Horbury Building Systems Ltd v Hampden Insurance NV

This is a claimant's appeal against a decision of Mr Ian Glick QC, sitting as a Deputy High Court Judge in the Commercial Court, that decision being dated 9 September 2003.

The claimant had sought a number of declarations as to the meaning and effect of an All Risks Insurance Policy issued by the defendant. That policy was in force from 11 June 2001 until 16 May 2002. Despite its name, it was in fact a policy of liability insurance, providing cover for various forms of legal liability to third persons under the headings of Public Liability, Products Liability and Employers' Liability. Under this policy the defendant agreed to indemnify the claimant against its liability at law for damages, as well as claimants' costs and expenses, in certain circumstances. I shall return to the detailed terms of the policy in due course.

The proceedings arose out of the collapse of a ceiling in a cinema complex in Manchester. The complex had been built for AMC Europe SA or an associated company or companies ("AMC") and it was to be operated by AMC. As eventually constructed, it contained 16 cinema auditoria. The main contractors for the building work were Galliford Northern or a company in the Galliford group ("Galliford"). The claimant was sub-contracted to Galliford to provide partition walls and ceilings to all auditoria, public areas and back of house areas at the complex. The ceilings in the cinema auditoria were to be suspended ones, as were most of the ceilings to the foyer and box office, though these were of a different construction from those in the cinema auditoria. In the latter, the ceilings were to be suspended from the roof structure by hangers. The complex opened on about 19 December 2001. However, during the early hours of 21 December 2001, when the complex was empty, the ceiling of auditorium 6 collapsed. The reason for the collapse was not at first known. AMC immediately closed the whole complex; and it stayed closed until about 25 January 2002. It was common ground between the parties to these proceedings that the damage caused by the collapse of the ceiling did not physically prevent the use of the rest of the complex. Access to the rest of the complex was not obstructed nor did the collapse of the ceiling in auditorium 6 cause physical damage elsewhere in the complex.

On 17 June 2002 solicitors acting for AMC wrote to Galliford, indicating its intention to claim for loss of revenue, the cost of physical repair, and additional marketing and advertising costs. The loss of revenue specified related to the whole complex. Galliford by that date had already written to the claimant to say that it intended to pass on to it claims made by AMC. On 22 August 2002 the claimant issued the claim form against the defendant, because the latter had indicated that it did not accept that the policy covered the extent of the losses set out in correspondence.

It is to be observed that at the time of the hearing in the Commercial Court no proceedings had begun against the claimant by either AMC or Galliford. That remains the present position, although we were told that a claim by AMC against Galliford has been settled. Far less has the extent or the basis of liability of the claimant been established or the detailed factual basis of any such liability been found or agreed. Thus it was that the Deputy Judge was asked by the claimant to assume a number of facts beyond those which were in effect agreed.

These included the following:

“6.

The cinema premises obtained from Manchester City Council a licence under the Cinemas Act 1985. The licensing system allowed the Council time to evaluate the premises before deciding whether to grant the licence. At all material times the practice of the Council was to obtain reports from the City Architects, the Building Control Department, the Environmental Health Department, and the Police and Fire authorities, before deciding whether to grant the licence.

7.

The licence contained the following (among other) provisions:

“1.

The licensed premises shall not be open for the purposes for which this Licence is granted on any occasion when the Licensing Authority may signify their desire in writing to the occupier or other person having at the time the care and management of such premises that the same should not be open.

33.

All parts of the premises and fittings and apparatus therein, including the seating, door fastenings and notices, and the lighting, electrical heating, ventilating, mechanical and other installations, shall be maintained at all times in good order and condition.”

8.

The licence was subject to the proviso that

“... subject to the provisions of the said regulations", [The Cinematographic (Safety) Regulations 1955 (as amended)] "made by the Secretary of State, such licence shall be liable to be suspended by the said Council in the event of any failure on the part of the licensee to carry out the said Regulations, or of the building becoming otherwise, unsafe, or of any material alteration being made in the building or enclosure without consent of the said Council.”

