Tioxide Europe Ltd v CGU International Insurance Plc & Ors

The Claimant (“Tioxide”) seeks an indemnity from the defendant insurers who subscribed to excess layer insurance policies of “claims made” liability insurance for the policy year 30 June 1996 to 30 June 1997. The indemnity claimed is in respect of all claims which have been made or which may in future be made against Tioxide (until 30 June 2007) arising from the “pinking” of uPVC products manufactured and sold by others which included in their formulation a titanium dioxide pigment supplied by Tioxide.

Insurers on the primary layer (shortly described as ICHEM and RSA) and certain insurers on the first excess layer (ICHEM, RSA and Basler) have confirmed cover and made payment to Tioxide.

Insurers contend that Tioxide’s claim is not within or is excluded by the terms of the policies on grounds which for introductory purposes can be summarised in three general isues. First, that the claim is not within the scope of the cover because the claims against Tioxide are not “on account of Property Damage” nor is the claim for “Loss” (“an accident”) within the meaning of the policy definitions. I refer to these as “Coverage Issues”. Second, it is said that the policy provisions, on which Tioxide relies, whereby claims made against it subsequent to the policy period in respect of losses occurring prior to or in the 1996/7 policy year, can nonetheless be brought within the cover by operation of a “Loss Notification Option” (The “LNO”), are inapplicable for a number of reasons. I refer to these as “Notification Issues”. Third, it is alleged that the claim is precluded by reason of Tioxide’s knowledge that claims were likely to be made against it for pinking at the time it made the or some of the relevant supplies of the pigment. The oral evidence was substantially addressed to this ground of defence. I refer to these as “Knowledge Issues”.

By Order dated 3 October 2003 Simon J directed the trial of 13 issues raised by the three general issues to which I have referred. It should be recorded that the claims made against Tioxide by those to whom it supplied the pigments have not all been resolved and remain contested particularly on the ground that the pigments were not the cause of the losses claimed. Hence the List of Issues includes certain assumptions on which the issues are to be addressed. Whether or not those assumptions are correct and matters of quantification are for a “Part II” trial should that be necessary. The List of Issues and Assumptions is attached to this judgment. Issue 17 is no longer “live” and can be ignored. I propose to address the general issues as I have described them before commenting on the listed issues.

Tioxide manufactured two grades of white titanium dioxide pigment, R-TC30 and R-TC4. They were supplied for use in the manufacture of u-PVC compounds which in turn are supplied for use in the manufacture of white rigid u-PVC products for outdoor use such as door and window frames.

The presence of R-TC30, or R-TC4, in the u-PVC products has caused the discolouration (or “pinking”) of the products in use in certain environmental conditions in the manner described in the “Technical Case” pleaded by one of the claimants (“EVC”) in its claim against Tioxide. Tioxide has settled the EVC claim and another claim brought against it by “Premier Profiles”. This court is to assume that Tioxide was liable in law to both EVC and Premier Profiles for loss and damage suffered by them by reason of the pinking and that it is, contrary to its case, also liable to the other claimants against it for such loss and damage.

The “Technical Case” to be assumed is a substantial and indeed highly technical document of 23 pages of text and a number of photographs. It does not readily lend itself to a colloquial summary. The “introduction” makes it clear (in effect) that the mechanism by which pinking is caused applied equally to the pigments R-TC30 and R-TC4. The “factual background” records that the Tioxide pigments have a core of titanium dioxide coated with an alumina-silicone coating. EVC’s u-PVC compounds contained lead-based stabilisers and lubricants. Pinking requires ultra-violet light for it to develop. “It is therefore inherently likely that a photo-active or photo-catalytically-active component within the compounds plays a role in the formation of pinking”. “The principal component within the u-PVC formulation which absorbs and is photo-activated by ultra-violet radiation from natural daylight is the titanium dioxide pigment. The pigment is therefore inherently likely to play a role in the formation of pinking”.

“The Theory” or mechanism by which the pigments cause pinking can, I hope sufficiently, be said to be that electrons within the titanium dioxide absorb photons of energy from the ultra-violet light which produces electrons and positive charge carriers in the titanium dioxide core. These electrons and positive charge carriers will react with “scavengers” such as water, oxygen and organic species creating “free radicals and associated oxygen species” which themselves combine with lead ions in the stabiliser to produce pinking. The alumina-silicone coating of the titanium core is intended to retard this process by reducing the photo-catalytic activity to as low a level as possible. But with Tioxide’s pigments, in contrast to the pigment of its major competitor, Kronos (known as Kronos 2220), the photo-catalytic activity remained high. That was because the coating was either very thin or “inhomogenously distributed” or both. It should be noted that this “Technical Case” was first put forward by the expert instructed by EVC in late 2002.

To quote Tioxide’s skeleton argument, titanium dioxide pigments:

“give a white colour to the uPVC compound and are intended to help to maintain its whiteness in outdoor weather conditions. The difference between the grades is in the quality of the whiteness they produce: R-TC4 produces a creamy white, whereas R-TC30 is a more blue white. Tioxide began manufacture of R-TC30 in the early 1970s as a general plastics grade pigment. In the late 1970s or early 1980s it began to be supplied for use in uPVC window profiles. PVC is inherently unstable and is degraded rapidly by both heat and light. Therefore thermal stabilisers are needed which are based on metals.”

