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||Neutral Citation Number:  EWHC 2555 (Comm)
||Case No: 2006 Folio 206
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
||8 November 2007
B e f o r e :
THE HON. MR JUSTICE TOMLINSON
|| OUTOKUMPU STAINLESS LIMITED
||- and -
||(1) AXA GLOBAL RISKS (UK) LIMITED
(2) ALLIANZ CORNHILL INSURANCE PLC
(3) CHUBB INSURANCE COMPANY OF EUROPE S.A.
(4) RELIANCE NATIONAL INSURANCE COMPANY (EUROPE) LIMITED
(5) GUARDIAN INSURANCE LIMITED
(6) MINSTER INSURANCE COMPANY LIMITED
(7) SCOR UK COMPANY LIMITED
(8) HAMPDEN INSURANCE NV
(9) CAN INSURANCE COMPANY (EUROPE) LIMITED
(10) COPENHAGEN REINSURANCE COMPANY (UK) LIMITED
(11) ZURICH INTERNATIONAL (UK) LIMITED
(12) AXA REINSURANCE UK PLC
Christopher Symons QC, Sophie Mallinckrodt
(instructed by Messrs DLA Piper UK LLP) for the Claimant
Colin Edelman QC, Richard Harrison
(instructed by Messrs Davies Lavery) for the Defendants
Hearing dates: 15-17 October 2007
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Tomlinson:
- This is a coverage dispute between an insured and its insurers.
- The Claimant was at all material times, 1999 and 2000, known as Avesta Sheffield Limited. It is and was itself a wholly owned subsidiary of Outokumpu Stainless AB, previously Avesta Sheffield AB. The Claimant owns and operates what was at all material times known as the Avesta Sheffield Steelworks. I shall call the Claimant Avesta. One of its activities at the Sheffield steelworks was and still is the smelting of scrap metal and other materials in an electric arc furnace in order to produce stainless steel. Avesta's claim for an indemnity from its underwriters arises out of an incident at the steelworks on 31 March 2000 when it inadvertently melted in its furnace a "shielded" i.e. encased and protected source of radioactive plutonium 238. This was probably a discarded old-style heart pacemaker which had been included in a compressed bale of scrap metal. In consequence of the radioactive material being encased in lead, and because plutonium 238 is before it decays principally an emitter of alpha particles which are non-penetrating, its presence was not detected either on leaving the scrap suppliers or on arriving at Avesta's premises, at both of which sophisticated detectors were in place. However after the source had been melted in the furnace at temperatures in excess of 1,400 degrees centigrade radiation was detected during further routine testing of the products of the melt, those products being principally molten steel and slag. In fact it was low level gamma radiation in the slag which was first detected. However in-depth examination of the problem revealed the associated presence in the slag of a much larger level of alpha radiation. Alpha radiation is as I have already mentioned non-penetrating, and, if the source of radiation is external to the body, human skin is sufficient to protect the underlying tissues. However if alpha emitting radioactivity is inhaled or ingested, then it comes into intimate contact with the living tissues of the body and can be very damaging. There was a risk that the operatives at the plant could have inhaled or ingested some of the plutonium, principally by breathing in contaminated dust associated with the manufacturing process. The steel itself was not contaminated.
- By the time the alarm went off at the "tapping" stage of the melt, i.e. when the products are drawn off and tipped into a ladle before slag is "decanted" off the top of the ladle into slagpots, the next load of scrap metal was already in the furnace. Avesta continued the melting, refining and casting process for a further two melts. By the end of the third of these four melts the radiation level in the slag was inconsequential.
- It is accepted on all sides that Avesta could not have prevented this incident and that, once they were aware of it, which was the earliest realistically they could have been so aware, they acted in the best possible manner to eliminate or reduce any risk of harm both to their own workforce and to others. They received the immediate and close co-operation of the Health & Safety Executive.
- There was no serious damage to or contamination of the smelting plant and equipment. Avesta suffered only inconsequential interruption to its production. However it was left with a substantial quantity of contaminated slag which it was unable to dispose of via its slag processing contractors. Slag is ordinarily disposed of to landfill or, if suitable, used as roadstone. In the ordinary way Avesta's slag contractors remove the slag from the site and retain the proceeds of sale of any slag used in road construction, thus offsetting the disposal costs which Avesta might otherwise incur. There is therefore no claim by Avesta for the value of the contaminated slag. However the slag had to be disposed of under tightly controlled conditions. Since it was classified as "Low Level Radioactive Waste" by the UK Environment Agency it had to be taken to the only available licensed landfill site in the UK which is at the British Nuclear Fuels facility at Drigg in Cumbria. It is the costs of this exercise which form the bulk of the claim, which is said to be of the order of £6.38million. The claim is thus largely for the costs incurred of testing, handling, safely storing, quarantining, transporting and disposing of the contaminated material.
