Bennett (T/a Soho Pizzeria) v AXA Insurance Plc

Mr Justice Tomlinson

1. The Claimant is the managing partner in a business known as “Soho Pizzeria.” The partnership is the lessee of premises at 16-18 Beak Street London W1 at which it operates a pizza restaurant. The Defendant insured Soho Pizzeria in respect of the restaurant business carried on at those premises for 12 months with effect from 19 December 2000 under a combined all risks policy which afforded cover in respect of material damage, business interruption, money, employer’s liability and public liability.

2. In the early hours of Wednesday 11 April 2001 the restaurant was severely damaged by a fire which developed after the restaurant had closed at the end of the previous evening’s trading. In consequence the restaurant was unable to reopen for business until 8 October 2001. It is agreed that, subject to his establishing that the Defendant is liable to indemnify him, the Claimant in right of the partnership is entitled to recover £94, 336.21 under the material damage section of the policy and £195,640.00 under the business interruption section of the policy, a total of £ 289, 400.21.

3. This is an all risks policy which by its terms makes clear that which would otherwise be axiomatic, that fire is one of the principal insured perils envisaged by the parties thereto as requiring and as being afforded cover.

4. There is no suggestion that the fire was started deliberately, let alone with the connivance of the insured, so that the Defendant insurer is liable in respect of the agreed loss caused by the admitted fire unless it can successfully invoke the protection of some provision of the policy which exceptionally excludes liability or bars the claim in respect of the operation of this paradigm insured peril.

5. The insured does not rely on General Condition 6, applicable to all sections of the insurance, which provides that the insured shall take all reasonable precautions to prevent the loss, destruction or damage (sic). The only provision relied upon by the Defendant is the so-called “ Waste Clause,” Clause GO3 which is added as an endorsement to the Material Damage Section. That clause provides: -

“ Waste Clause

It is warranted that

(a) all greasy cloths will be placed in lidded metal bins

(b) all trade waste be swept up and bagged daily following or

by the end of the day’s trading and removed to a secure

waste disposal area or designated storage building pending

removal from the premises.”

Since Clause GO3 is expressed in terms of warranty it in turn is subject to General Condition 13 which provides, so far as material:-

“ Warranties

Every warranty to which this Policy or any item thereof is or may be

made subject shall from the time the warranty attaches apply and

continue to be in force during the whole currency of this Policy. Non-

compliance with any such warranty in so far as it increases the risk of

loss destruction or damage shall be a bar to any claim in respect of

such loss destruction or damage…”

6. It is accepted by the Claimant that if there is a relevant breach of the waste warranty it is effective to bar the claim not just under the Material Damage Section but also under the Business Interruption Section. That is because by virtue of Indemnity Clause A in the Business Interruption Section liability under that section is contingent upon liability under the Material Damage Section.

7. The onus is on the Defendant insurer to prove a relevant non-compliance with the Waste Warranty. This the Defendant has attempted to do by adducing expert evidence and inviting the drawing of appropriate inferences. The most important inference which the Defendant invites the court to draw is that trade waste was left in a waste bin in what has been called the preparation area after the staff left and locked the restaurant at about 0030hrs on 11 April. That inference in turn is dependent upon a finding that the fire started in the relevant waste bin. The Defendant does not seek to prove that the waste bin contained anything (apart from a Westminster City Council polyethylene bin liner) other than by proof that the fire started in the bin and by the drawing of the inference therefrom (a) that the bin must therefore have contained both combustible material and a source of ignition and (b) that at any rate part of the contents of the bin must realistically or is most likely to have been trade waste.

8. The Claimant has no positive case as to the manner in which the fire started. He joins issue with the suggestion that the fire started in the bin but, even if it did, he denies that the inference to be derived therefrom is that the bin contained trade waste or any significant trade waste. Even if the bin did contain trade waste he denies that that without more is indicative of a non-compliance with the waste clause, since he contends (a) that sweeping up, bagging and removal was required to be carried out daily and it had been carried out, there being no requirement to ensure that the bin was empty when the premises were vacated and (b) that the relevant bin was itself secure or was within a secure waste disposal area and that the trade waste was there pending removal from the premises. In any event the Claimant denies that any proved non-compliance with the Waste Clause significantly or perceptibly increased the risk of loss, destruction or damage by fire so as to bring about the barring of the claim. He contends that General Condition 13 should be read subject to the implied qualification that an increase in risk which is only de minimis does not bring about barring of a claim.

