to another person s Property is not in respect of such loss ordamage.

4 (SeeTesco Stores Limited v. Constable[2008] Lloyd s Rep IR 636 at [21] [23] and the authorities cited in those paragraphs).Tioxide Europe Limited v. CGU International Plc[2005] Lloyd s Rep IR 114: Suchfinancial loss may be on account of physical loss and Damage if the insuring clauseuses that phrase, although there must still be a sufficiently close connection betweenthe loss claimed and the loss or Damage and the words on account of would notextend the indemnity to cover liability for consequential loss of business or in the productLiability for loss due to a defect in the Product itself will not be sufficient. Any physicalloss or Damage must be external to the UK Ltd v CGU Insurance Plc[2004] Lloyd s Rep.

5 891, a case concerningthe installation of glass panels in the Eurostar Terminal at Waterloo: 35. In my view, while the English authorities are not in themselves determinative of theissue in this case, they make clear that, in order to establish cover in respect of the lossclaimed, the insured must demonstrate some physical Damage caused by thecommodity for which purpose a defect or deterioration in the commodity is not itselfsufficientandthat the loss claimed must be a loss resulting from physical loss ordamage to physical Property of another (or some personal injury). (Potter LJ) in the productHorbury Building Systems Ltd v Hampden Insurance[2007] Lloyd s Rep 237, acase concerning the collapse of the ceiling in a cinema unit within a cinema complex: 27.

6 When one is seeking to discern the intention of contracting parties in a casesuch as this, one is entitled to assume some knowledge of the law on their part.. Icannot help observing that a contractor is not liable in tort to the buyer or occupier of abuilding if a defect is discovered before any personal injury or physical Damage iscaused by the defect. The cost of repairing the defect is pure economic loss and notrecoverable in tort:D and F Estates Ltd v Church Commissioners[1989] AC 177, 206;Murphy v Brentwood District Council[1991] 1 AC 398, 475. It is only if the defect itselfcauses Damage to other Property that damages may be recovered by an action in tort,along with economic loss flowing from the physical Damage .

7 It is therefore again highlyunlikely that these contracting parties were seeking to provide for cover that wouldextend to liability for the losses flowing from the closure of the rest of this complexbecause of possible defects in the structure.. (Keane LJ) in the productSee also decisions in relation to defective work in the context of public liabilityinsurance for building contractors:James Longley & Co v Forest Giles Ltd[2002] Lloyd's Rep IR 421 at [17] [19], PotterLJAXA Insurance UK Plc v. Thermonex[2013] Lloyd s Rep IR 323 at [59] - [61], HHJS imon Brown in the Product - RodanInRodan,liquid constituents of the soap powder supplied by Rodan migrated from thepowder into the cardboard cartons belonging to Rodan s customer in which the powderwas packaged, causing the cartons to stain.

8 Further, as those constituents werehydroscopic, they attracted moisture from the atmosphere causing it to penetrate intothe powder so that it became LJ (with whom Mummery LJ agreed) held that although the policy would notcover Damage by the defective powder to itself, what had happened was that thepowder had damaged the cartons and as a consequence of the Damage to the cartons,the powder had suffered LJ dissented on the grounds that this involved a finding that the Damage caused bythe powder to the powder was within the policy, the powder was both the cause ofthe Damage and the Property damaged. He considered that the further Damage to thepowder should be regarded as an inevitable consequence of its to another partThe policy may provide cover either explicitly or by way of an exception to andexclusion for the Damage that one part of the Product supplied may cause to anotherpart of the Product supplied.

9 The operation of any such provision may depend on how itis expressed. The few relevant cases are in the context of liability insurance for Electric UK Limited v. Royal London Insurance (UK) Limited[1994] 2 Lloyd sRep 249: The exclusion of the costs of replacing or rectifying a defect in design limited, in the event that Damage should result from the defect, to the additionalcosts of improvement to the design etc. but there was a significant deductible for eachand every loss in respect of any component partwhich is defective in design .. to another partInMitsubishi,94 identical toilet modules were manufactured off site and then installedinto a building which was being constructed as it rose floor by floor. Each toilet modulehad tiles fixed to a cementitious board which was defective and caused bowing of thetiles in each of the modules.

10 Insurers argued that the relevant component partwaseach toilet module and that the deductible applied 94 times but the Court of Appeal heldthat the component part was the cementitious board and that there was only 1deductible to be applied to the claim.. I do not agree with the Judge s view that each toilet module constituted acomponent part of the works, since it seems very artificial to me to regard thesemodules as defective in design plan specification materials or workmanship . It maybe, literally, that the modules were defective in specification or materials because theycontained the defective cementitious board, but it seems much more natural to me toregard the defective cementitious board as the defective component.