The nature of a liability insurance policy

14/09/10

Omega Proteins Ltd v Aspen Insurance [2010] EWHC 2280 (Comm)

In a judgment given on 10 September 2010, Christopher Clarke J. has reviewed the nature of a liability insurance policy and declined to follow an earlier decision of the Commercial Court.

The claimant (Omega) had successfully sued a supplier (NC) for damage caused by a product supplied by NC.  The only basis of liability alleged by Omega was breach of contract and judgment was given on that basis.  NC went into liquidation without satisfying the judgment, and its rights against its insurers were accordingly transferred to Omega under the 1930 Act.

NC was insured by Aspen under a liability policy which covered NC against liability arising under any contract for damage caused by its products only if such liability would have attached in the absence of the contract.  The Insurers argued that the basis of NC's liability was conclusively determined by the earlier judgment and it was therefore not open to Omega to show for the purpose of claiming under the policy that NC had been negligent and therefore liable independently of contract in tort.  In support of this contention the Insurers relied on the decision of Tomlinson J in London Borough of Redbridge v Municipal Mutual [2001] Lloyd's Rep IR 545.

Omega argued that Redbridge was wrongly decided and should not be followed.  Christopher Clarke J. agreed.  He held that, while a judgment against the insured establishes a loss, it is not determinative of whether the loss is covered by the policy.  It is therefore open to the insurers in a claim under the policy to dispute that the insured was in fact liable or that it was liable on the basis specified in the judgment or to show the true basis of liability fell within an exception; and it is similarly open to the insured to show that it was liable on a different basis from that specified in the judgment.

The judge further found that on the facts NC had been negligent and that Omega was therefore entitled to be indemnified by Insurers.

The judgment is here.