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A claim
for an indemnity under a "claims made" liability insurance
policy failed where the Claimant could not establish that it had exercised
the formal requirements for a loss notification option contained in
the excess layers of the insurance policy.
The Claimant manufacturer, Tioxide, sought an indemnity from CGU, the
defendant insurers, who subscribed to excess layer liability insurance
policies for the policy year June 1996 to June 1997, written on a "claims
made" basis. Indemnity was claimed in respect of all claims (including
future claims) made against Tioxide arising from the discoloration ("pinking")
of uPVC products manufactured and sold by others which had included
a pigment supplied by Tioxide. The pigment had caused a small proportion
of uPVC products to discolour, as a result of which Tioxide had been
liable to several manufacturers for loss and damage.
Tioxide were insured under a Global Liability Policy against claims
first made against it for an indemnity on the primary layer. Tioxide
also had similar first and second excess layer policies.
At first instance, Langley J dealt with a variety of coverage issues,
summarised below. These issues were not re-examined in the Court of
Appeal. CGU argued that Tioxide's claim was excluded by the terms of
the policy because the claims in respect of which Tioxide sought an
indemnity were not "on account of Property Damage", nor was
the claim for "Loss" within the meaning of the policy definitions.
"Loss" was defined as "an accident, including continuous
or repeated exposure to the same general harmful conditions".
The Judge held that "physical injury" included an unwanted
physical change in the property (i.e. pinking), even if the change was
not permanent, provided that it impaired the value or usefulness of
the property.
Further, it was not a bar to Tioxide's claim that the indemnity sought
was in respect of economic loss, rather than actual damage to property.
The definition of "financial loss" covered economic loss arising
from damaged property and was wide enough to encompass claims for the
cost of repair or replacement of discoloured products.
However, one of the reasons Tioxide's claim failed at first instance
was that the definition of "loss" required a unifying event
which could be pinpointed as the "accident" capable of bringing
all of the different claims against Tioxide within a single claim for
indemnity. Supplying a harmful pigment which caused discoloration could
not, in the ordinary course of language, be described as an "accident".
Langley J also held that Tioxide was trying to make a wide aggregation
clause out of the definition of "loss" when that was not the
purpose of the definition. The policy did not contain an aggregation
clause entitling Tioxide to aggregate all of the claims from the same
originating cause. Each individual claim would be excluded by the deductible.
However, Tioxide's claim also failed as it had not correctly notified
the excess layer underwriters under the terms of a Loss Notification
Option ("LNO") which, at Tioxide's option, enabled all claims
in respect of one loss to be attributed to one policy period. This was
fatal to Tioxide's claim and was the "threshold" issue which
was examined in the Court of Appeal. The appeal was dismissed, hence
the non-examination of the first instance coverage issues.
It was held that on a proper construction of the LNO in the excess policies,
the notice had to be given to the brokers during the period of the policy
and thereafter directly to the underwriters, and the reasons for this
were commercially justifiable. The LNO was an option, not an obligation,
for the insured, but, if it was exercised, the underwriters needed to
be notified. The fax relied on by Tioxide as giving notice was ineffective
to exercise the option validly because it was sent to the brokers and
not underwriters, as was by that time required, and it was not sent
by Tioxide or on its behalf. It did not even purport to be a notice
at all.
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