- I am not concerned with the quantum of the claim but I must just go into a little more detail in order that its precise nature may be understood.
i) Contaminated slag from the three affected melts was decanted directly into four "slagpots," part of Avesta's existing plant. The contaminated slag solidified. Since the four slagpots contain Low Level Radioactive Waste both they and their contents must be disposed of at a licensed site. The slagpots have therefore been rendered incapable of future use. The underwriters accept that the slagpots are to be regarded as having suffered physical damage in the form of radioactive contamination and so I do not need to consider whether that conclusion is scientifically sound.
ii) Beneath the arc furnace there is a pit. During melts slag routinely overspills into the pit, such overspill to be distinguished from the subsequent deliberate decanting of slag from the ladle. Approximately two tonnes of contaminated slag ran off the top of the ladle during the three affected melts and entered the pit where it in turn contaminated the approximately two hundred tonnes of non-contaminated slag which was already there. The pit slag would in due course have to be dug out as a routine operation. Due to the presence of radiation this routine operation had on this occasion to be conducted under controlled conditions. The pit slag was transported first to concrete storage pens and ultimately into nine special ISO containers which Avesta purchased from British Nuclear Fuels which were duly sealed, quarantined and taken to Drigg for disposal. It is not suggested that the furnace pit was itself damaged.
iii) Residues of irradiated material might have been expected to adhere to the brick lining of the arc furnace but in fact sampling and subsequent testing of the furnace lining revealed no significant contamination, very possibly because it had been removed by the three casts subsequent to that in which the radioactive source was melted. The brick lining is renewed every four weeks in any event. On this occasion routine wrecking was merely brought forward by two or three days. Notwithstanding the reported absence of contamination the wrecking was conducted under controlled conditions, the main focus of which was to suppress the dust and fumes and minimise the risk of employees inhaling or ingesting them.
- The foregoing is sufficient to set the scene for the dispute between Avesta and its insurers whether the various costs incurred are recoverable under the insurance cover afforded by the latter to the former. That cover would ordinarily be described as cover against property damage and business interruption. There is no claim for business interruption. Such part of the claim as is in respect of damage to property traditionally and strictly so-called is confined to the costs of the four slag pots. However that amount by itself falls below the relevant deductible. The nine ISO containers were not insured property, being acquired subsequent to the incident, and indeed only filled in July 2001, as it happens after the expiry of the two policies with which I am concerned. The great bulk of the claim is in respect of costs incurred by Avesta in dealing with the incident and in particular disposal costs. The question for decision is whether costs of this nature fall for indemnity under the policies. There are two potentially relevant policies because by chance the 1999/2000 cover expired at 11.01pm UK time on 31 March 2000. That cover, to which I shall refer as "the 1999 policy" was subscribed to by the First to Sixth Defendants. The 2000 policy incepted at 11.01pm UK on 31 March 2000. It was in material respects identical. It was subscribed to by the Second and Third and Sixth to Twelfth Defendants. I shall refer hereafter to the 1999 policy alone.
- The 1999 policy was led by the First Defendants to whom I shall refer as "Axa". The underwriter at Axa was Mr David Wisdom. During the year in question Mr Wisdom also wrote cover for British Steel. Avesta's broker was CE Heath (Insurance Broking) Limited trading as Heath Corporate Risks. I shall refer to the brokers as "Heath". The previous year's equivalent coverage for Avesta had been written by Commercial Union and Royal Sun Alliance. There was some suggestion at the hearing that Axa may have reinsured some part of this earlier cover. The brokers' files have apparently been lost or at any rate not found and this was one of a number of points on which the evidence was inconclusive. Since I have no information as to the nature of any relevant reinsurance, still less as to the nature and extent of discussion and disclosure as between insurers and reinsurers, I cannot attach any great significance to the fact that Axa reinsured the risk in 1998/1999, if indeed they did. As will appear hereafter, even if they did, there are particular reasons for an inability to conclude that any relevant discussions might have come to their attention qua reinsurer during the previous policy year.
