Bartoline Limited v Royal & Sun Alliance Insurance PLC and another
Bartoline manufactured adhesives and filled and packed hydrocarbons, such as white spirit and turpentine. In May 2003, following a fire at its premises, chemicals and fire fighting foam heavily contaminated two nearby watercourses, their beds and banks.
Acting under the Water Resources Act 1991, the Environment Agency carried out emergency work and sought to recover the cost from Bartoline. It also served notices under the Act requiring Bartoline to carry out further work to reduce contamination and prevent pollution.
The issue was whether Bartoline could claim on its public liability policy, both for its liability to pay the Agency's costs and for the cost of complying with the notices.
The policy provided an indemnity ''against legal liability for damages'' for accidental injury, accidental loss of or damage to property and nuisance, trespass to land or goods or interference with any easement or right.
Were these clean-up costs "damages" under the policy?
The judge found they were not.
The Environment Agency was acting in the public interest to prevent or mitigate the effects of pollution on the environment. Its claim was for a debt - the recovery of costs incurred under the Water Resources Act.
Such a claim was completely different in nature from any claims that might arise from private individuals for compensation for loss and damage resulting from an unlawful interference with their private rights and interests.
Under the Act, the Agency did not have to show it had suffered any loss, nor did it have to prove negligence or breach of duty. Liability to repay costs incurred in the exercise of its powers would arise whether or not there were any grounds for private claims for damages against the polluter.
Damages in English law, on the other hand, are generally awarded because there has been a breach of duty or obligation, whether that duty is imposed by contract, by general law or legislation.
The essential purpose of a public liability policy is to provide an indemnity against such liability – hence the choice of the word "damages". This policy made that even clearer by using the word in the context of accidental damage to property, nuisance, trespass and so on.
As for Bartoline's own costs, in the absence of an express term in the policy, there was no general duty on Bartoline to take steps to prevent or minimise loss that might fall to its insurers. Consequently, it was difficult to see how Bartoline could pass the costs of complying with the works notices on to them.
In reaching his conclusion, the judge followed the Court of Appeal's decision in Yorkshire Water Services v Sun Alliance [1997].
In that case, sludge escaped from the insured's sewage plant, contaminating a river. The insured carried out works to prevent further damage and claimed under its public liability policy, which provided an indemnity against legal liability for damages.
The Court of Appeal held the costs were not covered. The term "damages" implied a sum payable because of some breach of a duty or obligation. Sums paid to avert or lessen potential liability were not sums the insured was legally liable to pay as damages. The peril insured against was legal liability for damages, not an event which might give rise to legal liability.
The Yorkshire Water case also confirmed the principle (followed by the judge in Bartoline) that (outside the realm of marine insurance), an insured has no duty to take reasonable steps to prevent or minimise a loss unless the policy says so expressly.
