Aspen Insurance UK Ltd.v Adana Construction Ltd

This is a claim by insurers for a declaration of non liability to which the insured responds seeking declarations that it is covered by the policy and entitled to have its associated defence costs paid. The insured also contends, supported by authority and good sense, that this trial is premature and that there is a risk that it will decide little. Presented with a trial to conduct and with the fact that time has been allocated and great expense already incurred I decided to proceed with the hearing in the hope that it might serve a useful purpose.

This action was originally brought as a Part 8 Claim and ordered by Burton J on 15 April 2011 to continue under Part 7. The Claimant (“Aspen”) seeks declarations that it is not liable to indemnify the Defendant (“Adana”) for any liability to which Adana may be subject arising out of the collapse of a tower crane at a construction site in Liverpool on 6 July 2009, causing serious injuries to the crane driver and substantial damage to property. Adana constructed the concrete base on which the tower crane was erected. By its counterclaim Adana seeks declarations that it is entitled to be indemnified by Aspen and that it is in any event entitled to have its Defence Costs paid in relation to any claim which may be made against it in relation to the collapse of the crane.

At the trial I heard evidence from Mr Paul Rudden for the Claimant and Mr Spence for the Defendant. There was also a statement from Mr Donakey for the Defendant. The evidence of fact was honest and well intentioned but added very little to the picture presented by the documents and the experts. Expert underwriting evidence was given by Mr Tim Butcher for the Claimant and Mr John Spooner for the Defendant. Expert engineering evidence was given by Dr Falcon for the Claimant and Mr Webber for the Defendant who jointly prepared an admirable note (“the Joint Note”). Where in this judgment I do not attribute statements about engineering matters to others they are taken from the Joint Note or are obvious from the plans I was shown at trial.

In this section I draw heavily on the Joint Note and on the skeleton arguments, particularly that of the Defendant.

Adana contracted with Bowmer & Kirkland, the main contractors at the King’s Dock Mill site in Liverpool, to undertake various ground works including casting and fixing in place a reinforced concrete pile cap on top of piles which were to be constructed by Van Elle Limited (‘Van Elle’). Adana was responsible for “Supply of all necessary labour plant and materials to carry out the Supply, Delivery and Installation of the Insitu Concrete & Drainage Works …” as it was put in the minutes of a meeting. The insitu concrete works included the supply delivery and installation of pile caps or crane bases for the Tower Cranes to be erected on site to facilitate the building work. They were designed by structural engineers, Bingham Davis. ( Adana refers to this pile cap as a ‘crane base’, as neither it nor the piles beneath it were to perform any load spreading (or bearing) function in relation to the permanent structure that was to be built on top of the piles after the crane had been removed. Aspen refers to it as a pile cap. I will use both expressions.)

The purpose of the crane base was to transfer the loads being generated by the crane into the piles. ‘Compression’ is transferred by simple downwards pressure. ‘Tension’ and horizontal load are resisted via the connection of the pile to the crane base. It was not the purpose of the crane base to bear the load of the crane or any other structure placed above it. For a piled base, stability is provided by the piles.

The work which Adana carried out in forming the crane base is described by the engineering experts in section 4 of the Joint Note. Adana’s job was to effect a structural link, designed by others, in reinforced concrete, between the four foundation anchors of the crane and the four piles, installed by Van Elle. Adana were instructed to fix four dowels (20mm high-tensile reinforcing bars, or ‘rebars’) into each of the four piles with ‘resin’ to a depth of 400mm. It was intended that Adana would drill four holes in each pile, each hole to be to a depth of 400mm, and in each hole, a 20mm rebar was to be placed to the full depth of the hole. Before the dowel was finally placed, sufficient resin was to be placed in the hole so that, when finally placed to the depth of the hole, the dowel would be bonded to the concrete over the full surface area of the hole. Each set of four dowels was designed to replace a single, centrally-placed, 32mm rebar which had been cast into each of the four piles according to Bingham Davis’s original design but which had to be cut in order to avoid fouling the four foundation anchors which were to be attached to the mast section of the crane.

The Defendant’s work was complete by mid December 2008 and handed over to Bowmer & Kirkland to allow it to be used for the erection of the crane upon it. In about April 2009 the first crane erected on the crane base was removed and a heavier crane was erected in its place. This crane collapsed on 6^th July 2009.