- The policy was entitled "ALL RISKS" MATERIAL DAMAGE INCLUDING MACHINERY BREAKDOWN AND BUSINESS INTERRUPTION. There is no evidence as to who drafted the policy or on whose form, if anyone's, it was. On the assumption that the 1998/1999 cover was on the same form as the 1997/1998 cover, which latter was in evidence, it can at least be said that the 1999 policy is not in the same form as that of the previous year, although it is of the same basic type. The policy is arranged in two sections, Section 1 being "Property" and Section 2 being "Business Interruption". The Claimant's claim is under the Property Section of the policy. Business Interruption cover was provided by Section 2 in respect of defined financial losses suffered in consequence of insured property damage. There is however no claim for Business Interruption.
- Bound in with the policy as the first page thereof following the Index is what is described in that index as "Statement of Intent" which provides, inter alia:
"The Insurers severally agree each for the proportion set against its name to insure against accidental loss or damage subject to all the terms conditions and exclusions in this policy."
Mr Symons QC, for Avesta, points to the fact that there is in that recital no reference to damage to property and that the words "accidental loss" are unqualified by words indicating that what is covered is loss of property. Whilst that is so, reference to "the terms, conditions and exclusions in this policy" swiftly demonstrates that this policy is indeed a traditional property damage cover. That however is not determinative of the question whether the Radioactive Contamination Memorandum which I shall shortly set out affords cover on a wider basis.
- Relevant provisions of the cover include:
The word "Damage" means the accidental loss or destruction of or damage to the Property insured resulting from any cause not otherwise excluded.
This policy does not cover:
(6) Loss of or Damage to any property whatsoever or any loss or expense whatsoever resulting or arising therefrom or any consequential loss directly or indirectly caused by or contributed to by or arising from:
(a) ionising radiations or contamination by radioactivity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel…
Solely for the purpose of this exclusion combustion shall include any self-sustaining process of nuclear fission.
(7) Loss of or Damage to stock or work in progress caused by processing renovating repairing or faulty workmanship thereon unless fire and/or explosion ensues and then only for the actual loss of damage caused by such ensuing fire or explosion
(12) (a) any loss Damage cost or expense or
(b) any increase in insured loss Damage cost or expense
(c) any loss Damage cost expense fine or penalty …
resulting from any seepage or any pollution and/or contamination … or from … measures taken in connection with the avoidance prevention abatement mitigation remedial action clean-up or removal of such seepage or pollution and/or contamination or threat thereof
except (unless otherwise excluded) loss of or Damage to the Property insured caused by
(a) pollution or contamination which itself results from all risks of direct physical loss or damage
(b) all risks of physical loss or damage which itself results from pollution or contamination
Each loss or series of losses arising out of One Event shall be adjusted separately and from the amount of such adjusted loss the sum stated as the Insured's retention shall be deducted.
Action Following Loss
On the happening of any event giving rise or likely to give rise to a claim under this policy the Insured shall
(a) take precautions to prevent any further loss or Damage…
The Insurers may at their own option repair replace or reinstate any damaged item or part thereof or pay the amount of the Damage in money…
SECTION 1 PROPERTY
The Insurers will pay to the Insured the amount of the loss resulting from Damage to the Property of the Insured of every kind and description… …against Damage as defined herein occurring during the Period of Insurance stated in the Schedule forming part of this policy. ["the Insuring Clause"]
The Property Insured
(b) Machinery Plant and All Other Contents therein and thereon and elsewhere in the United Kingdom including whilst in transit excluding landlords fixtures and fittings Stock and Materials in Trade and Vehicles licensed for road use including accessories thereon
(c) Stock and Materials in Trade
Memoranda to Section 1 – Property
In respect of destruction of or damage to Buildings Machinery Plant and equipment insured hereby the basis of loss settlement shall be its reinstatement or replacement in a new condition… provided that
(a) the liability hereunder shall not exceed the cost of reinstatement or replacement of the insured property as herein provided in a new condition or the actual expenditure incurred whichever is the less
(b) Where any item of property is lost destroyed or damaged to the extent that it cannot be economically repaired replacement shall be by new property…
(c) no payment beyond the actual value of the property at the time of its destruction or damage shall be made until the cost of reinstatement or replacement shall have been incurred…
(d) if the Insured shall be unable or unwilling to effect reinstatement or replacement this memorandum will not apply and the basis of loss settlement shall be the actual value of the property immediately prior to the destruction or damage
The Insurers…shall not in any case be bound to expend in respect of any one of the Property insured more than its value at the time of reinstatement if the Damage had not occurred.
