| Date | 11 February 2004 |
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| Judgment | Pilkington United Kingdom Ltd v CGU Insurance plc, CA 28 January 2004 |
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| The Issue | Interpretation of the terms of a product liability insurance policy. |
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| Implication |
A product liability insurance policy will generally extend only to the risk of damage to the property of others caused by the defective product and will not meet claims that the supplier incurs by reason of the failure of the product to achieve specified standards. |
printLast week the Court of Appeal decided an appeal against a judgment of the Commercial Court concerning the interpretation to be placed on a global product liability insurance policy held by Pilkington in relation to its business as glass manufacturers. The claim arose out of the installation of heat-soaked toughened glass panels manufactured by Pilkington and installed in the roof and vertical panelling of the Eurostar terminal at Waterloo. The terminal project had been carried out for Eurostar by Tarmac, with Pilkington engaged as sub-contractors for the supply of the glass panels. Following the installation of the glazing, a small number of the glass panels, approximately 13 out of some 3,000, proved defective in that they fractured in situ. Eurostar alleged that the cause of the failure was the presence of nickel sulphide introduced into the manufacturing process which had not been removed by the heat soaking treatment. No personal injury was caused to anyone, nor was there any damage to the fabric of the terminal, other than the fractures in the panels themselves. However, Eurostar was concerned that passengers or staff might be injured if further breakages occurred and they commissioned a technical investigation, closing the terminal for a time. In the event, Eurostar elected not to remove and replace the panels but instead installed safety features, such as transparent material under the panels and metallic channels designed to prevent any fractured glass falling into areas of the terminal frequented by the public. Having completed those remedial works, Eurostar commenced proceedings against Tarmac, the architects and the overall construction managers of the project claiming almost £6 million in damages. Tarmac's solicitors in turn notified Pilkington of their intention to claim an indemnity in respect of any liability that they might have towards Eurostar. That was followed by the commencement of contribution proceedings by Tarmac against Pilkington. It was not alleged that the defects in the panels had caused any physical damage to the terminal, apart from the failure of certain of the panels themselves. The claim was instead in respect of the investigation and management costs relating to various proposed remedial schemes and the costs of the remedial scheme adopted, which did not involve removal or replacement of the panels but the installation in the building of the safety features mentioned earlier. Eventually all the parties to the litigation took part in a mediation, resulting in settlement of all Eurostar's claims. Pilkington had contributed £330,000 to the overall settlement and incurred legal costs of some £700,000. Having already been notified by its insurers that they denied liability under the terms of the policy, Pilkington commenced proceedings against its insurers. Pilkington acceptedthat its policy of insurance covered "loss of or physical damage to physical property not belonging to them", caused by the glazing supplied or installed by them. Therefore, in front of both the Commercial Court and the Court of Appeal, Pilkington maintained that, in principal, the Eurostar terminal was "physically damaged" by the very installation of the defective glass panels and before any breakage in the panels occurred. They contended that the effect of the installation of glass panels which were potentially liable to fracture, was not merely to make the building less desirable or unsuitable for its particular use, but to render it too risky for use by the public without the taking of precautions. That was sufficient to bring their claim within the insurance cover. The insurers, CGU Insurance plc, argued that that was not the correct way to interpret the terms of their policy. They argued that on the plain and ordinary meaning of the words of the cover ("physical damage to physical property not belonging to Pilkington"), the mere installation of the panels and their incorporation in the building did not amount to physical damage to the terminal. There might be a future risk of physical damage, but physical damage would only occur when and if this risk materialised. Until the panels fractured, their state had not changed for better or worse since the moment of manufacture. Whilst therefore the glass had a characteristic which rendered it unsuitable for its intended purpose and which might give rise to a claim for damages for breach of contract, it did not give rise to a claim for indemnity from the insurers in respect of physical damage actually caused to the property of Eurostar. Lord Justice Potter reviewed a number of authorities and concluded that the earlier trial judge had been correct in rejecting Pilkington's claim. In the context of insurance law, the commercial sense of the insurance policy was that it was designed to protect Pilkington against liability for physical damage to physical property belonging to others. It was not intended to give an indemnity to Pilkington in respect of the quality and fitness of glazing that it supplied to the market place. To take precautions as Eurostar had done was simply to anticipate some future occurrence or damage which might be covered by the policy, but without specific provision the costs of those precautions did not fall within the terms of the insurance policy. Whilst therefore Pilkington had settled claims against it for an assumed liability under its subcontract, that liability did not transfer to its insurers who had undertaken a much more restricted liability which was limited only to addressing actual physical damage caused by the defective glazing.
CJ-0406
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