...

11.

Some of Horbury's work had been carried out unskilfully and not in conformity with contract, in that:

11.1

In the following locations the wrong washers had been used throughout or effectively throughout Horbury's work:

Auditorium 6

Auditorium 10

Auditorium 12

Auditorium 15

11.2

In Auditorium 4 approximately half the hangers had the wrong washers and half had the correct ones.

...

16.

AMC's closure of the complex was a voluntary decision. AMC provided assurances to Manchester City Council that the complex would not be re-opened until such time as the problem had been fully investigated and a programme of remedial works implemented, satisfactory to Manchester City Council.

18.

The City Council's officers considered the situation so dangerous that they would not allow Council staff onto the premises until satisfied with temporary protective measures.

19.

The cause of the collapse of the ceiling of auditorium 6 was identified as being and was the use of the wrong washers.

20.

The effect of the use of the wrong washers was that individual hangers disconnected. Each disconnection (1) removed or significantly reduced the support which that hanger had provided to the suspended ceilings (2) increased the load on adjacent hangers and (3) removed or significantly reduced the support which that hanger had provided for the ductwork.

21.

All other auditoria were checked. Of these, 11 were discovered to be virtually free from defect. However, it was discovered that the wrong washers had been used almost throughout auditorium 10, 12 and 15, and in about half of auditorium 4. In each of these auditoria some individual hangers had disconnected.

22.

Had remedial measures not been taken it is probable that some or all of the ceilings in auditoria 4, 10, 12 and 15 would have collapsed in due course either in part or in the same way as that of auditorium 6.”

Two alternative bases were then put before the judge by the claimant as assumptions. These were:

“23 Alternative A

No damage had occurred to any part of auditoria 4, 10, 12 and 15 (as distinct from damage to the complex as a whole).

Alternative B

One or more or all of those auditoria were damaged in whole or in part in that the electrical ductwork and therefore the wiring which it contained was no longer securely fixed in position within the meaning of regulation 22(2) of the Cinematographic Act (Safety) Regulations 1955. The fixing was insecure because of the loss of support from some hangers and the risk of disconnection of others.”

The assumed facts then continued:

“24.

Auditorium 6 was cleared, reconstructed and refurbished.

25.

The suspension systems in auditoria 4, 10, 12 and 15 were reconnected.

26.

When but only when satisfied that the licensing officers were themselves satisfied with the state of affairs did AMC re-open the complex to the public.”

The policy of insurance contains a Definitions section. Amongst the definitions are the following:

“7.

Products

7.1

Any goods or products (including containers labelling instructions or advice provided therewith) sold supplied erected repaired altered treated or installed or work carried out by or on behalf of the Insured in the course of the Business from or in Great Britain Northern Ireland the Channel Islands and the Isle of Man.

8.

Property

8.1.

Material property.”

The schedule to the policy defines “The Business” as including

“Dry lining, Partitioning and Suspended Ceiling Contractors and Fire Proofing and Plant Hirers.”

The Products Liability section of the policy includes the following relevant terms:

“4.

Insurance Cover

4.1

Indemnity

The Company will indemnify the Insured against liability at law for damages and claimants costs and expenses in respect of Injury to any person and loss of or damage to Property occurring within the Territorial Limits during the period of insurance and caused by any Products after they have ceased to be in the custody or under the control of the Insured.

...

Exceptions to Part B

5 The Company will not indemnify the Insured against liability in respect of

...

5.3.

Contractual Liability

Injury loss of or damage to Property which is assumed by the Insured by agreement (other than liability arising out of a condition or warranty of goods implied by law) unless such liability would have attached in the absence of such agreement.

5.4

Damage to Products Serviced or Treated

The cost of recalling removing replacing repairing reapplying rectifying or refunding payment for anything sold supplied constructed erected installed repaired serviced or treated by the Insured caused by any defect therein or the unsuitability thereof for its intended purpose.”