The Health and Safety Executive prosecuted Bowmer & Kirkland and Bingham Davis in connection with the collapse of the crane, and reports were prepared by various experts. Adana was not prosecuted. These experts all reached the same conclusion that the initial failure was not due to a failure of the crane, but a failure of the connections between the crane base and the piles. None of the experts found fault in the design or construction of the piles, and all agreed that the loads imposed on the connections were higher than those which had been considered in the design. All the experts except that for Bingham Davis agreed that under maximum load the pile connection would have failed as a result of overloading regardless of any workmanship issues on the part of Adana.

The crane base came away from the piles in one piece, intact. None of the dowels, of which there were four per pile, either broke or fractured, but were found to have pulled, intact, out of their respective piles. According to the evidence of Dr Roberts in the HSE prosecution, none of the dowels was found to have been fixed into its pile to the correct depth of 400mm: instead, the actual depths varied between a minimum of only 70mm to a maximum of 360mm with, he states, an average of 219mm. On the basis of Dr Roberts’ evidence, that would mean that, on average, the actual embedment into the pile of the dowels was only about 55% of that required by the designer’s specification.

The strength, ie the ‘pull-out’ value, of a resin anchor is highly dependent on the depth of embedment. On the basis of Dr Roberts’ evidence, the dowels installed by Adana would have achieved, on average, a theoretical pull-out value which was about 55% of that which would have been achieved if the bars had been installed to their intended depth.

All the experts, both prosecution and defence, at the HSE prosecution agreed that the tension load applied to the connection between the piles and the crane base was significantly in excess of the 300kN for which it was designed. The engineering experts agree that the failure occurred as a result of the load being applied to the connection between the piles and the crane base being greater than the ability of the connection to resist that load. Whether there was a failure of the design by Bingham Davis, or a failure to follow that design, or a failure to follow the specification, the engineering experts are both of the opinion that the connections between the 16 dowel bars and the piles did not, or were unable to, transmit the imposed tensile loads from the crane base to the piles. The dowel bars appear to have been pulled intact out of the pile as a result of the holes in the piles having been neither deep nor wide enough. However the dowels may, under the imposed load, have failed, even if embedded more deeply.

Some confusion about these dowel bars was resolved at the trial. The Claimant asserts that dowels were or became part of the crane base. But Dr Falcon accepted in his oral evidence that dowels were put into piles first, and then the crane base was formed above when concrete was poured into the shuttered area.

Thanks to the experts the above paragraphs may sound detailed and authoritative. But all this evidence was in a sense second hand. The opinions of the engineering experts are based to some extent on the information in Dr Roberts’ report for Bowmer & Kirkland in the HSE prosecution but they have not seen the full documents to which Dr Roberts had access. The experts expressly state that the Joint Note is not to be regarded as an admission as to the accuracy of those figures.

Against that background it might seem that Adana’s risk of liability is low. However in October 2012, Adana was joined in an action brought by the injured crane driver against Bowmer & Kirkland and against Bingham Davis, the structural engineers. No trial has taken place in any of the liability proceedings. Aspen accepts that it is unlikely that the Defendant will be held liable for the collapse. It says that Bingham Davis’ design for the pile cap and the connections to the piles was seriously deficient. However it is alleged in the action that the ability of the connection actually installed by the Defendant to resist tensile pull out load was compromised by inadequacy in the Defendant’s work in the following respects:

As the Claimant has only what is alleged in the single action brought so far to rely on, Adana submits that the court does not have evidence sufficient to determine the issues. Mr Wynter QC for the Claimant cites the decision of the Court of Appeal in Horbury Building Systems Ltd v Hampden Insurance NV [2004] EWCA Civ 418, [2007] Lloyd’s Rep IR 237. Keene LJ said (at para 13):

The action was stayed, broadly on these grounds, by Hamblen J at a Case Management Conference on 14 October 2011 but the bringing of the third party proceedings appears to have led to that stay being removed. Adana complains that it is placed in the invidious position of postulating loss circumstances which would bring any claim within the scope of the insurance, but the enunciation of which in open court might at the same time impair its prospects in the liability proceedings. I have sympathy with that concern although Aspen says that there is no risk of injustice given what it says is its clear position under the policy.

Adana was insured under a Miles Smith Building Services Combined Contractors’ Liability Insurance 2008 policy for the period of insurance 2 June 2009 to 1 June 2010 (both dates inclusive). The Policy included Employers’ Liability, Public Liability, Product Liability, Pollution Liability and Financial Loss covers. These proceedings concern the Public Liability and Product Liability covers. The Policy is of course to be read as a whole and in context but the provisions relied on by the parties are as follows:

So, put summarily, there is public liability cover but not ‘against liability arising...caused by any Product’. There is product liability cover for liability caused by any Product but not if the liability arises in connection with the product’s failure to fulfil its intended function. Having set out the policy terms the meaning and purpose of the remedies sought becomes clear.