In the event of loss or damage to property insured hereunder the basis of adjustment shall be as follows:
(a) on Stock and materials in Trade or work in process at the value of raw material and labour expended plus the proper proportion of overhead charges
(f) all other property at the actual cash value immediately prior to the loss
The insurance by this section includes costs and expenses necessarily incurred by the Insured with the consent of the Insurers in
(a) removal from the Premises at which the loss and damage or destruction occurred of debris which results from the damage or destruction…
(b) clearing cleaning and/or repairing drains, gutters, sewers and the like for which the Insured are responsible in consequence of any cause not herein excluded…
In calculating the amount payable under this policy for loss where costs or expenses for removal of debris are incurred by the Insured
(b) the amount of such costs or expenses shall be added to
(i) the amount of the damage or destruction and
(ii) all other amounts of loss which arise as a result of the same occurrence and for which the Insurers also agree to pay or which but for the application of a deductible or underlying amount they would agree to pay and
the resulting sum shall be the amount by which any Deductible or underlying amount to which this policy is subject and the limit of this policy shall be applied
Notwithstanding General Exclusion (6) the insurance by this section is extended to inclue loss destruction or damage due to contamination caused by the use of radioactive scrap materials utilised in the manufacturing process the Insured having agreed to undertake their standard screening procedures details of which have been lodged with Insurers
Provided that the liability of the Insurers under this extension shall not exceed SEK 130,000,000 each and every loss and in the annual aggregate"
- It was naturally common ground that the proper construction of the policy should be discerned from the words used, giving to them the meaning which they would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract – see per Lord Hoffmann in ICS Limited v West Bromwich Building Society  1 WLR 896 at 912. This includes such factual background knowledge as both parties in fact had at or before the date of the contract, including what can be described as the "genesis" and objectively the "aim" of the transaction. See per Lord Wilberforce in Prenn v Simmonds  1 WLR 1381 at 1385.
- Mr Symons expressly eschewed reliance upon any evidence of negotiations or the subjective intent of Avesta, notwithstanding he had led evidence directed to just such matters. There was in fact, properly understood, no evidence of what if anything was discussed between the insured and Axa prior to placement of the 1999 policy. Nor was there any evidence of any discussion with any other underwriter subscribing to the 1999 cover. I heard evidence from Mr Peter Ward, who was at all material times both Avesta's Accident Prevention, Occupational Health and Security Manager and their Insurance Manager. The renewal of insurance in 1999 was handled on Avesta's behalf by Heath. I heard no evidence from Heath about it and they have been unable to produce relevant documents. Whilst Mr Ward had no precise recollection of it, it appeared that he had had one meeting with representatives of Axa prior to the placement. He is certain that he must have had a discussion with Axa which covered the same ground as a discussion which he had had earlier with Commercial Union and Royal Sun Alliance in October 1998. Mr Ward's belief was in part based upon his assumption that Axa would not have included the radioactive contamination memorandum without there having been some such discussion. I will assume that that is likely, particularly bearing in mind the reference in the radioactive contamination memorandum to the insured's standard screening procedures details of which [had] been lodged with insurers. In order to see what if any impact that may have on construction of the policy, at any rate as against Axa, I must describe what occurred in October 1998.
- In May 1998 an incident took place at the Acerinox steelworks in Algeciras, Spain. A steel scrap processing plant inadvertently melted down a sealed caesium source which it had received from an unidentified foreign supplier. Prevailing winds that day bore the caesium away from the Spanish mainland and it was detected in France and Italy. Contaminated product was sent to other plants in different regions of Spain. Contamination was found at all three plants. So much was published in "Nucleonics Week" on 30 July 1998. Avesta by Dr Harvey, its Radiation Protection Adviser, had by 5 November 1998 discovered more about this incident, derived mainly from the official report of the Spanish authorities. Dr Harvey included this in his "Contingency Plans in event of melting a radioactive source". There is no evidence that underwriters saw this document. The information therein is not entirely consistent with the published account. For example, it suggests that there was no contamination in the product, whereas radiation was reportedly detected at the plants to which the finished product was taken. However Dr Harvey's document also suggests that the slag and fume extraction system were both contaminated.
