UK: Do Public Liability Policies Clean Up?

In the recent case of Bartoline Public Liability insurers were not liable to indemnify for clean-up costs resulting from pollution incidents. The case highlights the need for all parties involved in buying, insuring and placing Public Liability policies to be clear about what will be covered. Greater transparency about what is and what is not part of the risk transfer, will limit the potential for lengthy and expensive disputes between insured, insurers and brokers.

On 23 May 2003 emergency services attended a large fire at Bartoline's chemicals packing site in Beverley, Yorkshire. This fire resulted in severe pollution as various chemicals and 4000 litres of fire fighting foam were released into two nearby watercourses.

Once the fire was under control the Environment Agency (EA) carried out emergency works to contain and clean-up the watercourse pollution. Using its powers under the Water Resources Act 1991 the EA invoiced Bartoline for £622,680 to repay the cost of this emergency work. Under the same Act, the EA served statutory work notices on Bartoline requiring it to carry out £148,000 worth of clean-up works. Bartoline subsequently carried out the works.

Bartoline claimed under the public liability section of its Royal Sun Alliance (RSA) insurance policy for its various losses. RSA refused to pay the claim for clean-up costs and Bartoline sued RSA for breach of contract in the Manchester Mercantile Court.

Another claim was also made against Bartoline's brokers, Heath Lambert, for its alleged breach of contract and/or negligence but the judgment dealt only with the RSA claim.

The clause which was central to the dispute stated that RSA would "provide indemnity to [Bartoline]…. against legal liability for damages in respect of (a) accidental injury of any person (b) accidental loss of or damage to Property (c) nuisance trespass to land or trespass to goods or interference with any easement right of air light water or way." (emphasis added)

If the claim had concerned liabilities to third parties for bodily injury or property damage caused by the pollutants, the RSA policy would have responded. The policy contained the usual "gradual pollution" exclusion, but in this instance it was not argued that the fire was anything but sudden and unexpected.

The question for the judge was whether Bartoline's clean-up costs amounted to "legal liability for damages".

The main focus of the judgment fell on the meaning of the word "damages". The judge quoted Halsbury's Laws of England which says that "damages are the pecuniary recompense given by process of law to a person for the actionable wrong that another has done him". He said that this definition was supported by various cases and concluded that he could see no "obvious reason why a different approach should be adopted towards other forms of public liability insurance. The essential purpose of such policies is to provide the indemnity in respect of certain types of tortuous liability. That is reflected in the choice of the word 'damages' in the insuring clause of the Policy in this case ".

The judge concluded that "any liability to repay the expenses incurred by the Agency under [the Water Resources Act 1991] and any liability to pay damages in tort are, so to speak, quite different animals. One arises out of the need to protect the public interest in the environment and the other to protect individual interests in property. One gives rise to a right to recover the cost of certain works and operates as a debt; whereas the other confers a right to recover damages by way of compensation for loss and damage … it would be wrong to construe the relevant provisions of the Policy in such a way as to bring within the scope of the indemnity a liability pursuant to statute which is, in my judgment, analytically separate and distinct from the liability for damages in respect of breaches of tortious duty at common law which it is so plainly designed to cover."

So, Bartoline could not claim its clean-up costs as "damages" under its public liability policy.

The Court of Appeal has given permission to appeal this decision and the hearing is due at the beginning of October 2007.

What ever the outcome of the appeal, the Bartoline case demonstrates that there is confusion in the market about the extent to which Public Liability policies will cover environmental liabilities arising out of unexpected and accidental pollution incidents. Clearly, the correct interpretation of any Public Liability policy will turn on its own specific wording. But uncertainty can lead to costly disputes and damage to commercial relationships.

Given the publicity the case has attracted, anyone thinking of buying and any broker placing Public Liability cover would be well advised to seek clarity as to whether clean up costs are covered or excluded. Far sighted Public Liability insurers may want to enhance their goodwill with policy holders, and limit the potential for costly disputes, by ensuring their wordings spell out clearly if the risk of statutorily imposed clean-up costs is part of coverage on offer or, conversely, if it is excluded. Armed with this knowledge policy holders can then make informed decisions about the need to buy stand alone environmental liability insurance cover.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.