Although the dates are a matter of some debate and there is good evidence that lead-based stabilisers were originally used both before and after mixed-metal stabilisers became common, the skeleton continues

“at this time, in the late 1970s and early 1980s manufacturers in the United Kingdom and Europe used stabilisers based on mixed metal compounds containing barium, cadmium and lead (or combinations of at least two of these metals). At the end of the 1980s however, the market was moving towards using all-lead stabilisers”.

“Pinking only occurs in a tiny proportion (typically less than 1 per cent) … of all uPVC compound which has been manufactured using the (Tioxide) pigments. However, since the compound is widely used in the production of rigid plastic frames even this small incidence of pinking has given rise to very substantial claims. Claims have been made by consumers in respect of pinking against the retailers of the rigid frames; against the manufacturers of the frames; and against the manufacturers of the uPVC compounds. These claims have been passed back to Tioxide either directly by its customers or indirectly by others further down the chain of supply. These claims have given rise to 5 sets of proceedings in the Commercial Court or TCC in this jurisdiction. There are also proceedings pending in France and Ireland. The proceedings brought in England were brought by:

(a)

Hydro Polymers;

(b)

Premier Profiles Limited;

(c)

EVC Compounds Limited;

(d)

HW Plastics;

(e)

Bowater Windows trading as Halo.”

None of these claims have come to trial. All have now been settled on confidential terms. More claims may yet be made. The court has had access to the underlying papers relating to the English proceedings and confidential papers relating to their settlement.

The claim by Hydro Polymers was the first to give rise to proceedings against Tioxide. The writ was issued on 17 November 1994 and Particulars of Claim were served on 29 March 1995. The claim was settled on confidential terms in October 1997. The settlement amount was paid by excess insurers on the 1993/4 year. Hydro Polymers had purchased batches of R-TC30 from Tioxide between June 1982 and September 1989. The first complaint related to a contract for the supply of pigments made in October 1986. The basis of the claim was that Hydro Polymers had used R-TC30 in its compounds which contained all lead stabilisers, supplied the compounds to its customers for them to manufacture products such as window profiles, cladding and roofline goods for sale to end users and the products had suffered pinking “in some instances within 3 years of installation”. The claim against Tioxide included allegations that R-TC30 was “unfit for purpose” and that misrepresentations were made that R-TC30 was equivalent to the pigment manufactured and sold by Kronos which Hydro Polymers had previously used in its compounds. The technical case alleged was that R-TC30 had an excessive coating of alumina-silica. That is really the obverse of the technical case now advanced and to be assumed for the purposes of this judgment. The loss claimed was the cost of settling claims made by its customers against Hydro Polymers and loss of goodwill, business and profits.

The EVC claim (issued in July 2001) alleged that:

The Premier Profiles claim, issued in April 2002, was substantially similar in character.

Tioxide is insured under a Global Liability Policy against claims first made against it in the policy period 30 June 1996 to 30 June 1997 for an indemnity on the primary layer of £25m each loss, £50m annual aggregate, subject to a £10,000 deductible each loss without aggregate.

Tioxide has similar, but not identical, policies of insurance on a first excess layer of £50m xs £25m, £50m in the aggregate, and a second excess layer of $50m xs £75m, $50m in the aggregate.

The insurers on the primary layer are ICHEM and RSA. The insurers on the first excess layer are ICHEM, RSA, Basler and Defendants 1-14, 16 and 17 which wrote lines totalling 69.0642%. The 15^th Defendant (“Zurich”) is the 100% insurer of the second excess layer.

On 2 July 1997 (a few days after the expiry of the policy period) Tioxide purported to exercise the LNO (except for claims notified in earlier policy years) in the primary policy by sending a registered letter to RSA “with regard to the pinking problem”. The primary layer accepted the exercise of the option as effective. In January 2002, when it appeared to Tioxide that the amount of the claims for pinking was such that it would be likely to involve the excess layers, Tioxide alleges that it exercised the LNO in the excess layer policies by a fax dated 25 January sent by a Claims Controller of RSA to the brokers (“Marsh”) enclosing the letter dated 2 July 1997. Marsh were the successors to “Sedgwicks” the brokers named in the excess layer policies.

The present proceedings were issued on 1 April 2003.

In setting out the relevant parts of the wording of the first excess policy (which is materially the same wording as the second excess policy) and of the underlying policy I have underlined those passages which give rise to or affect significant issues. The emphases are therefore all mine.

Condition I provided that the Excess Policy was, except as otherwise provided, subject to the same “Insuring Agreements, Definitions, Exclusions and Conditions” as the underlying insurance.