- In August 1998 Mr Ward asked Alison Roberts of Heath to investigate the possibility of cover for radioactive contamination under the Property Damage and Business Interruption and Public and Products Liability policies. On 13 August 1998 Miss Roberts advised Mr Ward by fax as follows:
"Re: RADIOACTIVE CONTAMINATION
I refer to your request concerning cover under the Property Damage and Business Interruption and Public and Products Liability policies for the above.
Gunnar is investigating the Public and Products Liability policy and will come back to us as soon as possible.
With regard to the Property Damage and Business Interruption policy there is currently no cover under this policy for purely Radioactive contamination. To provide an explanation for this, it is not because of the Radioactive contamination exclusion clause as this refers purely to radiation and contamination from nuclear fuel, nuclear waste or explosive nuclear assemblies. I guess it unlikely that any of these would find their way into your scrap? Companies whose activities involve these products have a strict liability in respect of their products and insurance is provided by the Nuclear Pool in this country, the British Insurance (Atomic Energy) Committee. There is a similar organisation in Sweden. All insurers carry this exclusion in their policies as these risks are carried by the Nuclear Pool.
From our discussions I understand that your concern is related to the accidental melting of a shielded source, as unshielded sources would be picked up by your detection equipment. These are likely to be from x-ray equipment or something similar. The person or company in possession of any radioactive isotope in this country has a strict liability to dispose of them safely.
If one of these resulted in contamination to the melt (i.e. you detect it only after it has been melted) there would currently be no cover under the Property Damage and Business Interruption policy as Contamination is excluded (see Page 1, Perils Excluded 1 of the Policy Wording) and also Pollution or Contamination (see Page 2, Perils Excluded 13) unless there is damage caused by Pollution or contamination which results from Damage or there is Damage which results from pollution or contamination.
As discussed insurers have said they have problems with their reinsurers but they will consider providing the cover.
There are two rationales we probably should consider, one is contamination of the production facility and consequent decontamination together with a period of Business Interruption.
The second would involve an airborne emission which may involve a directive from the local authority for closure of the plant pending environmental clearance. …"
It is worth noting that whatever it was that Mr Ward had in mind, neither rationale number one nor rationale number two encompasses what may broadly be called clean-up and disposal costs with the exception of necessary removal of contamination to the plant and equipment.
- Mr Ward was concerned about the level of Avesta's exposure in the event of the inadvertent melting of a radioactive isotope, and asked for a meeting with Commercial Union and Royal Sun Alliance to discuss it. A meeting duly took place at the Trusthouse Forte hotel at Manchester Airport on 16 October 1998. Of those present I heard evidence from Mr Ward, Miss Roberts and Mr David Phipp, the underwriter at Royal Sun Alliance. Mr Brown of Commercial Union also attended, as did Mr Ingemar Grahn, Corporate Risk Manager for Avesta. Broadly speaking the object of the meeting from Avesta's point of view was that their insurers should fully understand both Avesta's exposure and the precautions that were being taken to avoid an incident such as had occurred at Acerinox. The best source of information as to what transpired at the meeting is undoubtedly a note of Miss Roberts' dated 21 October which she dictated from her manuscript notes taken at the meeting. Her note concluded with the following paragraph, under the rubric "Cover":
"Cover would be for the direct damage and business interruption during repairs/cleaning but not delays caused by local authorities. Insurers would require a limit any one incident of say GBP 10,000,000, current deductibles would apply. Alison Roberts is to devise a form of words to provide the appropriate cover and forward to Ingemar Grahn for approval before approaching insurers for their agreement. The agreement of all insurers involved the programme (sic) would have to be obtained to the additional cover."
It seems to me likely that the expression "direct damage" was one which had as its origin the words in the insuring clause in the then current Material Damage cover "against ALL RISKS OF DIRECT PHYSICAL LOSS OR DAMAGE." It may well be that cover so described was more narrow than that which Mr Ward was setting out to achieve. It may even be that Mr Phipp at any rate understood that Avesta were looking for cover which would include the cost of disposal of any contaminated insured property following an incident like that at Acerinox, although I do not think that his recollection to that effect nine years after the event can be regarded as entirely reliable. As it happens Mr Phipp may at the time have had a greater knowledge of risks of this type and their consequences than did other underwriters since in 1997 he represented insurers' interests on the British Nuclear Insurance Panel for contract work including disposal of nuclear waste material. Earlier in August Mr Brown of Commercial Union had sent to Miss Roberts following their earlier discussions a fax message in which he summarised what he saw as the "distinct possibilities" flowing from an undiscovered shielded source reaching the furnaces. The first "would involve contamination of the production facility and consequent decontamination costs together with a period of non-production and consequent Business Interruption. The second would be an airborne emission only where no contamination takes place to the Plant but may involve a directive ranging from local authority to EC requiring closure pending environmental clearance." The first of these possibilities corresponds with what Miss Roberts described in her note of the 21 October meeting as being the sort of coverage which underwriters were prepared to consider.
