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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Outokumpu Stainless Ltd v AXA Global Risks (UK) Ltd & Ors [2007] EWHC 2555 (Comm) (08 November 2007) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2007/2555.html Cite as: [2008] Lloyd's Rep IR 147, [2007] Lloyd's Rep IR Plus 54, [2007] EWHC 2555 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
OUTOKUMPU STAINLESS LIMITED |
Claimant |
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- and - |
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(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 |
Defendants |
____________________
(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
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Crown Copyright ©
Mr Justice Tomlinson:
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 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.
"GENERAL DEFINITIONS
Damage
The word "Damage" means the accidental loss or destruction of or damage to the Property insured resulting from any cause not otherwise excluded.
GENERAL EXCLUSIONS
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
GENERAL CONDITIONS
Deductible
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
(a) Buildings…
(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
Reinstatement
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.
Valuation
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
Debris Removal
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
Radioactive Contamination
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"
"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.
"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.
"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.