9. Mr Arthur Ankrah was the General Manager of the restaurant on the evening of 10 April and until closing. The Head Waiter was Mr Andreas Nasiopoulos. According to the Claimant’s solicitors, who apparently obtained the information from reliable records, the chef on duty after 10pm was Mr Roberto Rivera although Mr Nasiopoulos remembered the chef as being called Sean. This is perhaps unimportant as the chef almost certainly left the restaurant before the other staff – probably at midnight after which time no new customers were admitted. The other two waiting staff were Stephie Carlucci and Natasha Nicolic. According to the Claimant’s solicitors the Kitchen Porter or Kitchen Assistant on duty was Javier Zurtuza Falcon who had been employed since May 2000. However Mr Ankrah could not remember who was the Kitchen Porter on duty that night. Mr Nasiopoulos remembered the Kitchen Porter as being a Spanish speaker called George who is not apparently an alter ego of Mr Falcon. Mr Nasiopoulos is a smoker who would often have a cigarette at the end of a shift. Stephie Carlucci was apparently at the time attempting to give up smoking. Nastasha Nicolic was a non-smoker. There is no evidence either way on the question whether Mr Ankrah is or was a smoker, still less as to the habit of whoever was the Kitchen Porter. There was a staff table located not far from the preparation area at which the staff were permitted to smoke.

10. On the night in question the last customer arrived at about 2320. By midnight there were only 6 customers at 3 tables, all of whom had finished eating. Bills were delivered to their tables between around 0010 and 0020. Empty tables were cleared and wiped as they were vacated, but the final clearing process including sweeping of the floor was not begun until after the last customer or customers had left. Since all the staff had departed by 0030, notwithstanding they were paid to work until 0100, it follows that the final cleaning and clearing up process may have occupied as little as 10 minutes or even less, if the last bill was delivered at 0020 as Mr Nasiopoulos thought.

11. To the south east of the eating area was the preparation area. There under a steel work surface was located a plastic waste bin behind double doors. I shall hereafter call this bin simply “ the bin” in order to distinguish it from other bins to which I shall have to refer. The doors were not full height, but left a gap of three to four inches at the top through which waste was introduced into the bin. To the right or south of the bin, but at the level of the steel work surface, was an access hatch through to the kitchen. The work surface in fact continued through to the kitchen. As a matter of routine left over food and napkins would be placed into the bin. So too would some of the sweepings from the floor, although some of those sweepings would find their way to a different bin in the bar area, no doubt because that was more convenient for sweepings derived from that part of the eating area which was closer to the bar area than to the preparation area. Subject to two possible exceptions all other rubbish or waste collected from the eating or preparation area would be likely to find its way into the bin in the preparation area. In principle empty bottles were taken by the Kitchen Porter into the kitchen, or passed through the access hatch for receipt by him in the kitchen, and placed into a separate bin pursuant to a recycling policy. However when that recycling bin became over-full empty bottles would be placed in the bin in the preparation area. I infer that this often happened because the practice was for the male waiting staff to take out the bin liner when full as it could be heavy, particularly if it contained bottles. Full bags or bin liners were as a matter of practice taken out through the side entrance to the premises and placed in Upper John Street for collection by Westminster City Council. Apparently this collection is usually carried out in the early hours of the morning. The second possible exception concerns the contents of ashtrays. In principle the system was that ashtrays from the tables were stacked up by the access hatch, collected by the Kitchen Porter and emptied into the kitchen bin. This system was adopted because the kitchen waste was predominantly wet or non-combustible. It is not credible that this system was infallible. The denial by Mr Nasiopoulos that, just as bottles might find their way into the bin, so too might discarded cigarette ends was, I am sure, sincere but it was nonetheless implausible. Subject to a point about the definition of trade waste however, this point is academic. Since, as I shall discuss hereafter, the seat of the fire was in the bin, it is an inescapable finding that the bin had within it a source of ignition and it is equally an inescapable inference that that is most likely to have been a discarded cigarette end. Indeed there is no other realistic contender. It need not have come from an ashtray on one of the tables.