Clause 1 “Coverage” provided:

“In the event that a claim or claims are first made, in writing, against the Insured during the period of this Policy Underwriters will indemnify the Insured for their respective proportion of that amount of [£50m] which the Insured shall be obligated to pay by reason of the liability:-

(a)

imposed upon the Insured by law,

or

(b)

assumed by the Insured under contract or agreement,

for damages on account of:-

(i)

Personal Injuries,

(ii)

Property Damage,

(iii)

Advertising Injury,

resulting from each Loss, but only such Personal Injuries. Property Damage and Advertising Injury, neither expected nor intended by the Insured, as respects the claim or claims that are first made, in writing, against the Insured during the period of this Policy.

It is agreed that a claim or claims first made against the Insured shall be the first written demand made against the Insured for money or services in respect of such Personal Injuries, Property Damage and Advertising Injury insured by this Policy and the date of a claim or claims first made shall be the first such written demand made against the Insured.”

Clause 4 provided for a “Notice of Circumstance Option” (the “NCO”) which is not material in the sense that Tioxide did not exercise this Option. The Clause provided that whenever Tioxide had “information relating to a Circumstance” which was likely to involve the policy and gave notice of it as prescribed then “any claim, as respects such Circumstance” made within 10 years of the notification was deemed to have been made when the notice was given. The clause also provided that if a Circumstance was notified to underlying insurers but not to excess insurers because it did not appear to involve the excess then, provided notice was given to excess insurers immediately it did appear the excess was involved, then the date the Circumstance was notified to the underlying insurers should be deemed to be the date it was also notified to excess insurers. In summary terms a Circumstance notified during the policy period to excess insurers would result in cover for any claim made in the next 10 years “as respects such Circumstance”, and so too claims within the next 10 years in respect of a Circumstance notified during the policy period to underlying insurers and subsequently notified to excess insurers immediately it appeared to involve the excess levels.

“Circumstance” is defined in Clause 20 of the primary policy to mean:

“a Loss, which, although it has not yet resulted in a claim or claims being made, in writing, against the Insured for Personal Injuries, Property Damage, Advertising Injury or Financial Loss, is likely to result in a claim or claims being made against the Insured at some future date.”

The definitions of “Property Damage” and “Loss” are also to be found in the primary policy but as they are of major importance to the Coverage Issues they are set out below (paragraphs 33 and 34).

The NCO only enabled the insured to give notice of a Circumstance which had not resulted in any claim. Clause 5 contained the “Loss Notification Option” (LNO) which provided a further protection for the insured in a case in which a claim had been made. The terms of the Clause are similar to the NCO but, as will be seen, not only are its precise provisions in issue but insurers submit that on the face of the wording there is a lacuna in its operation in circumstances where (as Tioxide says here) underlying cover can be made available by a claim notified within 90 days of the end of the policy period.

So far as material the LNO provided:

“The Insured may notify a Loss, …, to this Policy by sending notice of such Loss, in writing, by registered or certified mail during the period of this Policy, to [Marsh] provided:-

(1)

the Loss being notified is a Loss for which a claim or claims have already been made, in writing, against the Insured, and

(2)

the Loss is such that it is likely to involve this Policy, and

(3)

the Loss has not previously been notified as a Circumstance under this Policy or any prior policy.

In the event the Insured so notifies a Loss to this Policy then any claim which is made, in writing, against the Insured, as respects such Loss, within ten years after the applicable date shown below shall be deemed to have been first made, in writing, against the Insured on such date….

In the event the Insured so notifies a Loss to this Policy then any claim which is made, in writing, against the Insured, as respects such Loss, within ten years after the applicable date shown below shall be deemed to have been first made, in writing, against the Insured on such date.

The applicable date, as referred to above, is:-

(a)

the date of the first written demand against the Insured for money or services as respects the notified attached Loss if the date of such written demand was during the period of this Policy, or

(b)

if the date of such written demand for money or services was prior to the inception date of this Policy, the date of the notification of the attached Loss provided that it was notified in accordance with this Insuring Agreement 5.

If the Insured shall notify Underwriters of any Loss, as aforesaid, within ninety days of the end of any Annual Period of this Policy, then provided such Loss happened prior to the end of such Annual Period, Underwriters, at the Insured’s request, will deem such notice as having been given on the last day of the Annual Period immediately preceding receipt of such notification.

Notwithstanding anything contained in the foregoing to the contrary, in the event that a Loss is notified to any of the Underlying Insurer(s) stated in Item 2 of the Declarations and is not notified to Underwriters because such Loss did not appear to involve this Policy yet subsequently would appear to involve this Policy, then this Policy shall not be prejudiced, provided notice, in writing, is given to Underwriters immediately after the Named Insured is aware of this situation. If the date of such written demand for money or services was prior to the inception date of this Policy, then for the purposes of this paragraph the date of the notification of the attached Loss shall be deemed to be the date upon which the notice of the said Loss was first sent, in writing, during the period of this Policy to any of the Underlying Insurer(s) stated in Item 2 of the Declarations.

It is noted that this Insuring Agreement 5 is an option for the Insured and not an obligation and does not alter the provisions of Condition B – Reporting of Claims.”