- Miss Roberts did indeed devise a form of words as her note indicated she would. She sent it to Mr Brown, who in turn amended it. The upshot was a proposed endorsement which qualified the pollution and contamination exclusion in the existing material damage policy so as to extend cover to loss or damage caused by radioactive contamination. The "loss or damage" thereby brought back into the scope of coverage would however be "direct physical loss or damage" as provided for in the insuring clause. That would mean that were insured property to be "damaged" by contamination, the insured would recover the cost of repair, decontamination, or replacement. Costs incurred in clearing away or disposing of plant or machinery would rank for indemnity, if at all, under the debris removal clause. No-one suggests that the costs which Avesta seek to recover in this litigation fall within the scope of the debris removal clause in the policy under consideration.
- By the time that Mr Brown had produced a version of the endorsement which he was prepared to consider it was already 4 December 1998 with renewal looming on 1 April 1999. The additional premium had not been agreed. It was clear that if agreed cover for radioactive contamination would be subject to a combined single limit of SEK 130,000,000 (about £10,000,000) each and every loss and in the aggregate. The evidence did not reveal whether the proposed endorsement was ever finally agreed as part of the cover. Miss Roberts thought that it had been. I think it more likely that it was not, and that her recollection is inaccurate. Had it been agreed, it seems likely that at any rate Avesta, whose records were not lost, would have been able to produce at the very least the invoice for the additional premium. It would also have been expected to be reflected in the initial presentation for the renewal, as Miss Roberts readily accepted, but in fact it was not.
- In the light of the last point and bearing in mind that the renewal was placed with new insurers who had not participated in the 1998/1999 cover, at any rate not as direct insurers, it may be wondered of what conceivable relevance to the task of construction of the 1999 policy is either the discussion with the previous underwriters or even the outcome thereof in the event that the expiring cover did indeed include the endorsement? The highest that it could really be put was that since Axa did write the 1999 policy with its specific radioactive contamination memorandum, it is unlikely that they did so without some discussion with the insured or their brokers having preceded it. Although he had no recollection of the content of any meetings taking place during the renewal exercise, Mr Ward was sure that in the course of such discussions Avesta must have told Axa what cover they were looking for in the same terms as had been explained to Commercial Union and Royal Sun Alliance at the Manchester Airport meeting. Mr Ward also imagined that it would have been explained to Axa where the discussions with the previous insurers had ended up. I accept of course that there must have been discussions with the new insurers. It seems to me likely that such discussions were not conducted exclusively by the brokers and the underwriters but that Avesta participated therein. Given the express reference in the radioactive contamination memorandum it seems to me very likely that Mr Ward and/or Mr Grahn would themselves have explained to Axa the risk management procedures which Avesta and their suppliers had in place. I also accept that it is highly likely that Axa saw the terms of the expiring cover.
- The background matters relevant to construction can I think broadly be summarised as follows. Leaving aside the specialist nuclear pool, the general insurance market in London did not in 1999 offer cover against the risk of radioactive contamination. In an ordinary property damage cover written on all risks terms that exclusion would typically be brought about by two broad forms of exclusion. First, a radioactive contamination exclusion, which would be likely to relate to contamination from nuclear fuel or weapons material or from the waste produced by nuclear fission of such materials. Second, a more general pollution and/or contamination exclusion, written in terms broad enough to exclude cover for contamination caused by other radioactive sources not properly described as nuclear fuel or weapons material. It would be highly unusual in the then London market to obtain cover of any sort against the risk of radioactive contamination. The request to consider granting such cover was itself highly unusual. I think it likely that Axa was made aware, before placement, if it did not already know, that there had been incidents in the steel industry in which radioactive sources had been inadvertently introduced into the production process with consequent contamination. Plainly Axa were told before placement about Avesta's active approach to risk management and the steps they were taking to protect against the risk of inadvertently melting a radioactive source. Axa would have appreciated that Avesta or any other similarly placed insured would be concerned about damage to product, commercial reputation and the costs associated with a contamination incident. Axa would have appreciated that such costs could include business interruption, clean up and disposal costs. Axa may also have known that the previous year's underwriters had been prepared to consider cover limited to SEK 130,000,000 on the terms which I have already summarised. If they were aware of that, then they were also aware that that cover was achieved by the modification of an exclusion which did not affect the basic structure of the policy, that in general it responded only to direct physical loss of or damage to property.