12. As I have already remarked all of the staff had left the restaurant by 0030, and the doors had been locked. Mr Nasiopoulos said in evidence that he was confident that the bin was empty that night because he took the rubbish bag out to the pavement himself. I should add that the practice was when removing a full or partially full bin liner to pull up another bin liner from the bottom of the bin where one or two may have been kept for that purpose or to take another from the drawer next to the bin or from the store room and to install it in the bin. The confidence of Mr Nasiopoulos that the bin remained empty (apart from a new liner) after he had taken a bag out to the pavement stemmed from the fact that he believed that there would have been no reason for anybody to have put any further rubbish in the new bin liner because no more rubbish would have been taken to that area. That is a flimsy basis for the expression of confidence that the bin was empty, as is Mr Ankrah’s reliance upon his usual routine of checking all the bins to see that they were empty and his own confidence in the reliability of his staff. In any event since the seat of the fire was in the bin there must have been within the bin not just a source of ignition but also combustible material in a sufficient quantity both to sustain a smoulder and to support the transition to flaming combustion. A scrumpled table napkin or napkins would provide the perfect substrate for this purpose.

13. The fire was noticed and the alarm given at 0137 by bouncers at the Upper John Street side door at which location there is a separate door serving club premises in the basement. The fire was extinguished by the fire brigade. Inevitably the activities of the brigade caused some rearrangement or disturbance of the debris.

14. Miss Rebecca Pepler, a forensic scientist who was then an associate in the firm of Dr. Burgoyne and Partners attended the premises on the afternoon of 11 April 2001 in order to conduct an investigation into the cause of the fire. She is now a Senior Lecturer in forensic science, fire investigation, ballistics, firearms and inorganic chemistry at Anglia Polytechnic University and she is an independent consultant in forensic fire investigation. She gave evidence before me. Miss Pepler’s investigation was conscientious and her evidence was on every point clear, cogent and convincing. Her evidence was tested in cross-examination but not contradicted by other expert evidence. Miss Pepler concluded from her examination of the physical evidence that the fire had started within the bin cupboard. The severity of fire damage within the bin cupboard coupled with the char patterns on the doors, in particular the contrast between the depth of char on the external surfaces of the doors as compared with that on the internal surfaces, the latter being much greater, and the damage to the floor tiles inside the cupboard compelled that conclusion. There was no evidence to suggest that there had been within the bin cupboard prior to the fire anything other than the bin itself, plus its contents, whatever they were, and indeed there was evidence to the effect that there ought not to have been anything else present in the bin cupboard apart from the bin and its contents. The inference is inescapable that the cause of the fire was associated with the contents of the bin. A bin bag alone would not provide a sufficient substrate for the initiation of smouldering combustion from a lit cigarette because the polyethylene substrate is not capable of forming a rigid char. The overwhelming likelihood and the only realistic common sense conclusion is that there was present in the bin before the fire both at least one discarded lit cigarette end and one or more paper napkins or similar material in a quantity and orientation sufficient to sustain a smoulder and permit a transition to flaming combustion. It is overwhelmingly more likely that the combustible substrate was a paper napkin or napkins than any other waste first because paper napkins would be the perfect substrate and second because the bin was the prime receptacle for used and scrumpled napkins. It would however make no difference to my ultimate conclusion if the combustible material had been newspaper or even a tissue or tissues used by a member of staff to blow or wipe his or her nose.

