15 November 2007
Economic loss damages not recoverable on proper construction of property damage policy
Outokumpu Stainless Ltd v Axa Global Risks (UK) Ltd & Ors [2007] EWHC 2555 (Comm)
Facts
This Commercial Court case concerned a coverage dispute between Outokumpa (previously known as Avesta) and insurers arising from an incident at Avesta's steelworks on 31 March 2000 when Avesta inadvertently melted in its furnace a source of radioactive plutonium. There was no serious damage to or contamination of the smelting plant and equipment and only inconsequential interruption of Avesta's production, however, Avesta was left with a substantial quantity of contaminated slag which it was unable to dispose of via its slag processing contractors.
Avesta's claim consisted of damage to four "slagpots" (which fell below the deductible) and the costs of the controlled removal of contaminated pit slag and controlled wrecking of the furnace lining. The dispute between Avesta and insurers centred on whether the various costs incurred by Avesta in dealing with the incident (in particular the disposal costs) were recoverable under the property damage and business interruption insurance policy. Avesta did not pursue a claim for business interruption.
Judgment
Mr Justice Tomlinson held that there was no real doubt that the cover given by Section 1 (Property) was traditional property damage insurance. The central issue was whether the word "loss" when used in the Radioactive Contamination Memorandum to Section 1 had a broad meaning encompassing economic loss, or whether when read in context it was restricted to physical damage related loss to which the policy responded.
Mr Justice Tomlinson held that the Radioactive Contamination Memorandum was an extension to the cover given by the Section 1 (Property) of the policy. It provided property damage cover of a type which would otherwise have been excluded (such as the costs of putting the factory back into operation) but it did not go as far as providing cover for pure economic loss arising from radioactive contamination (such as the removal of radioactive dust or contaminated slag).
In reaching his decision Mr Justice Tomlinson looked at the structure of the policy and considered that if the word "loss" was given an unrestrained and general meaning to include such consequential losses, then the cover given by the Radioactive Memorandum under Section 1 (Property) would be broader than the cover given under Section 2 (Business Interruption) as it would not be subject to the specific terms under which business interruption losses are computed. Mr Justice Tomlinson held it was surprising and unlikely that such consequences were intended.
Comment
This Commercial Court judgment will be of interest to insureds and insurers alike as it deals with the thorny issue of recoverability of economic loss damages. Whilst the judgment is fact and policy specific it emphasises the need to read the policy as a whole when considering what type of "loss" is covered by a particular clause or section.
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