- I am not assisted in construing the policy by the consideration that Avesta, in the shape of Mr Ward, wanted to purchase cover which he described in evidence as "full cover" and which would extend to the cost of looking after and/or clearing up and if necessary disposing of contaminated material whether that be plant, steel being produced, slag or furnace dust. That consideration is classically irrelevant and inadmissible as a declaration of subjective intent. It is unhelpful because it casts no light on the extent to which underwriters were prepared to grant such cover, and, if they were, whether Avesta were willing to pay the cost. As Lord Wilberforce said in Prenn v Simmonds, above, at page 1385 C:
"Far more, and indeed totally, dangerous is it to admit evidence of one party's objective – even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised."
For what it is worth Miss Roberts recorded that Avesta were "quite mean… quite tight – [they] didn't ever really want to pay for anything." She had been surprised that Avesta had agreed, as she thought, to Commercial Union's proposed terms for the additional cover which were £50,000 with a minimum charge of £25,000 for any period of less than one year, or at any rate for the balance of the policy period. By the same token I regard as equally unhelpful the consideration that the previous year's underwriters plainly focused on the risk of contamination of the plant, business interruption flowing therefrom and airborne emissions as the "rationales" which they should consider, rather than costs of the nature which are sought to be recovered in this action.
- I turn then to the task of construing the policy. It is trite law that it must be read as a whole. The overall shape of the policy is clear. Mr Symons accepts that in the Definition clause defining "Damage" the word "loss" means, in context, loss of insured property. The "loss" which the insurers agree to pay in the main insuring clause is "loss resulting from Damage to the Property of the Insured" or, amongst other things, resulting from damage to property "for which the Insured is responsible against Damage". In each case the capital "D" imports the defined meaning of "Damage". There is in my view no real doubt that the cover given by Section 1 is traditional property damage insurance. The sum insured under Section 1 Property is SEK 24,516,966,000. As the parties to the contract knew, that is the updated total replacement value of Avesta's property at risk in the five different territories in respect of which cover was by this policy afforded – the figure, broken down into its constituent parts, appears in the Underwriting Presentation for 1999/2000.
- The short question therefore is whether the word "loss" when used in the first sentence of the radioactive contamination memorandum carries a broad unrestricted meaning which can be encapsulated as economic loss or whether, taking its colour from its context, it should be regarded as restricted to that type of physical damage related loss to the recovery of which the policy as a whole is directed.
- The policy is not consistent in its use of either the word "loss" or the word "damage", whether with a capital or a lower case first consonant. Whilst therefore it is true that the draftsman could have used in the radioactive contamination memorandum the phrase "loss of or damage to the property insured" had he intended to restrict the loss recoverable to loss relating to property damage, I cannot regard that consideration as of any great weight. The full phrase used in the radioactive contamination memorandum is in fact "loss destruction or damage". One finds the same expression in Exclusion 23 where it would be unnatural to regard "loss" as meaning anything other than loss of property. In the European Community Public Authorities Memorandum the equivalent words are either "the lost or destroyed or damaged Property" or "the property lost destroyed or damaged". The Definition of Incident likewise has "loss or destruction of or damage to property". Mr Symons points out that radioactive contamination differs from other property damage in that contaminated property is not readily disposable. That is true, but it does not persuade me that the word "loss" when used in the radioactive contamination memorandum in conjunction with the words "destruction or damage" must necessarily in this specific context bear a wider meaning than that which typically it seems to bear when similarly so used elsewhere in the policy.
- Mr Symons points to the fact that in General Exclusion 6, to which specific reference is made in the radioactive contamination memorandum and to which that memorandum is itself an exception, there is specific reference to "any loss or expense whatsoever" and indeed to "any consequential loss". He suggests therefore that it would be surprising if the cover afforded by the radioactive contamination memorandum were in terms more narrow than that which is excluded by Exclusion 6. Although there is some superficial attraction in this argument, I do not think that it survives closer scrutiny. Mr Symons was himself at pains to emphasise that the type of loss which Avesta seeks to recover should not be regarded as consequential loss but as the direct loss naturally resulting from radioactive contamination. The expression "consequential loss" is I think somewhat elusive, taking its meaning from the context in which it is used, however in Exclusion 6 it is plainly used in contradistinction to direct physical loss of or damage to property. Whilst the meaning of the words is clear, the necessity for their use is not. Such losses would not ordinarily be recoverable under this policy anyway, any more than would "any loss or expense whatsoever" resulting from or arising from loss of or damage to property. In any event, the radioactive contamination memorandum uses neither of these expressions – it refers to loss destruction or damage.