15. The next question is whether these findings lead to a conclusion that there was non-compliance with the Waste Clause. This is a clause which appears in the Material Damage Section. Its purpose must be deduced from its context. Thus its purpose is not to prevent tripping accidents which might give rise to liability under the Employer’s Liability Section. Nor is its purpose vermin or pest control. If it were it would seem likely that it would first direct itself to ensuring that no foodstuff was left out and available to pests. But in any event the policy expressly excludes liability for damage caused by, or consisting of, vermin or insects. I have little doubt that the purpose of the clause is to afford to underwriters a measure of protection against the risk of fire occurring whilst the premises are unoccupied. Although that purpose might perhaps be more clearly advertised or enunciated and although the clause is in many respects puzzling it is difficult to see what other purpose can in fact be intended to be served. Fire is one of the principal and most significant risks covered and the most serious fires are usually those which are initiated when premises are unoccupied. Furthermore, given the context of material damage and the fact that damage caused by vermin or pests is in any event excluded, it is simply impossible to see what purpose is served by the warranty as to greasy cloths being placed in lidded metal bins other than the prevention of auto-ignition or self-heating. According to the evidence this can certainly occur when for example linseed oil or teak oil is dispersed on a cloth and it is no doubt possible with other similarly constituted oils or greases. A lid excludes oxygen and a metal bin would require an exceptionally high temperature before it melted and permitted the spread of fire. The purpose of sub- clause (b) is less obviously the prevention of fire whilst the premises are unoccupied but it is impossible to attribute any other sensible purpose to this sub-clause appearing as it does in the Material Damage Section of the policy.

16. This conclusion helps to inform the proper construction of the clause, which is as I have already observed not without its difficulties. Ambiguity must be construed against the interests of the insurers, but I must strive to give the clause a sensible meaning and content if I can. I have already concluded that it is overwhelmingly likely that there was in the bin one or more paper napkins. On any showing that must be trade waste. However I would if necessary conclude that all waste generated by the trade carried on at the premises is trade waste. Trade waste in this context is waste which has been generated in the ordinary course of trading from trade premises. It is not therefore for example building waste, but it would surely include the customer’s discarded Evening Standard as much as the chef’s discarded newspaper – it would be absurd and unworkable to have one regime for the one and another for the other. Likewise trade waste would include a bunch of flowers brought in by a customer and discarded just as much as flowers used to decorate the tables. Again, it would be unreal to distinguish between the two. I have no difficulty in regarding as trade waste a tissue used by an employee to blow or wipe his or her nose. A tissue discarded after being used by a customer for that purpose must be trade waste and it would be absurd to draw a distinction between such a tissue and one used by an employee. The employee is only present on the premises in order to pursue or facilitate the carrying on of the trade. The individual detritus generated by those carrying on the trade must realistically be regarded as trade waste. In this context there is no hard and fast distinction between generic waste and trade waste. No doubt the waste is described as trade waste because this is a policy offered to traders.

17. I reject the suggestion that only that which is capable of being swept up and bagged or which originates from the floor is the subject matter of sub- clause (b). It would be circular and absurd to conclude that trade waste is only that which is or is capable of being swept up and bagged. The paradigm restaurant trade waste, food left over on plates, will never ordinarily be “swept up” although it may be “swept off” the plates. As Mr Vineall for the Defendant observed, “and” can often mean “and/or.” Here the context requires it to bear the wider meaning.

18. I reject also the suggestion that the sub-clause generates only a periodic obligation which must be performed once daily between trading periods. I agree that more clear words could have been used to spell out that the obligation is required to be performed before the premises are vacated overnight, but there is in my view no real ambiguity. The only sensible purpose of requiring removal of the waste to a secure waste disposal area or designated storage building can be to reduce the potential for it to give rise to damage whilst the premises are unattended, including the elimination or reduction of the risk of intervention by third party arsonists giving rise to material damage to the insured premises. Typically a safe disposal area or designated storage building will be perhaps some area or structure within the curtilage but distinct from the trading area such as a fenced and locked bin enclosure at the rear of the building. It would emasculate the provision to suggest that the required exercise could simply be carried out once daily between trading periods. In any event the natural meaning of the words “daily following or by the end of the day’s trading” is either that it will be done immediately after trading has ceased or that it will be commenced before the end of the day’s trading and completed by or shortly after the time trading has ended. In the context it is not in my view sensible to suggest that compliance could be achieved by sweeping, bagging and removal, and I stress removal, immediately before the next day’s trading.