It is the words I have placed in bold italics which give rise to the submission about a lacuna to which I have referred.

The Exclusions included, as Exclusion 3),

“This Policy shall not apply to any claim or claims:-

for … Property Damage … which is as a result of an accident, including continuous or repeated exposure to the same general harmful conditions happening prior to [29 June 1986].”

The “Coverage” provided by Clause 1(A) of the primary policy was in exactly the same wording as the excess policies save that it also covered claims made “on account of Financial Loss”. The definition of “Financial Loss” differed according to whether the insured was located in North America or elsewhere. For North America the definition expressly provided that if a claim fell within the definition it was not to be considered a claim for Property Damage (to which different limits applied). For claims by insureds in other locations the definition provided that “Financial Loss” means “a pecuniary loss, cost or expense incurred by any person other than the Insured, not arising from Personal Injuries, Property Damage or Advertising Injury”. So, submits Mr Symons QC for Tioxide, the wording assumes financial loss could arise from Property Damage and, by inference, be covered under that heading.

Clause 4 provided an NCO in the same terms (save for the provision for the claim appearing later to engage the excess layers) as the excess policies.

Clause 5 provided for the “Loss Notification Option”. It was also in the same terms as the LNO in the excess policies except for the provision for the claim appearing later to engage the excess layers and that the notice was to be given to RSA (not Marsh). The consequence, on a literal reading of the two Clauses, is that an LNO given under the primary policy within 90 days of the end of the policy period rather than during the policy period would not be effective for the purpose of the excess policies: see paragraph 28.

Definition 4 provided the definition of “Property Damage”:

“The words Property Damage wherever used in this Policy mean:-

(a)

physical injury to or destruction of tangible property including the loss of use thereof resulting therefrom;

(b)

loss of use of tangible property which has not been physically injured or destroyed.”

It is the words I have underlined on which Tioxide relies.

Definition 7 provided the definition of “Loss” which gives rise to what I think is the major Coverage Issue. It provides:

“The word Loss wherever used in this Policy, means an accident, including continuous or repeated exposure to the same general harmful conditions.”

The extent of the relevant coverage provided has, therefore, to be derived from Clause 1 read with the definitions of Property Damage in Clause 4 and Loss in Clause 7. Read together (and leaving aside the wording relevant to the timing and knowledge of claims) those Clauses grant an indemnity to Tioxide for Tioxide’s liability for a claim or claims brought against Tioxide for “damages on account of” “physical injury to … tangible property” “resulting from each” “accident, including continuous or repeated exposure to the same general harmful conditions”. Exclusion 3 provides that the policy does not apply to claims for damage to property owned by the Insured and so the physical injury must be to property not owned by Tioxide.

Exclusion 34, (like Exclusion 3 in the excess policies), provided that the policy should not apply to any claim or claims for Property Damage “which is as a result of an accident, including continuous or repeated exposure to the same general harmful conditions happening prior to” 29 June 1986 at midnight.

Condition O provided that “(Tioxide) shall take and cause to be taken reasonable precautions to prevent … Property Damage….”

The Schedule of Deductibles made special provision for claims made against Tioxide of a deductible of “£10,000 each Loss without aggregate”. It also provided for a £100,000 (Grasp) and £1m (Vincit) deductible “combined for each Loss and Financial Loss without aggregate” for property damage or financial loss arising from the supply of products known as “Grasp” and “Vincit”. Mr Symons submitted that these and other references established that the cover was intended to provide an indemnity for product liability albeit he was unable to tell the court what Grasp and Vincit were. However, the real question is not whether product liability was covered but the extent to which it was. Moreover Mr Bartlett QC, for insurers, rightly made the point that the special provision for Tioxide demonstrated that it was not intended that the cover should respond to multiple small losses however substantial their combined effect might be.

Unsurprisingly, there was little dispute as to the proper approach to be followed by the court to the construction of the wordings. Neither party sought to attribute the drafting of the wordings to the other and they represent a commercial bargain negotiated by equal parties. Equally unsurprisingly, there was more dispute about the supposed significance of various provisions of the wordings.

The general principle is that the proper construction is to be determined by the ordinary and natural meaning of the words used in the contractual and commercial setting in which the words appear. The niceties of language may have to give way to a commercial construction which is more likely to give effect to the intention of the parties.

The commercial context of these policies was that:

I think Mr Bartlett is right that a well established, if not standard, way to provide cover for a multitude of small claims is an aggregation clause for example entitling an assured to aggregate all claims from the same originating cause. These wordings do not contain such a clause unless, as Mr Symons submitted, the same effect is to be found in the definition of “Loss” read with the LNO. Moreover the fact that in the case of Tioxide there was an individually agreed deductible of £10,000 suggests that there was a deliberate decision to exclude from cover claims of that size or less which might otherwise have fallen within it.

