Fire in 2016
In 2016, employees of Sangster & Annand (S&A) were working on the roof of a hotel in Scotland using a blowtorch to undertake hot works. Shortly after the hot works were completed, the roof caught fire and the hotel suffered serious and substantial damage.
The owner of the hotel, Britannia, brought proceedings in Scotland against S&A claiming over £9 million in losses suffered as a result of the fire. Britannia alleged that S&A, negligently and in breach of contract, had failed to take the necessary precautions to prevent the risk and spread of fire. Those precautions were specifically listed in the contract and were also in line with general industry practice. S&A did not deny those allegations and instead alleged that the fire started elsewhere.
Insurers’ claim for declaratory relief
The insurers, Aspen Insurance and Liberty Mutual Insurance, provided public liability insurance to S&A during the relevant period. The policy contained a hot works exclusion where “the insured is using any process which involves the application of heat” unless suitable precautions are taken and included a specific list of precautions to be taken by the insured.
The insurers brought proceedings in England seeking declaratory relief that the policy did not respond to the claim by Britannia. They alleged that S&A had failed to comply with the requirements of the hot works exclusion and that, therefore, insurers were entitled to decline indemnity to the insured. The requirements of the policy exclusion were similar to the allegations made by Britannia in the Scottish action, for which Britannia had submitted expert evidence in support.
Britannia’s application to join the declaratory relief proceedings
The insured failed to acknowledge service of the proceedings and the insurers applied for judgment in default. The judge had previously indicated that he was minded to grant judgment in default, but before he did so, Britannia applied to be joined to the proceedings to defend the insurers’ claim.
HHJ Waksman QC considered whether there was a “real utility” in Britannia being added to the proceedings, which he considered could only be achieved if there is at least a seriously arguable defence which could be put forward in defence of the insurers’ claim.
Decision regarding Britannia’s application to join
The judge did not consider that Britannia’s application passed that test. Many of the allegations made by Britannia in the Scottish proceedings indicated a clear breach of the hot works exclusion. He rejected an argument by Britannia that the exclusion would only apply if the insured had been reckless. The authorities to which he was directed related only to a general requirement to take reasonable precautions, rather than a specific set of requirements as was the case with this exclusion.
He also rejected Britannia’s argument that the breaches of the exclusion needed to be causative of the losses for it to apply. The policy was entered into prior to the Insurance Act 2015 coming into force and accordingly the causative impact of any breaches was irrelevant. The judge also considered that it was unlikely any further evidence would materialise in the course of the Scottish proceedings that might change his view. Accordingly, he rejected Britannia’s application and granted judgment in default.
Application for permission to appeal
Britannia applied for permission to appeal to the Court of Appeal arguing that the insurers’ claim for declaratory relief was premature because the claim against S&A had not progressed to a significant extent and the judge was wrong to rely on the hot works exclusion. The court refused permission to appeal on the basis that the judge had been correct to conclude that no further relevant evidence would become available and agreed with the judge’s reasoning regarding the exclusion, which they agreed acted more to prescribe the limit of cover rather than as an exclusion clause.
The scope of this decision is arguably limited given that the same decision may not be reached in relation to policies to which the Insurance Act 2015 applies, particularly in circumstances where a failure to comply with the requirements of a policy is not causative of the losses sought. Nevertheless, this case is a reminder of the importance for contractors to understand the scope of cover available under the policy and to be aware of the possible implications on cover where an insured fails to comply with such requirements.