In the claim form the claimant sought a number of declarations as to the extent of the defendant's liability under the policy. The most controversial one was number 6, which was formulated in these terms:

“if the Insured are liable to third party claimants in terms which include liability for loss of profits calculated by reference to the closure of the cinema complex as a whole from 21 December 2001 to 25 January2002, then the liability of the Defendants to indemnify extends to include the Insured's liability for such loss of profits.”

In short, that raises the issue of whether any liability of the claimant in respect of loss of profits from the closure of the 16 cinema complex as a whole is covered by the policy. The claimant also seeks a declaration that from no later than 14 December 2001 the complex (including its fixtures and fittings) constituted "Property" within the meaning of the policy. That in a sense is really subsidiary to the main issue, which is formulated in the claimant's skeleton as being

“... whether, assuming the cinema owners (directly or through the main building contractors) can recover damages from the Insured which extended to the loss of income from the auditoria in which physical collapse did not occur, the Insurer's liability to indemnify the insured extends to cover that loss of income claim.”

It will at once be observed that the claimant does not seek to identify the basis upon which it would be liable to a third party, whether contractual or tortious, nor even to whom it would be so liable. I am bound to say that, while I appreciate the value to the claimant and perhaps to others of obtaining a decision on the construction of the policy, to seek a declaration in circumstances such as those just described leaves a great deal to be desired from the point of view of the court. To be asked to determine whether liability for certain losses would fall within the terms of the policy without knowing on what legal basis the insured would be liable for those losses is unsatisfactory, both because one is having to proceed to arrive at an interpretation in the abstract and because these present proceedings may be unnecessary if the claimant is not liable in law for those losses. In none of the cases relied on by the claimant was there this degree of uncertainty as to the legal basis on which the insured was said to be liable. It is right that in one of those authorities, A. S. Screenprint Ltd -v- British Reserve Insurance Co. Ltd [1999] Lloyd's Report I.R. 430, the liability of the insured had not been determined, but there was even so already a writ issued against the insured by a third party setting out a basis for an alleged liability. Nonetheless, in the present cases the judge below was prepared to address the issue of construction and it therefore seems to me to be necessary that this court should do the same.

Perhaps not surprisingly in the circumstances, Mr Davidson QC who appears for the claimant has put his case both here and below on the footing that the cover provided by the clause 4.1 of the policy is co-extensive with the liability of the insured, whether that liability be tortious or contractual. The only limit on the extent of the cover is that which derives from any limitation on the insured's liability to a third party, so long as (in a case such as this) there is loss of or damage to property, meaning something physical, within the Territorial Limits, which gives rise to the liability.

That construction was rejected in the court below. The judge concluded that clause 4.1 provided for an indemnity against the claimant's liability for damages in respect of the physical damage done by the collapse of the ceiling in cinema 6, for example to seats, carpets and decorations, and to "the economic consequences of that physical damage", such as the loss of profits caused by the closure of cinema 6 itself: see paragraph 70 of the judgment. But he did not accept that damages for profits lost as the result of the closure of the rest of the complex were damages "in respect of" the damage to material property which had occurred. He went on to say this:

“74.

Horbury (in my view correctly) concedes that if the faults in the suspension system for the ceiling of cinema 6 had been discovered before any collapse, and the collapse had been prevented, Hampden would not be liable for Horbury having to pay damages for profits lost by closing cinema 6. Moreover, of course, Hampden would not be liable if, in such a case, the rest of the complex had been closed to see if the faults were repeated elsewhere, and Horbury held liable in damages for the resulting lost profits. That must be because, in relation to both cinema 6 and to the rest of the complex, and independently of clause 5.3, such damages would not be in respect of damage to material property. Indeed, ex hypothesi there would have been no damage to material property.

75.