I was also referred to a number of authorities (and commentaries) which have addressed the meaning of words such as “damage”, “on account of” and “accident” in the context of the policies and circumstances with which those courts and commentators were concerned. There are obvious dangers in borrowing from other cases and the words concerned here are ordinary English words which, in general, I do not think it helpful to seek to define further or address by reference to other words. That said, I think, in agreement with Mr Symons’ submission, “physical injury” to tangible property would normally extend to an unwanted physical change in the relevant subject matter even if the change was not permanent or irreparable, provided it did impair the value or usefulness of the subject.

“On account of” are words which are plainly intended to provide a causal link between, in these policies, the damages sought in the claim made against Tioxide and the “Property Damage” if such it be. I do not find it helpful to seek to compare other often used expressions intended to serve the same purpose such as “by reason of”, “arising out of”, “arising from” or even plain “because of”. Indeed the present wordings also use in other provisions the expressions “resulting from” (in the definition of Property Damage) and “not arising from” (in the definition of Financial Loss). The question is whether the damages are sought “on account of physical injury” to the uPVC products.

The word “accident” has been said to connote an unanticipated event or occurrence. In these wordings “accident” includes “continuous or repeated exposure to the same general harmful conditions”. The subsequent words are not expressed as an independent definition of “Loss” but rather as circumstances which are to be considered to be accidents for the purposes of the cover. That, I think, follows from the use of the word “including” in the definition of Loss.

I think the words require “general harmful conditions” of the nature of or created by an accident which themselves cause continuous or repeated exposure which gives rise to a liability upon Tioxide to those who are damnified as a result. An example would be a leak of a toxic chemical or emission of a gas which caused the continuous or repeated exposure to harm of neighbours or neighbouring property. It would not be open to insurers to say each injury was a separate accident. There would be a single accident but one with multiple consequences.

I refer to paragraph 35. To come within the cover Tioxide must show that a claim or claims have been made against Tioxide for damages on account of physical injury to tangible property resulting from an accident including continuous or repeated exposure to the same general harmful conditions. The amount of Tioxide’s liability for each “accident” must also of course exceed £10,000.

Tioxide’s case is that the “Property Damage” or “physical injury to tangible property” consists of the discolouration in the uPVC products containing the pigments: see paragraph 10(c) of the Re-Amended Particulars of Claim and paragraph 33 of the Opening Skeleton Argument of Mr Symons and Mr Nash.

If there was “physical injury”, therefore, it was to the products manufactured using compounds containing Tioxide’s pigments, not to the compounds, and it occurred at the earliest when those products were installed in environmental conditions in which pinking was liable to occur. The precise mechanism of pinking is I think of less importance: an unwanted change of colour is in ordinary language a “physical” change and, if it impairs the value of the product, in my judgment it is a “physical injury”.

I also agree with Tioxide’s submission that the wording does not require, as it could have done, that the claims made against Tioxide be claims for damages “for” or “in respect of” Property Damage. The claimants are not those persons whose property suffered physical injury but those who are allegedly liable to indemnify those persons. It is in this context that the definition of “Financial Loss” (paragraph 30) can be said to support the submission by Tioxide that the claim need not be made by the person suffering the physical injury but can be made by another party provided that party’s claim can properly be said to be “on account of” Property Damage. Nor can I accept insurers’ submission that “on account of” is used interchangeably with “for”. The wording of the Coverage clause is of primary importance. I agree with Tioxide that where the word “for” is used it appears in subordinate clauses as a form of shorthand.

Although, therefore, I think Mr Bartlett is right that the claims brought against Tioxide by its customers and indeed by their customers against them are for economic loss and not for damage to property, I do not think the wording is focused on such distinctions nor does the fact that a claim is for economic loss dictate a wholly negative answer to the question whether the damages are sought “on account of physical injury” to the uPVC products when made and installed. I think the words are sufficiently wide to encompass claims for the cost of repair or replacement of those products which have pinked. On the other hand I do not think as a matter of ordinary language that claims by any party for damages for loss of business or profits said to have resulted from the pinking problem can be said to be claims for damages “on account of physical injury” to the finished products. The words, I think, require a more direct connection between the loss claimed and an actual physical injury. “Financial Loss” would have been appropriate but it was excluded from the excess policies. I do not think it possible or necessary in view of my other findings to address in any more detail the application of this distinction to the particular claims made against Tioxide.

Tioxide’s case on “Loss” is formulated in paragraph 80 of the Opening Skeleton Argument as follows:

“In this case the Loss for the purposes of the policies was:

(1)

The error made by Tioxide in supplying a pigment which was harmful in that it caused the rigid frames manufactured from a uPVC compound containing the pigment to be susceptible to pinking under certain conditions once the manufacturers had changed to using an all-lead stabiliser; or

(2)

The error made by Tioxide in exposing its customers which used all-lead stabilisers in the production of uPVC compounds, and those further down the chain of supply, to the same general harmful conditions namely the characteristic of the relevant pigments described in sub-paragraph (1) above.”

