| Date | 6 August 2003 |
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| Judgment | Mabey & Johnson Limited v Ecclesiastical Insurance Office plc, QBD 22 June 2003 |
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| The Issue | Interpreting limit of indemnity clauses in professional indemnity insurances. |
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| Implication |
Where an insurance policy is subject to a limit of indemnity upon "each and every claim", whether one or more claims have been made will be dependent upon the underlying facts. Where the claims arise under separate contracts however, this will generally indicate separate claims unless the policy expressly provides to the contrary. |
printMabey and Johnson are an engineering company whose activities include the design, fabrication and supply worldwide of steel bridges. A product commonly sold by Mabey is a bolted steel truss bridge, which they describe generically as unit construction bridges (UCB). UCB's have been sold and delivered by Mabey to a number of different countries around the world, including Ethiopia, Peru, the Dominican Republic and the Republic of Ghana. In September 1996, the steelwork structure for a UCB supplied by Mabey to an Italian company and erected in Ethiopia became unstable and partially collapsed. This meant that Mabey had to review the designs and construction of a number of their bridges, including UCB's which had been erected, or were due to be erected, in Ghana. The review disclosed serious design errors, in which certain fairly basic miscalculations had been made. In all there were nine bridges in Ghana. Under what Mabey described as a first phase contract, two bridges had already been constructed. A third had been designed and fabricated but not erected, as the steel parts were in transit. According to Mabey, the remaining six bridges were being supplied to Ghana under a second-phase contract. Three of these had been constructed and three had been designed and fabricated only. The eventual outcome in relation to these nine bridges was that, of the five already constructed, three bridges were eventually replaced and remedial works were carried out to the remaining two. The four bridges which had been designed and were in transit were redesigned and replacement parts supplied. The cost of all of this activity, which Mabey had undertaken before the government of Ghana had made any claim against it, was a sum greatly in excess of £2 million. Accordingly, Mabey made a claim against its professional indemnity insurers. Immediately, a dispute arose concerning the indemnity limits contained within the policy of insurance. This stated that the limit of indemnity was £2 million "for a single claim". The insurers maintained that there was just one claim and that the indemnity limit should apply. Mabey argued that the circumstances gave rise to two claims. In passing, it is worth noting that it was not in dispute that there had been no claim made by the client, the Government of Ghana. This was because there had been an extension to the policy of insurance agreed by the parties, which stated "The insurers will indemnify the insured against all costs and expenses necessarily incurred in respect of any action taken to mitigate a loss or potential loss that otherwise would be subject of a claim under the policy". Clearly this was an important provision which was not part of the standard policy wording, but an agreed extension to it. The first question addressed to the court was whether a "series" provision had been incorporated into the insurance policy. Such a provision would be commonplace and would effectively limit the amount which could be claimed during any policy year in respect of "all claims arising out of the same act of negligent omission or error, or series of such acts consequent upon or attributable to the same cause or original source". If such a provision existed in Mabey's policy of insurance, the maximum amount the insurer would pay out would be £2 million, regardless of the number of claims which might be made against Mabey in consequence of its design errors. However, to Mabey's considerable relief, the court held that such a provision had not been incorporated into the policy. The insurer therefore altered its approach, arguing that the bridges being supplied to Ghana were all subject to one contract and therefore this was to be treated as one single claim. Mabey disputed this. It contended that there was two separate contracts. Mabey submitted evidence that there was a first contract, for the design and supply of the first three bridges and then a separate contract for the design and supply of the further six bridges. This was not affected by the fact that there was a "rolling together" of a separate contract that Mabey had entered into for the construction of all nine bridges. Mr Justice Morrison confirmed that the question as to whether there was one or more claims depended upon the underlying facts. The basis of the claim was that Mabey had carried out remedial work to avoid any claim being made against them. In consequence, the court could not observe how the potential claimants, the State of Ghana, had formulated, or would have formulated, their claim or claims against Mabey. Where a claim had been formulated, it might have been possible to say with some confidence whether there were one or two claims being made. However, it was the underlying facts that would be determinative. Critically however, Justice Morrison agreed with Mabey that there had been two design and supply contracts with the State of Ghana. Clearly, if claims had been made by Ghana in relation to the design of the bridges, it would have been a requirement to make separate claims under each of the two contracts. At the end of the day, the reality was that Mabey undertook to do designs for bridges under two different contracts. Much of the design work was common to both sets of bridges, but it was not identical. It was Mabey's contractual duty to design each set of bridges carefully and properly. They failed to do so in either case and accordingly there were two claims for the purpose of applying the limit of liability stated within the insurance policy.
CJ-0330
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