In the present case there was damage to material property in and about cinema 6. Damages for profits lost as a result of closing that cinema would be, as Hampden (in my view correctly) concedes, damages in respect of damage to material property. But the closure of the rest of the complex was not itself damage to material property. Nor was it the consequence of damage to material property. It was the consequence of a prudent and foreseeable decision or instruction to close the whole complex until the faults that had resulted in the collapse that had caused damage to material property were discovered; until the rest of the complex had been inspected to see if similar faults existed elsewhere; and until any necessary remedial works had been completed.

76.

As Hobhouse L.J. said in Rodan [Rodan International Ltd -v- Commercial Union [1999] Lloyd's Rep. I.R. 495] in words I regard as equally applicable to the policy in the present case:

“A products liability policy in which the cover provided is defined in words such as those used in the present policy is confined to liability for physical consequences caused by the commodity or article supplied.

The closure of the rest of the complex was not such a consequence. Thus it does not seem to me that lost profits relating to the rest of the complex are any more covered by the policy when the ceiling in cinema 6 has actually collapsed than when the faults have been detected in time to forestall such a collapse.”

77.

Finally it seems to me clear that under the policy Hampden's liability to Horbury is not intended to be co-extensive with Horbury's liability to third parties. The policy contemplates circumstances in which Horbury will be liable to third parties, but Hampden will not be liable to Horbury: for example where Horbury has to pay damages pursuant to an exclusively contractual liability.”

That reasoning is now criticised by the claimant. It is argued that the words "in respect of" in the phrase "in respect of ... damage to Property ... caused by any Products" in clause 4.1. impose no limitation on the extent of the cover but merely identify the causal event giving rise to the insured's liability. As Mr Davidson puts it, their role is merely an identifying one, not a limiting one. It follows from this argument, as he accepts, that the policy would provide cover in respect of any liability for loss of profits arising from the closure of cinemas elsewhere in the country if that step was a prudent and foreseeable one in the light of the collapse of the ceiling to auditorium 6 in Manchester. But, it is said, the insured would probably not be legally liable anyway for such losses and that therefore provides the insurer's protection, along with the financial limit to the amount of cover under the policy.

In support of its argument, the claimant refers to two decisions of this court to which I have already referred, the Screenprint case and the Rodan case. In the former, the claimants were the insured. They had printed and varnished certain boxes under a contract with a company called LMG, which then supplied the boxes to Mars, who manufactured and sold Maltesers. Mars complained that the packaging contaminated the Maltesers and claimed against LMG. LMG in turn sought recourse against the claimants but not only for the sum which they had paid to Mars. They also claimed loss of profits on orders which would have been placed with them by Mars subsequently, had it not been for the contamination suffered. The claimants sought a declaration that their insurance policy with the defendant covered any such liability for LMG's future loss of profits.

The policy provided that the defendant would indemnify the claimants against all sums which they became

“legally liable to pay in respect of ... loss or damage happening anywhere in the world ...during the period of insurance and caused by goods (including containers) manufactured, sold supplied, repaired, altered, serviced, installed or treated in the course of the business ...”

Hobhouse LJ, with whom Aldous LJ agreed, held that the words "loss or damage" must be construed in context as something that related to a physical event. He accepted that the claimants could show that the goods they had treated had caused damage - a physical event - to the packaging and to the Maltesers. He then said this:

“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.”

Beldam LJ agreed, saying that loss or damage in the relevant clause was intended to cover physical loss or damage caused by the goods and that the type of loss now being claimed, the loss of profit on repeat orders, was not loss or damage of the physical kind usually understood by those words.

Mr Davidson emphasises that the loss in question in Screenprint was a future loss and one which did not fall within the period of insurance. Moreover, LMG had not suffered any physical damage to property, while the party which had suffered the physical damage, namely Mars, had not suffered the loss which was in issue in the proceedings. On these bases he seeks to distinguish the Screenprint decision.

In Rodan, the claimants were insured by a policy which covered product liability risks. Under the relevant clause the defendant would indemnify Rodan against liability "in respect of any Occurrence", which was defined as

“loss of or physical damage to physical property not belonging to the insured or in the charge or under the control of the Insured.”