The declaration sought by Aspen is first that the pile cap and/or its constituent parts was a Product, secondly that any liability will be caused by a Product failing to fulfil its intended function, thirdly that the Claimant is not liable generally and fourthly that if there is any liability it is partly excluded by the Foundation Clause. The Defendant counterclaims for declarations that it is entitled to be indemnified under the policy and to its Defence Costs.

The Claimant sought and obtained permission from the Deputy Judge at the last CMC to call expert evidence from an Insurance expert with wide experience of the combined contractors’ liability insurance policy placed in the Lloyd’s Market and of the market in which such insurance is placed. The expert was to address the contention that there is a conventional understanding as to the division between public liability and product liability, with the latter cover ‘kicking in’ exclusively once the Defendant’s works have been handed over. According to the Claimant such conventional understanding forms part of the factual matrix of the policy, insofar as that is of assistance in construing its terms. As a result there was evidence from Mr Butcher and Mr Spooner. Admissibility of such evidence was reserved to the Trial Judge. I expressed reservations about the relevance and admissibility of this evidence at the outset but agreed to hear it. In one sense the Claimant got what it deserved, first responsive evidence from the Defendant even more inadmissible than its own and secondly emergence of a recent example of the Claimant having acted inconsistently with its alleged market understanding.

Both witnesses were clearly honest, straightforward and well informed but their evidence was irrelevant. Mr Butcher accepted in effect that everything depended on the terms of the policy and it was from his interpretation of that document that he drew his views. I disregard this expert evidence and Mr Palmer QC for the Claimant did not refer to it in his closing submissions.

Mr Palmer QC contends as follows. The relevant sections of the policy are the Public Liability and Products Liability sections which are mutually exclusive because the Public Liability section excludes, by additional exclusion 13, liability “caused by any Product”. The Product Liability section only applies to indemnify against sums which the Insured becomes legally liable to pay for damages arising out of injury and loss, happening during the Period of Insurance and “caused by any Product”. This definition of Product is in very wide terms.

The pile cap or crane base as constructed and installed by the Defendant falls within this definition and is therefore a Product as do all its constituent parts. (The Claimant’s perception of what the Product is in this case has shifted with time.) Any liability that the Defendant may incur has been caused by the Product. Therefore the Public Liability section is excluded by additional exclusion 13; and prima facie the Product Liability section responds to any such liability.

The Claimant contends that the “intended function” of the pile cap (and its constituent parts) was to transfer load from the crane into the piles below. Enough is known of the facts to prove that if any liability is established against the Defendant such liability can only “arise in connection with the failure of [the pile cap and its constituent parts] to fulfil” that function.

The policy definition of Product is extremely wide. Further “product” in the New Shorter OED (1993) is defined as: “a thing produced by an action, operation or natural process; a result, a consequence; spec. that which is produced commercially for sale” The 1973 edition has: “that which is produced by any action, operation or work;”. Mr Palmer submits that the pile cap, as constructed, is a product –the result of the Defendant’s actions, operations and work to produce the end result required of them, namely a pile cap. The Claimant contends that the dowels were ‘installed’ in the ordinary and contractual meaning of that word.

Mr Wynter first emphasises the importance of evidence as to causation given the frequent points at which it arises under the policy.

The Public Liability insuring clause is wide and extends to anything happening “ in connection with the Business.”, a wide concept.

The threshold question is whether a relevant ‘Product’ can be identified. In Aspen’s Further Information it is stated: ‘The pile cap, including all its component parts, and all the component parts considered individually, comprise products within the definition.’ This was expanded to include ‘[Aspen] contends that the bond between the reinforcing bars and the piles was also a product which failed to fulfil its function of bonding.’ Shortly before trial the bonding material became a possible relevant ‘Product’ (but the claimant has not begun to explore what this was or how it might have failed its intended function).

It is an improper use of language to describe the crane base as a ‘Product’. The definition in the Policy more naturally applies to items usually considered to be products – ie things that have been manufactured and then distributed and sold. Because such products may be altered, repaired or serviced, the Policy definition includes words which make it clear that items do not lose their character as products when they undergo such treatment.

The provision that particular items only become ‘Products’ after they have left the insured’s ‘care, custody or control’ is a chronological provision reflecting the fact that whilst still within the insured’s care, custody or control any particular item will not yet be a ‘product’ – it is still in the process of production – and this is liability cover.

