The Plaintiffs were insured under a policy that indemnified them, ‘against all sums which the Insured shall become legally liable to pay in respect of . . loss or damage . . during the period of insurance and caused by goods (including containers) . . altered . . or treated in the course of the Business . . ‘. The plaintiffs were supplied with boards by a customer, LMG, to be screen printed. The plaintiffs carried out the work, and redelivered the boards to LMG which in turn supplied them to Mars to make boxes for Maltesers. Mars complained that the packaging had contaminated the sweets. LMG claimed from the plaintiffs (1) the sum it had paid Mars as compensation for the contamination and (2) loss of profits on further orders from Mars. The plaintiffs sought a declaration that they were entitled to an indemnity from insurers if they were held liable for LMG’s loss of profits.
Held: if the plaintiffs were liable for the loss of profits, the liability did not fall within the terms of the cover. (Hobhouse LJ) ‘The indemnity is in respect of sums which the insured shall become legally liable to pay. There is no problem about that because the declaration asked for assumes that there will be such a legal liability. If there is no such legal liability then of course there is no liability to indemnify. It goes on. ‘Legally liable to pay’ has to be ‘in respect of’ – I stress the words ‘in respect of’ – ‘death, bodily injury, illness, loss or damage happening anywhere in the World (excluding the United States of America and Canada) during the period of insurance’. The liability to pay has to be in respect of what, in its context, is clearly some physical event. It is something which can be said to have happened somewhere. It is an event which is happening during the period of the insurance. The event can be death, bodily injury, illness or loss or damage. The words ‘loss or damage’ must, in my judgment, be construed in context as something that relates to a physical event. It goes on: ‘And caused by goods (including containers) . . supplied . . or created in the course of the Business’ of the insured. There is no difficulty about that last step provided it is understood what it relates to. The plaintiffs in the present case did treat and/or supply printed material. They treated it for LMG or supplied it to them. That supply of those goods has caused further events. It has caused the contamination of the package itself and it has caused the contamination of the Maltesers. So the plaintiffs are able to progress from the third element to the second element, namely they can show the goods which they treated have caused damage – which is a physical event occurring somewhere and occurring during the period of insurance – to the packaging and to the Maltesers. That is the limit of what they can prove as a matter of physical causation. One then asks whether the legal liability to pay is in respect of that loss or damage. It is at this point that, in my judgment, the train of reasoning upon which the plaintiff’s argument has to be based breaks down. They have to progress from legal liability in respect of the damage to the packaging and damage to the Maltesers to a loss of goodwill by LMG and loss of profits over a period in the future. The loss of profit in 1990, 1991 and 1992 are not events which are either directly or indirectly covered by this policy. They cannot be correctly described as loss or damage which has happened somewhere; nor have they happened at least partially during the period of insurance. The conclusion at which I arrive is similar to that of the judge: the relevant head of loss is not caused by any defects in the packaging but is caused by Mars choosing not to place further orders with LMG. The same point can be demonstrated by appreciating that causation is, in the context of this cover, a physical concept: the loss or damage has to happen physically during the period of insurance. It is not possible to treat a liability to pay compensation in respect of an economic loss which arises from a loss of goodwill as being in respect of physical loss or damage physically caused. Loss of goodwill is not covered by this policy. The plaintiffs have failed to bring themselves within the relevant part of the cover. The declaration made by the judge was correct.’
Judges:
Hobhouse LJ
Citations:
[1999] Lloyd’s Rep IR 430
Jurisdiction:
England and Wales
Cited by:
Cited – Horbury Building Systems Ltd v Hampden Insurance Nv ComC 9-Sep-2003
The claimant had installed suspended ceilings in a new cinema complex. They took out insurance with the respondents, and now pursued a declaration as to the liability of the defendants under the policy. They had used the wrong washers, leading to a . .
Cited – Pilkington United Kingdom Limited v CGU Insurance Plc QBD 28-Jan-2004
The claimants had installed glass tiles in a roof. They fractured, and facing a claim for damages, they sought payment from their insurers. The claimants argued that the risk of fracture meant that the damage occurred upon installation, the insurers . .
Lists of cited by and citing cases may be incomplete.
Insurance
Updated: 29 April 2022; Ref: scu.186286