Rodan had supplied 80 tons of soap powder which was not of merchantable quality. Liquid constituents in the powder migrated into cardboard cartons into which it had subsequently been packed by a company called Newbrite, who supplied retailers. Both the cartons and in turn the powder itself sustained damage. Newbrite successfully claimed damages against Rodan, which in turn claimed an indemnity under the policy with the defendant. The claim concerned a number of different items of loss or damage for which Rodan had been held liable to Newbrite.

This court held that the words "in respect of", in the phrase "in respect of any Occurrence", limited the cover to the physical consequences of the Occurrence. Such damages as Newbrite had recovered for future loss of profits which they would have made from selling powder over the next 18 months fell outside the scope of the policy. Hobhouse LJ said:

“They certainly do not relate to any physical consequence of the damage to the cartons in which the 80 tons were packed by Newbrite's packers. The phrase "in respect of" carries with it a requirement that the liability relate to the identified Occurrence. It is not sufficient that it should simply have had some connection with the Occurrence.

The effect of the decision of the judge to treat the words "in respect of the Occurrence" as meaning no more than "in connection with the same causes of action as gave rise to the liability for the Occurrence" transforms this cover from a products liability cover to a policy covering general contractual liabilities. A products liability policy in which the cover provided is defined in words such as those used in the present policy is confined to liability for physical consequences caused by the commodity or article supplied. The liability of the assured in damages will have to be expressed in terms of money but that liability must be in respect of the consequences of the physical loss or damage to physical property (or some personal - "bodily" - injury). 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 liability of the insurer to indemnify the assured, will extend to the totality of the loss which the third party is entitled to recover from the assured by way of damages in respect of that physical consequence. Thus, if a defective article supplied by the assured causes bodily injury to the third party disabling him or, for example, causes his premises to be destroyed by fire, the third party will be entitled to recover from the assured the full value of what he has lost which will, in the two examples I have given, include compensation for future loss of earnings. They are part of what the third party has lost as a consequence of the physical loss or injury and they are accordingly part of the liability of the assured in respect of that physical consequence.”

In the present proceedings the claimant submits that the loss of profits in respect of the complex as a whole falls within the interpretation spelt out by Hobhouse LJ. That loss is one which arises as a consequence of the damage to cinema 6 and that is sufficient to bring it within the scope of the policy. The damage to cinema 6 was physical damage and the loss of profits from the complex as a whole, insofar as it was not directly caused by the collapse in cinema 6, was the result of a prudent and foreseeable reaction to that collapse. It should be regarded therefore as covered by the policy.

I cannot accept these arguments. While the wording in clause 4.1 (set out in paragraph 10 of this judgment) is not identical to those under scrutiny in the Screenprint and Rodan cases, it is as the claimant recognises very similar, and both parties regard those decisions as of relevance to the present issue. It is to be observed that in Rodan this court clearly regarded the words "in respect of" in the relevant clause as having a limiting effect on the extent of the cover and not merely as identifying the causal event, the occurrence. As Hobhouse LJ emphasised, it is not sufficient that the liability should simply have some connection with that causal event. In the present case, the loss of profits deriving from the closure of the rest of the cinema complex is not itself physical loss or damage, any more than the cost of repairing defects found in other ceilings would be. The claimant's case has to rest on that loss of profits having been caused by the collapse of the ceiling to cinema 6. One has therefore to consider the concept of causation in circumstances such as these.

In the Rodan case the court was concerned with a products liability policy, as are these proceedings. That policy, a contractual document, provides the context in which any concept of causation has to be considered. While I can see that in one sense the collapse of ceiling 6 "caused" the closure of the rest of the complex, within the context of this policy the cause of that widespread closure was the concern of AMC about the possibility of similar defects in ceilings in the other cinemas, just as in Screenprint the cause of the loss of goodwill was Mars' decision not to place further orders with LMG. To approach causation in any other way would, in the words of Hobhouse LJ in Rodan, transform this cover from a products liability cover to a policy covering general contractual liabilities.

