The court examines the question of tortious liability for the purpose of a policy of liability insurance in Omega Proteins Ltd v Aspen Insurance UK Ltd (2010).
Where, under a policy of liability insurance, a clause excluded any liability arising under a contract – except for the situation where such liability would have arisen in the absence of such a contract (i.e. in tort) – and where a previous judgment ruled that the insured was liable for breach of contract, then the court was not precluded from examining the question of tortious liability which fell within the cover.
In May 2006, a change in EC Regulation came into force which reclassified the categories of animal by-products, making some only fit for disposal. Northern Counties Meat Ltd ("NC") did not react quickly enough to the changes and supplied numerous batches of by-product to Omega Proteins Limited ("Omega") which were only fit for disposal.
Omega comingled the product and supplied it to JG Pears who processed the product and supplied tallow to Webster Thompson Limited. Webster Thompson had on-sold the tallow and, whilst this was in transit, the breach of contract was discovered, causing Webster Thompson substantial losses.
Webster Thompson commenced proceedings against JG Pears and obtained summary judgment for the full amount of their claim, in May 2008. A year later, JG Pears obtained judgment against Omega who, in turn, obtained judgment against NC, again for breach of contract.
NC were in liquidation and so Omega brought a claim against their insurers, Aspen, under the Third Parties (Rights Against Insurers) Act 1930. The insurance was a combined policy including cover for product liability which, importantly, excluded:
"any liability arising ... under any contract or agreement unless such liability would have attached in the absence of such contract or agreement."
The judge decided that this meant that Omega had to establish that NC would have been liable in tort had no contract existed. On the facts, it was clear that NC would have been liable in tort having acted negligently in failing to keep up to date with the regulatory changes.
This finding is relevant to product liability policies. However, it is worth noting that the judge found that even though the court had already considered and held the assured liable for a breach of contract in the substantive dispute, it did not prevent the court from examining whether the nature of such a breach could also be a breach of a different type of duty, which may be of wider application.
Barlow Lyde & Gilbert LLP acted for Webster Thompson.
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