It is now clear from the evidence that the crane base was created on site, by pouring concrete into a hole. It was not, and could never have been, either distributed or moved anywhere. The crane base cannot sensibly be considered to be a ‘Product’ but is more naturally simply part of Adana’s contract works.

The dowels and the resin were standard building materials used by Adana in carrying out the works under the construction contract, and are not Products. It would be an unnatural use of language to say that the dowels or the resin (or indeed any other component part which Aspen may identify) were ‘items’ which had ‘left the Insured’s care, custody or control’ when Adana completed the construction of the crane base. If everything ‘manufactured’, ‘constructed’ or ‘installed’ on site were to constitute a ‘Product’ within the meaning of the Policy, the Foundation Clause, which applies to all parts of the Policy, would be otiose.

The remedy sought by the Claimant, a negative declaration, is one which the Court is generally cautious about granting. That approach is emphasised by the passages from Horbury referred to above. In view of the decision I have reached about the underlying merits of the case however it is unnecessary for me to develop the competing arguments about whether in principle to grant a declaration to the Claimant.

Evaluation of the claim requires the court to interpret the policy and then to apply it to the facts. In this case there are no assumed facts and there has been no trial with evidence of the underlying claims. The Claimant says in effect that the Court can find enough facts to enable it safely to grant the declaration sought.

The principles of construction are well known. The construction or meaning of a contract is what a reasonable person with all the relevant background knowledge of the parties at the time when the contract was made would have understood them to mean by the language of the contract – Chartbrook Ltd v Persimmon Homes Ltd[2009] UKHL 38, [2009] AC 1101, [2009] 4 All ER 677 and ICS Ltd v West Bromwich Building Society[1998] 1 All ER 98, [1998] 1 BCLC 493, [1998] 1 WLR 896. Where there are competing meanings the Court will choose the more commercially sensible of rival interpretations of express terms (Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900

This policy was in a form proposed by the Claimant not the Defendant. It is described as covering the full range of liabilities that a building services contractor will face. Absent misrepresentation or some similar failure of its own the insured, in this case and typically, a medium sized private family company, would expect the policy to cover all liabilities which it might expect to encounter and that is the valuable service the insurer would expect to provide. The parties would expect there to be cover where the insured incurs liability for defective work and also where it provides a defective product. This expectation will of course be subject to the terms of the policy but will shape the approach to understanding the wording.

The definition of Product is wide. It also connotes, as Mr Wynter submits, two stages, first the way in which it comes into a particular state and secondly how it comes to leave the insured’s control.

Bingham Davies designed a structural link in reinforced concrete which Adana contracted to effect between the foundation anchors of the crane and the four piles installed by others. Adana’s role was described at a meeting as the “Supply of all necessary labour plant and materials to carry out the Supply, Delivery and Installation of the Insitu Concrete & Drainage Works …” The starting point is a contract for work and materials rather than for the supply of a product. The base was created by pouring concrete in situ after which it came into existence as a lump of concrete. As Dr Falcon confirmed that process did not start until holes had been drilled into the piles below and dowels fixed into those holes secured by resin (or whatever the bonding actually was). A lump of concrete created in this way is not a Product except in the most literal sense even bearing in mind that the Court is concerned with the policy definition not simply conventional meanings of the word. Those meanings have a role however because the definition of Product starts with ‘any product or goods’. This is not one of the Adana range of products, you cannot buy it, it is created at the customer’s premises not at a factory. When arranging a construction contract a customer would see this activity as part of the work on site, not as a product like a boiler to be ordered and sent to the scene.

This lump of concrete has no ‘component parts’, items integral to it like the gearbox of a car. The dowels were perhaps component parts of the piles once placed and secured within them. They were not part of a wider product. As Products on their own they were not Adana’s.

Resin or bonding, a late entrant from the Claimant to be part of the product, is not even in a broad sense part of the base. Its existence as a product is a separate one arising from the role of its manufacturer not Adana.

The experts draw a distinction in the Joint Note confirmed in oral evidence between the pile cap or crane base, the connection and the piles. These are three different things not one Product. I conclude that none of the items individually or together is a Product.

If I am wrong about the definition of a Product the question of intended purpose arises.

The intended purpose of the base was to transfer the loads on the crane down into the piles. On the evidence it achieved that purpose. For example it emerged from the collapse intact. Dr Falcon confirmed in oral evidence that there was no breaking or fracture of parts in the progression down from the pile cap to the piles. The crane base was uprooted intact, it had transmitted the load to the connection and down into the piles. Both experts confirmed that it was the connection between the dowels and the piles which failed, not that between the pile cap and the dowels.