It was the possible existence of defects in the construction of other cinemas in the complex which led to their closure, not physical damage to those other cinemas. Such defects might have been discovered without any damage being caused to cinema 6 or elsewhere and, as Mr Davidson accepts, in such circumstances liability for the closure of the complex as a whole would have fallen outside the scope of this policy. I cannot see that the mere fact that it was the collapse of cinema 6 which triggered AMC's concerns, rather than the discovery of a defect in a ceiling somewhere in the complex, can bring the losses flowing from the closure of the complex within the terms of the policy. What this policy does cover is liability for the physical consequences of the collapse of cinema 6 and such economic losses as were caused (in the sense described above) by that physical damage. That does not embrace the losses resulting from the wider closure.

I am reinforced in this conclusion by two further considerations. First, I regard it as extremely unlikely that the Insurer under this policy has chosen not to use the contractual terms of the policy to limit his liability to the insured but instead to rely simply on the general law as to the liability of the Insured to a third party, together with the financial limit to the total cover provided. Yet that is implicit in the claimant's argument. Secondly, when one is seeking to discern the intention of contracting parties in a case such as this, one is entitled to assume some knowledge of the law on their part. It is not for this court to reach a decision on the basis or extent of the claimant's liability to AMC or Galliford. But I cannot help observing that a contractor is not liable in tort to the buyer or occupier of a building if a defect is discovered before any personal injury or physical damage is caused by the defect. The cost of repairing the defect is pure economic loss and not recoverable in tort: D and F Estates Ltd -v- Church Commissioners [1989] A.C. 177, 206; Murphy -v- Brentwood District Council [1991] 1 A.C. 398, 475. It is only if the defect itself causes damage to other property that damages may be recovered by an action in tort, along with economic loss flowing from the physical damage. It is therefore again highly unlikely that these contracting parties were seeking to provide for cover that would extend to liability for the losses flowing from the closure of the rest of this complex because of possible defects in the structure. As for any contractual liability of the insured, the cover in respect of that is limited by clause 5.3, set out in paragraph 10 of this judgment.

In my view the reasoning of the judge below was sound and his conclusion was right. I would dismiss this appeal.

I agree with Keene LJ's judgment. I wish specifically to endorse his observations in paragraph 13 regarding the general undesirability of the procedure which the claimant asked the court to undertake in this case. As it is, it has been possible, making the assumptions that the claimant asks the court to make, to conclude that none of the proposed declarations should be granted. But there could and would have been considerable difficulty if it had been necessary to distinguish between different types of claims by different persons. Further, courts should be cautious about adjudicating upon the basis of what may prove to be artificial and inaccurate assumptions. Their role is to resolve actual not hypothetical issues. Care is also required to avoid situations arising in which, after an unfavourable adjudication on one set of assumptions, a party could advance another factual or expert case to try to avoid or circumvent the outcome of the initial adjudication. That said, it is understandable that an insured should wish to try to ascertain at an early stage the extent to which it may have liability insurance cover against both actual or potential claims, even though their nature, validity and/or size have not yet been ascertained by any judgment, award or agreement. But it is necessary for the court to discriminate carefully between situations where it is and is not appropriate to undertake the task.

The right to indemnity under a liability insurance only arises in law as and when the insured's third party liability has been ascertained and quantified by judgment, award or agreement: Post Office v. Norwich Union [1967] 2 QB 363; Bradley v. Eagle Star [1989] AC 957. However, the court has jurisdiction to grant declarations as to the extent to which valid and applicable cover exists under such a policy in proceedings brought by the insured against the insurer before the insured's third party liability has been finally determined: Brice v. Wackerbarth [1974] 2 Ll.R. 274; Du Pont v. Agnew [1987] 2 Ll.R. 585, 595; and cf Thormann v. New Hampshire [1988] 1 Ll.R. 7. Whether it will do so is ultimately a matter of practicality and convenience: see the judgments in Brice v. Wackerbarth. But it is notable that in all these cases the third party had at least defined its claim by the issue of proceedings. Here, that was not so, and none of these cases comes close to the present.