- The radioactive contamination memorandum is as it states an extension to the cover given by the section of the policy in which it is found. That is in my judgment the meaning and effect of the words "the insurance by this section is extended". It would in my judgment be surprising if the parties intended by this wording to introduce cover of a wholly different nature from that given by Section 1 of the policy, Section 1 being headed "Property". If the word "loss" is in this context to be given an unrestrained general meaning then, as Mr Edelman QC put it, the cover is transformed and exposures wholly alien to the policy are introduced, subject only to the sub-limit provided by the extension. Furthermore were that so there would then be duplication between the cover given by this memorandum in Section 1 and by the Business Interruption cover in Section 2. In fact the business interruption cover given by this memorandum would be broader than that given by Section 2 because it would be unconstrained by the specific clauses in Section 2 and the contractual formulae pursuant to which business interruption losses are under the policy to be computed. I think it unlikely that these consequences were intended. In my judgment the language used, "the insurance by this section is extended" is a clear pointer to the general insuring clause as being the determinant of the type of loss, destruction or damage to which the extension relates. The extension specifically reintroduces one of the risks which had otherwise been excluded, principally by Exclusion 12 but at all events by a combination of Exclusions 12 and 6. An excluded cause is thereby reinstated.
- The clause in the policy which comes closest to giving that sort of cover for which Avesta contend as having been achieved by the radioactive contamination memorandum is the Debris Removal clause. It is worth noting that that clause requires the consent of insurers to debris removal and imposes a modest limit on the amount recoverable. Given that radioactive contamination is capable of generating substantial losses not just in relation to cleaning and disposal costs but also in relation to plant and property damage, it would I think be surprising if in this context the parties intended to adopt a wholly different structure of cover.
- Construing the radioactive contamination memorandum in the manner I have suggested does not render the cover given thereby illusory. In the context for example of an incident such as that at Acerinox where a fume extraction system was apparently contaminated to high level there would be cover in respect of the "repair" or, where necessary, the replacement of that system. Damage due to contamination in this context will usually imply that the insured property is damaged because contaminated. The cost of cleaning or decontaminating that property, the equivalent of repairing it in another context, is recoverable. However just as under the general cover the cost of disposal of a part requiring replacement will not fall for indemnity unless it falls under the rubric debris removal, so here the cost of disposal of radioactive dust or valueless slag is not covered, any more than the cost of disposal of the flue itself after an Acerinox type incident would be covered were it necessary for that part to be replaced. As Mr Edelman put it the policy pays, subject to the sub-limit, enough money to put the factory back into operation. The fact that it may not be possible to use the factory until the contaminated material is removed from the site is beside the point – the question is whether that cost is covered under a property damage policy. By analogy with debris removal one would not expect it to be covered unless by special provision. In my judgment the radioactive contamination memorandum falls short of providing this type of cover. It provides property damage cover of a type which would otherwise be excluded but it does not go further and afford cover against purely economic loss consequent upon radioactive contamination.
- In the circumstances it is strictly unnecessary for me to deal with the insurers' argument that the cost of disposal of the slag is in any event excluded by Exclusion 7 as being loss of or damage to stock or work in progress caused by processing. However I propose briefly to express my view thereon. I leave out of account whether the cost of disposal is loss of or damage to the work in progress. In my judgment the argument fails in terms of causation. I do not think that one would naturally describe the damage as caused by processing. It is true that it occurred during processing but it happened because of the presence of a radioactive source. Damage so occurring is not in my judgment properly or aptly described as damage caused by processing.
- It is also unnecessary for me to deal with an argument as to the time at which the various losses should if otherwise recoverable be regarded as having occurred. However again it seems to me that here one should look to the insuring clause. The insurance is against damage occurring during the period of insurance. That means that one asks when the slag in each slagpot was contaminated. The fact that the damage all resulted from the single introduction of the source or from its melting seems to me beside the point, given the structure of the policy.
- I shall hear Counsel as to the form of order required in order to give effect to my judgment.
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