Should a standard Motor Trade business insurance policy cover contamination from a fuel leak? To the casual observer the question barely merits consideration. One of the key risks in running a petrol station must be fuel leaks and the damage they could cause to the property and trading prospects.
The casual observer would be wrong though. Resolving this simple question has taken nearly seven years, two trials and the application of scores of highly trained legal minds.
The nuances involved in the decision is exemplified by the fact that even the judges couldn’t agree. The High Court decided the fuel leak should not be covered, only for this to be overturned at the Appeal Court. Even then the decision wasn’t cut and dried. Of the three judges sitting in the Appeal Court, two decided in favour of the garage, ruling the fuel leak was covered. The other judge preferred the insurers’ argument. The Appeal went against Allianz, but only on a majority verdict.
The two judgements in Brian Leighton (Garages) Limited v Allianz Insurance Plc demonstrate the problems that can arise when insurance cover is provided without proper oversight and scrutiny of the policy wording.
In the case of Brian Leighton (Garages) Limited (BLG) the company had paid for a Motor Trade Policy from Allianz for a number of years. The policy covered damage to the insured premises, including “damage in consequence of escape of water or fuel oil…”. However elsewhere in the policy document the exclusions included “damage caused by pollution or contamination.”
Attempting to resolve this conflict, the High Court judge found in favour of Allianz, ruling the exclusion captured the damage from pollution. The Appeal Court took a slightly more common sense approach, starting off by considering the commercial reality at play when in the motor trade.
The judgement summarises this point succinctly: “The risk of leakage of fuel from pipes, tanks and apparatus is amongst the most obvious risks arising from such an operation, and one against which the operator of the business would naturally desire cover.”
Ultimately however the legal point was decided, as is often the case, through an analysis of what actually caused the damage, in legal terms the “proximate cause”. The court decided the cause of the damage was the leaking fuel pipe, something that was covered by the policy, rather than the pollution and contamination that resulted from escaped fuel.
While the judgement ultimately came down on BGL’s side, the company is not home and dry in making its case. The two hearings outlined above did no more than decide a preliminary issue. Any substantive trial in the case is yet to come.
The fine legal margins at play in this case demonstrate just how important it is to get policy wordings right. Too often companies sign up to standard policy documents which contain exclusions which are either contradictory or plain daft.
At Mactavish we have seen exclusions that would preclude steeplejack companies from working at heights, or IT service providers from operating in their client’s offices. Often policy wordings are drafted by brokers or insurers as standard documents that can be used time and again. This gives rise to three problems. The first is that they cannot, by definition, meet the exact requirements for each insured party. The second issue is that if a broker has a deep and longstanding relationship with insurers, there is an obvious potential for conflict. As Mactavish has previously demonstrated the bulk of their income comes from insurers, not the policyholders whose interests they should be representing. The third is that the whole insurance industry benefits from skipping the tailoring process and leaving the client with the risk of a gap in cover.
Spending more time to get policy wordings right can save enormous amounts of time, effort and money when an insurance policy is required to perform – at the moment of claim.
Mactavish Claims Litigation Index
The Mactavish Claims Litigation Index aims at tracking insurance litigation and claims performance and getting the market to focus on what really matters, the product you buy with your premiums, not just the premium itself.
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