The failure occurred within the piles. There is no evidence that the dowels themselves failed to do what dowels do. Their purpose though crucial is the humble one identified by Mr Wynter. Apparently they did not break either. The problem seems to lie in the depth of the holes and how they were prepared pointing perhaps to defective workmanship and classic Public Liability circumstances.

If my conclusion that there was no Product is wrong then, whatever it was, (except possibly the bonding about which there is no evidence- and the Claimant could have adduced evidence about it if it had wished) it neither failed to fulfil its intended function nor caused the loss and damage. The position could only be different if one gave Product a very broad and loose meaning and took a similarly broad and loose approach to function and to causation. Nothing in the nature of an insurance policy, the wording this one contains or the ordinary use of the language would justify doing that.

The insurer seems to have formed the view that once a project has been handed over Public Liability cover ends and a claim is Product Liability or nothing. It is perhaps why the insurer sought the market expert evidence. That is a legitimate point of view but it is not what the policy provides, perhaps rightly, because otherwise there would be a gap in the cover which reasonable business people would expect to have taken out.

This issue turns on the meaning of superstructure. I repeat the short clause set out above;

The Claimant contends that liability for the crane superstructure is covered by this exclusion. It does not suggest that it excludes liability for damage to other superstructures (for instance the neighbouring block of flats), caused by the collapse of the crane. The Claimant did not appear to press this claim strongly.

The Defendant relies on some definitions. The Oxford Dictionary online (Oxford University Press) defines ‘superstructure’, so far as relevant, as follows: ‘a structure built on top of something else.( including) the part of a building above its foundations.’. The Penguin Dictionary of Building (4^th Edition) defines ‘superstructure’ as: ‘The parts of the structure above ground-floor level, which carry the building enclosure. Greater accuracy is required than for the substructure.’ ‘Substructure’ is defined in the same work as: ‘The part of the building structure below ground level, the foundations and basements or sub-levels. It is usually of reinforced concrete and often protected by tanking. Substructure work is always a critical activity; once it is completed the building is out of the ground and the superstructure can be started.’

Mr Wynter submits that these definitions accord with the commonly held understanding of ‘superstructure’, ie the part of a building above its foundations, in contrast to ‘foundation works’ as referred to in the clause. They are also consistent with the definitions included by the engineering experts in their Joint Note. The court should give the term ‘superstructure’ in the Foundation Clause the same meaning. A temporarily installed crane cannot be said to have been or to have formed part of a ‘superstructure’ constructed pursuant to a building contract. The foundation works carried out by Adana in relation to the crane base were not intended to be part of any load bearing function in relation to the ‘superstructure’ (building) that was to be built: the crane base was not intended ever to form part of the foundations that were to be used to support the building that was eventually to be constructed, and its only purpose was to spread the load from the crane which was, temporarily, to stand atop it. He has other arguments in his skeleton.

As is clear from its title and very existence, the clause is concerned with construction works. Superstructure in its construction sense connotes a building above the ground. Foundations are permanent features which support the building. These expressions, particularly superstructure, do not as I see it apply to a temporary crane. I prefer the Defendant’s approach to this clause.

Adana counterclaims for a declaration that Aspen must pay its Defence Costs as defined. The policy provides for payment of these costs.. The Policy definition of ‘Defence Costs’ requires that defence costs, fees and expenses be incurred with underwriters’ written consent and in the defence or settlement of any claim. Adana says that Aspen’s written consent to the incurring of such costs, fees and expenses must not be unreasonably or capriciously (ie, in breach of the duty of good faith) withheld and cites authority. Aspen denies that that is the test but accepts that it must act bona fide when considering giving or withholding consent for incurring costs.

That is an issue which does not arise given my conclusion that, on the evidence available, Aspen is covered by the policy. On either test the Claimant will pay the Defence Costs (as, commendably, it has been doing on a without prejudice basis).The point requires no findings of fact from me and, if I am wrong on the main issue, an appellate court will not be assisted by my obiter views. It therefore seems unlikely that a decision is required but if the parties disagree they can let me know.

The Claimant’s application for a declaration is refused because the underlying claims in this action will not succeed. The Court is in principle prepared to grant a declaration to the Defendant as to its rights under the policy but the terms will need careful consideration given the limitations of this litigation. The issue of Defence Costs now appears to be irrelevant.

I shall be grateful if Counsel will, not less than 72 hours before hand down of this judgment, let me have a list of corrections of the usual kind and a draft order, both preferably agreed, and a note of matters which they wish to raise at the hearing.