19. The practice, and the object sought to be achieved by the system which was in fact here in place, was to remove all trade waste in bags into Upper John Street to await the municipal collection. This was to be done and ordinarily was done before the premises were vacated and secured by the staff. These premises did not themselves offer a secure waste disposal area or a designated storage building. In such circumstances I do not consider that the underwriters could have asserted that the removal of bagged trade waste to the street amounted to non-compliance with the clause. Removal of the waste so that it no longer presents a threat to the premises is perhaps the touchstone of the clause. At all events removal of the bags to the street would not be a relevant non-compliance such as would bar a claim because it would not increase the risk of material damage being caused to or in the premises. I cannot regard either the bin or the cupboard space under the steel work surface as being itself a secure waste disposal area. Neither a bin nor such a space would ordinarily be so described. It is obvious that removal to a secure waste disposal area is intended to afford to the insurers some additional protection pending final removal from the premises and moreover additional protection, as I think, against fire whilst the premises are unoccupied. Neither the bin nor the area underneath the work surface offers any such protection. Whilst the street is hardly a secure waste disposal area either, the waste having been removed there offers no further or no further significant risk to the premises.

20. By the same token there is no need to read into the waste clause a “de

minimis” exception so as to permit the insured to leave insignificant quantities of trade waste, such as, as was given by way of example in argument, a single pea, in the trading area overnight. Such a non-compliance would not increase the risk of loss and would therefore by virtue of General Condition 13 be irrelevant.

21. If there had here been compliance with the waste clause the relevant waste would have been removed to the street before the premises were vacated. The practice in place was designed to bring about that result. It must therefore follow that the non-compliance which I have found here occurred did increase the risk of loss or damage caused by fire – had there been compliance there would have been no risk of fire starting in trade waste because none would have been on the premises, or at any rate not in sufficient quantities to support flaming combustion. It is I think nothing to the point that one could hypothesise that a secure waste disposal area could be on the premises and could be an area within which a fire might have started. The fact is that in relation to these premises there was no such area. Compliance with the clause in the manner which the Claimant and his staff were striving to bring about, notwithstanding their ignorance of its existence, would have eliminated the particular risk, viz, the risk of a fire breaking out in trade waste left on the premises overnight. The Claimant relied upon reports of bench tests, referred to by Miss Pepler, in which only four transitions to flame were recorded out of three hundred instances of discarding a lit cigarette in filled office and restaurant waste bins. It was suggested that a four in three hundred probability does not represent a significant increase in risk. Miss Pepler pointed out that it is in fact extraordinarily difficult if not impossible to replicate under controlled conditions the conditions which may have obtained in the bin having regard to the factors which are unknown – contact intimacy, draught, orientation and the porosity and density of the substrate. From this it is apparent that four in three hundred is not an accurate reflection of the probability of fire introduced by the failure to remove all trade waste from the premises. I am afraid that it is inescapable that the breach of warranty did here increase the risk of fire. Had the Claimant and his staff achieved what they set out to achieve there would have been no risk of fire starting in what would have been an empty bin.

22. In a plea ad misericordiam in his final reply Mr Heather suggested that the Claimant had complied with the spirit of the policy, although he was in fact unaware of the existence of the warranty, that the Defendant underwriters were relying upon a technicality and that it was unjust that someone who was as the Claimant was running a tight ship should in such circumstances be denied an indemnity by his underwriters. This plea serves only to demonstrate how uncertain a guide is sentiment in determining a claim of the sort which is before me. Naturally I have great sympathy for the Claimant, an honest businessman who finds himself without insurance cover notwithstanding his evidence as to the measures he took to put into place a proper system designed to ensure the tidiness and cleanliness of the premises was unchallenged. That is no doubt why the insurers did not suggest that the insured had failed to take reasonable precautions to prevent the loss and damage which in fact occurred. Sympathy for a large corporate insurer is less obviously felt, but by inclusion of the waste clause in their policy these insurers made clear that payment of a claim in circumstances such as I have been compelled to find here existed was not the bargain which they made. Warranties in an insurance policy are draconian in their effect, albeit General Condition 13 here requires underwriters to demonstrate an increase in risk brought about by non-compliance before that non-compliance can be relied upon as barring the claim. It is not altogether surprising that non-compliance with a warranty as to the existence and content of which both the insured and his staff were in ignorance should lead to failure of the claim.

23. For all these reasons the Claimant’s claim fails and must be dismissed.