The care and detail in which these alternative formulations have been expressed (replacing a number of earlier formulations) does not, I think, disguise the real difficulties Tioxide faces in seeking to fit the known and assumed circumstances of this case into the policy wording. Tioxide’s target, of course, is to seek a unifying event as early in the chain of events which led to individual cases of pinking as it could hope to justify in order to bring within a single claim for indemnity under the policies all the pinking claims which have been brought against Tioxide. The problem for Tioxide is that if the pinking is the relevant “accident” there is likely to be no cover because of the deductible but if it is to be said that the originating cause of pinking should be examined it is not likely to be an “accident”. In my judgment Tioxide has failed to solve this problem and so missed its target:

Tioxide did not seek formally to put forward some narrower basis for a claim. Insurers’ case is that at most each incident of discolouration or each exposure to conditions where it might occur is the relevant “Loss”. Insurers also referred to various alternatives, if they were not successful in this case, with the target of extending the number of claims and so deductibles such as each supply of pigment, or each course of supply to a particular customer for use where pinking might occur or supplies of R-TC30 as distinct from R-TC4. But in my judgment, in agreement with insurers, none of these satisfy the wording either.

That is sufficient for Tioxide’s claim for an indemnity to fail, but I will consider the other issues as they were fully argued at the trial.

The purpose of the LNO (like the Notice of Circumstance Option) is of course to avoid the trap which would otherwise arise in a “claims made” policy that a claim is only made after expiry of the policy in respect of circumstances known during the policy period to be likely to give rise to a claim for which it would therefore be commercially prohibitive to obtain cover after expiry of the policy consistent with the duty of disclosure upon the assured. As insurers submitted, the LNO affects the timing of claims and enables several claims in respect of one Loss to be attributed to one policy period. But it does not affect what counts as one Loss.

Tioxide (by IC Insurance) gave notice by registered letter to RSA dated 2 July 1997 under the title “Pinking Claims” that it wished to “trigger” the LNO “of the (primary) policy with regard to the pinking problem”.

Exercise of the LNO in the primary policy in respect of a Loss “required” (paragraphs 27 and 32):

For the purposes of the submissions on the operation of the LNOs in the primary and excess policies it must be assumed, contrary to my judgment, that there was a Loss and that it was “the error” or one of them described by Tioxide in its submissions: paragraph 52.

Addressing each of the six “requirements” which I have enumerated:

The effect, therefore, of the 2 July letter was that it was deemed to exercise the primary policy LNO on the last day of the 1996/7 policy period, namely mid-day on 30 June 1997.

Exercise of the LNO in the excess policies is not at all so straightforward. The LNO, in a case in which the notice was given (as it was) over 90 days after the end of the policy period, “required” (paragraph 27):

The effect of such a notice is that the date of notice of Loss to excess insurers is deemed to be the date upon which the notice of Loss was first sent to the primary insurers during the excess policy period.

Addressing the three “requirements”:

There was no obligation upon Tioxide to exercise the option. The question is did Tioxide exercise it. The first difficulty for Tioxide is, therefore, that the fax did not comply with the provisions of the LNO as regards at least the addressee. Marsh were, absent agreement otherwise, the agents of the insured not agents of excess insurers to receive such a fax. Moreover, if Tioxide is to rely on the opening words of the LNO as applicable to the fax it was not sent by registered or certified mail. Whilst these deficiencies might well have been of no significance if there was evidence that excess insurers in fact received the “immediate” notice for which the LNO stipulates, in the absence of such evidence I think they are fatal, and certainly so taken together with the second difficulty faced by Tioxide. Nor do I think the bare fact that insurers did not take these points until April 2003 can amount to a waiver of them and there is no evidence at all to support any case of estoppel in favour of Tioxide.

The second difficulty Tioxide faces is that the fax itself merely refers to an earlier telephone conversation with a representative of Marsh and encloses the 2 July letter. It does not purport to give notice to anyone of the exercise of the LNO in the excess policies or of awareness that those policies might be involved albeit I think it may be a fair inference that the fax was sent to enable Marsh to give such a notice and in the expectation that Marsh would do so. But for this reason also in my judgment the fax fails to comply with the LNO.

Finally, the third difficulty faced by Tioxide is that the deemed date of the notice (even if the fax could be read as such and as compliant with the LNO) is the date when notice was first given to primary insurers “during the period of this policy”. No such notice was given. The 2 July 1997 letter was given a few days after the end of the policy period relying on the provision for a 90 day extension in the LNO in the primary policy. However, in my judgment, if this was the only objection to the validity of the fax it would not have availed excess insurers. I do not think the parties can have intended that such a lacuna would exist in the operation of the two LNOs. The effect in the primary LNO of a notice given within the 90 days is that it is deemed to have been given on the last day of the policy period. I do not think it stretches the language of the LNO in the excess policies beyond breaking point to apply that deemed date as a date falling within the period of the excess policies within the meaning of the LNO in the excess policies.

Nonetheless in my judgment excess insurers are also entitled to avoid liability under the excess policies for want of exercise of the LNO in accordance with its terms.