In Brice v. Wackerbarth, the issue was whether the insurers could properly and conveniently be joined as third parties in the proceedings being pursued by the third party claimant. The fact that the insured's liability would be ascertained in the same proceedings as the insurers, and so in a manner binding in all respects on the insurers, was a positive reason why it was convenient to allow the insurers' joinder. In the present case, the fact that no third party claim has been issued or even made, and that its basis or merits cannot be determined or known in the present proceedings, works in an opposite direction.

In Du Pont v. Agnew Du Pont's liability to the estate of the third party, Mr Chelos, had been ascertained by a judgment in an Illinois suit, but Du Pont's insurers were advancing defences to the effect that there had been no relevant "occurrence" in policy terms (because, it was said, Du Pont had deliberately marketed the drug which injured Mr Chelos with utter indifference or conscious disregard of the safety of its users), that a policy exception applied and that public policy excluded any insurance recovery. In addition, the twelfth defendants were second excess layer insurers, whose potential liability depended on Du Pont's liability to Mr Chelos's estate exceeding a certain amount. The Illinois judgment was under appeal, and the twelfth defendants objected to the pursuit against them of English proceedings seeking an indemnity on the ground that the appeal might lead not only to alteration of the characterisation of Mr Chelos' claim, but also to reduction of its quantum below the level of their excess layer. However, this court considered that there was a sufficiently "serious and existing lis" between Du Pont and the twelfth defendants to justify the issue of the English action.

Thormann v. New Hampshire was a case where the third party claim had only been defined by a separate writ and Scott Schedule. The court nonetheless determined the position between insured architects and their insurers under two insurance policies. The insurance issues were as to whether either and if so which of two sets of insurers was responsible for certain complaints which had been made against the architects. One of these insurers also raised a defence of non-disclosure. The former issues turned on policy construction in the light of the claims as made by the third party claimant, not on whatever liability might ultimately be found to exist as between the insured and the third party claimant. The issue of non-disclosure was also independent of whatever liability might ultimately be found to exist to the third party. So the case was very different from the present, where no claim has even been advanced (let alone adjudicated upon) and the court is asked to make declarations as to the scope of indemnity cover against liability that may ultimately be established.

Having said that, the assumed facts did present a relatively clear-cut choice between two different analyses of the scope of the insurance indemnity, and the judge was in the event able to reach a positive conclusion about its scope. Despite my slight misgivings about an adjudication on facts which have not been admitted or agreed and which might prove inaccurate and so hypothetical, I consider that it was and is right to hear the appeal on its merits and, having done so, to express our agreement with the judge's conclusions.

With regard to the merits, I agree with Keene LJ's reasoning and conclusions. The insurance was against liability "in respect of" loss of or damage to property. Save in respect of cinema 6, the complex was closed not by virtue of damage, but because of a need for inspection and in some cases remedial work. The damage in cinema 6 was no more than the factor which brought that need to light. The appellants' case would introduce an illogical aspect to the indemnity. If such a need came or was brought to the appellants' notice, for some reason other than damage, i.e. before any ceiling collapsed, there would be no indemnity against the cost of inspection and making good. There would be no damage at all, and the policy is not against general contractual liability. It would not be necessary to look to policy exception 5.4 quoted by Keene LJ in his paragraph 10. But, if the same need were brought to their notice by the slightest damage in only one ceiling, there would, on the appellants' case, be general cover for such cost. Even if one accepts the appellants' submission that such liability could be limited to the same complex, or possibly to the same supply of "Products" as defined in the policy, the result would be capricious. I would add that the existence of policy exception 5.4 seems to me, if anything, a pointer towards to the proper understanding of the indemnity in this sense, rather than a provision which lends the appellants' case any support or attraction.

I agree with both judgments.