I would add that I think the wording and operation of the LNOs supports the conclusion I have expressed on the Coverage Issues. Both the LNOs and the NCOs presuppose that a Loss (or Circumstance) has occurred and is being notified. The language used in the LNOs includes references to the timing of a “Loss” and the fact that a “Loss happened”. That is consistent with the concept of an “accident” and exposures to the same “general harmful conditions” being or being attributable to an identifiable event or condition. Nor is that surprising; what would, I think, be remarkable would be for a policy to extend cover for 10 years in respect of claims arising from future sales or supplies of a product which were to be made after the date a “Loss” in respect of sales and supplies of the same product previously made had been notified under the LNOs. Tioxide’s submission that the “Loss” in this case is “of a continuing kind” to my mind states the problem but offers no solution to it.

As I have already concluded that Tioxide’s claim fails, I propose to address the Knowledge Issues by way, first, of a summary of my findings on the evidence and, second, by an examination of the application of the relevant policy provisions to those findings.

In seeking to summarise the evidence, I should state that I am confident that all the witnesses who gave oral evidence did so truthfully and to the best of their recollection. The relevant events were many years in the past and I do not mean to qualify the previous sentence by saying that I have relied largely on the documents. The witnesses were all called on behalf of Tioxide. In the order in which they gave evidence they were:

In my judgment, and in summary, the evidence (in particular the documentary evidence) establishes that:

Before turning to the particular provisions on which excess insurers rely, I think a general comment is also appropriate on the evidence I have sought to summarise. It would, as I have said, be a remarkable policy which provided cover for a further 10 years in respect of future sales and supplies of the same product which had already led to claims for which an indemnity had been sought under the policy. On the evidence in this case Tioxide continued to sell commercial quantities of R-TC30 and R-TC4 until at least September 2000 for use in compounds with all-lead stabilisers without qualification or warning and indeed using promotional literature which expressed its purposes to include colour stability and weather resistance. Yet if Tioxide is right in its case on “Loss” that the relevant “accident” is one of the “errors” on which it relies (paragraph 52) it could go on making such supplies safe in the knowledge that insurers would have to indemnify Tioxide against liability for any pinking claims to which such supplies might give rise until June 2007. To my mind, that is a further demonstration of the improbability of Tioxide’s case on “Loss”.

The relevant policy provisions, in addition to the general principle of fortuity, on the Knowledge Issues are:

Insurers’ pleaded case is that the Property Damage was “expected” by Tioxide because, so it is alleged, Tioxide “knew or must have appreciated from at least March 1994 if not earlier that further claims would be made or were liable to be made or were likely to be made in respect of discolouration or pinking by reference to future supplies of the pigments”.

The question which Clause 1 asks is whether or not Property Damage was expected by Tioxide in the sense of physical injury to tangible property. It is Tioxide’s case that the pinking itself is such an injury (paragraph 48). The wording requires an actual expectation on the part of Tioxide. Negligence, however bad, would not suffice. It does not require expectation of a claim nor an expectation of liability for a claim if made. But the expectation must, I think, be that products containing pigments supplied by Tioxide will pink.

I think that the evidence which I have summarised does establish that Tioxide, substantially in the person of Mr Gagné, did know that continued supplies of Tioxide’s pigments for use in compounds containing all-lead stabilisers would result in some cases of pinking in products manufactured from those compounds. That knowledge seems to me have been present no later than March 1994 and even if belief in a causal link was essential by no later than about mid-1996 and possibly earlier: see the evidence up to and including sub-paragraph (xvi) of paragraph 72 and in particular sub-paragraphs (ix) and (xvi). I also think it follows that Tioxide must have “expected” such cases to occur albeit in limited numbers and locations. Mr Symons understandably asked rhetorically why would a responsible company go on selling a product in circumstances in which it expected pinking to occur. But in fact Tioxide did continue making supplies despite a decision at a high level not to do so and whilst I think the focus on a lack of a scientific explanation to link the pigments to pinking may explain what happened it does not belie the expectation that pinking would nonetheless occur if supplies continued to be made.

It follows, in my judgment, that in any event claims arising from supplies of the pigments made after March 1994 are not entitled to an indemnity under the policy for this reason also. Insofar as questions of fortuity arise I think they lead to the same conclusion.

It is well established that such conditions are addressed to, and to be breached require, at least a reckless failure to avoid the relevant risk, in this case the risk of Property Damage and so pinking: Fraser v B.N. Furman [1967] 2 Lloyd’s Rep 1; Sofi v Prudential Assurance [1993] 2 Lloyd’s Rep 559. The thrust of insurers’ case is that Tioxide should have taken the precaution of warning its customers of the risk of pinking if the pigments were used in compounds with all-lead stabilisers and should have managed its promotional literature and terms of sales accordingly.

I do not think, in agreement with insurers’ submission, that this provision is likely to be breached at any date earlier than the date on which Tioxide can be said to have expected Property Damage and so it does not affect the outcome of the case. The obligation itself only arose, at the earliest, on inception of the policies on 30 June 1996 and therefore need not be considered further.

Insurers bear the burden of proving that the “accident” etc happened prior to 29 June 1986. To do that, and assuming the “errors” on which Tioxide rely were “accidents”, insurers must prove the errors were made before that date. Whilst the first supplies which gave rise to pinking claims appear only to have been made after 29 June 1986 (paragraph 12) the formulation of the errors (paragraph 52) is so general that it would be no surprise if they were first made before that date but I do not think that has been proved. I think the real significance of the point is to serve as a further demonstration of the improbability of Tioxide’s case on the Coverage Issues.

The claim by Tioxide against insurers wholly fails. It fails primarily because the case sought to be made to bring it within the definition of “Loss” fails (paragraphs 53-55). It also fails for want of exercise of the LNO (paragraphs 65-66). It would in any event also fail in respect of supplies of pigments made after March 1994 (paragraph 78) and in respect of such parts of the claims made against Tioxide as are not claims for damages on account of Property Damage for the reason stated in paragraph 51.

My answers to the Issues directed to be tried, to the extent I consider it necessary to provide them, are to be found following the Issues themselves attached to this judgment.

Tioxide manufactures two grades of white titanium dioxide pigments, R-TC30 and R-TC4. R-TC30 and R-TC4 have each been supplied for use in the manufacture of u-PVC compounds, which compounds have in turn been supplied for use in the manufacture of white rigid u-PVC products.

The presence of R-TC30, or R-TC4, in the u-PVC products has caused the discolouration (or “pinking”) of those products in use in certain environmental conditions in the manner described in the Technical Case contained in the Amended Appendix 6 to the Re-Amended Particulars of Claim served in Claim No. 2001 Folio 109 between EVC Compounds Limited and Tioxide.

Tioxide has settled the claims made against it by EVC and Premier Profiles in respect of the R-TC30 and R-TC4 supplied to them by Tioxide. Tioxide faces claims from other claimants to whom Tioxide has supplied these pigments for use in the manufacture of u-PVC compounds.

Tioxide was liable in law to EVC and Premier Profiles for loss and damage which those entities have suffered by reason of the “pinking” and is liable in law to the other claimants who have also suffered such loss and damage.

Are all or part of the amounts which Tioxide has paid or agreed to pay (a) in settlement of the EVC claim (b) in settlement of the Premier Profiles claim sums which Tioxide has paid or will pay “on account of Property Damage” within the meaning of the primary policy, and if part, which part?

Are all or part of the damages which Tioxide will be obliged to pay the other claimants damages “on account of Property Damage” within the meaning of the primary layer policy, and if part, which part?

Does Tioxide’s liability in law to Premier Profiles, EVC and the other claimants for damages on account of Property Damage in respect of “pinking” result from a single Loss within the meaning of the primary layer policy, as contended for by Tioxide? If so, what was that Loss? If not, how many Losses have occurred, and how if at all are the primary layer policy and the 1^st and 2^nd excess layer policies to respond?

Assuming Tioxide’s case that there was a single Loss to be correct, had that Loss occurred before the applicable date (as defined) and before the end of the 1996/1997 annual policy period for the purposes of the Loss Notification Option in the primary layer policy?

Have the formal requirements for the exercise of the Loss Notification Option contained in the primary and excess layers of the policy been complied with?

If any of the formal requirements have not been complied with, have the Defendants or any of them waived reliance upon any breach of the formal requirements and/or are they estopped from relying upon any such breaches?

If any of the formal requirements have not been complied with and the Defendants are entitled to rely on such non-compliance, what is the consequence of this and, in particular, does this invalidate the exercise of the Option?

At the time of the exercise of the Loss Notification Option in the primary layer policy, and assuming that the exercise of the Loss Notification Option was not invalidated by reason of non-compliance with the formal requirements, had claims already been made in writing against Tioxide in respect of pinking, and had the Loss (assuming there to have been one) been notified as a Circumstance under the 1996/1997 policy or any prior policy?

Are all or any of the claims which have been made against Tioxide since the exercise or purported exercise of the Loss Notification Option in the primary layer policy claims “as respects such Loss” for the purposes of that clause?

Assuming that there has been Property Damage, was that Property Damage at any time from March 1994 “neither expected nor intended” by Tioxide?

Did Tioxide at any time from March 1994 onwards fail to take reasonable precautions to prevent Property Damage by continuing to supply R-TC30 and/or R-TC4, alternatively by continuing to supply them without any or any valid disclaimer of liability for “pinking”, and/or was “pinking” at any time a fortuitous event for the purposes of the primary and 1^st and 2^nd excess policies?

On a true construction of Exclusion 34 and Item 5 in the Declarations of the primary layer (incorporated by reference in the 1^st and 2^nd excess layers), is Tioxide excluded either wholly or in part from an indemnity?

Did certain of the Defendants withdraw their earlier reservation of their position under the 1^st excess policy and if so what are the consequences of this?

Are the assumptions set out in Paragraphs 2 and 4 above correct in fact and law, and if not what (if any) difference does this make to the answers to the questions set out in Paragraphs 5-19 above?

What if anything is the amount of the indemnity which the Defendants are bound to pay to Tioxide under the 1^st and 2^nd excess layer policies?

All other pleaded issues in dispute between the parties.