Factual and Procedural Background
The Plaintiff brought a commercial action seeking payment of £5,256,904.11 for losses said to arise from the total destruction by fire in July 2021 of a warehouse-type unit owned by it. Company A was the insurance broker that arranged cover; Company B was the tenant using the unit for clinical-waste processing; and Company C guaranteed Company B’s lease obligations. Company B and Company C maintained that the claim against them was irrelevant and sought debate on that issue. [Para 16][Para 19]
Under the lease, the Plaintiff had to insure the unit against fire and Company B had to pay the premium. The policy obtained was subject to an exclusion regarding composite panels and to a condition precedent requiring electrical inspection within two months of inception; neither condition was satisfied. Company B later changed its process to use gas-fired burners without notifying anyone, and one of those burners started the fire. The insurer declined liability, first for non-disclosure and non-compliance issues and later by avoiding the policy ab initio after the fire. [Para 21][Para 25][Para 156][Para 158][Para 162][Para 164]
Legal Issues Presented
- Whether Company B’s alleged breach of the lease could causally support a claim for the Plaintiff’s loss, given that fire cover had already lapsed and the policy was later avoided ab initio on other grounds. [Para 28][Para 38][Para 46][Para 192]
- Whether clauses 3 and 4 of the property damage section, and the exclusion clause relied on by the Plaintiff, prevented the insurer from declining cover because of Company B’s undisclosed use of gas burners. [Para 53][Para 59][Para 67][Para 171][Para 185]
- Whether the pleadings disclosed a relevant and sufficiently specific case against Company B to go to proof before answer. [Para 125][Para 126][Para 204][Para 208]
Arguments of the Parties
Second and Third Defenders' Arguments
- The loss claimed was really the insurer’s refusal to pay, and that refusal was said to rest on the Plaintiff’s own non-disclosure and failure to satisfy the electrical-inspection condition, not on anything done by Company B. [Para 28][Para 38]
- Company B’s use of gas burners could not have caused the loss because, in law, there was no fire cover by March 2021 and the policy was later avoided ab initio for reasons unrelated to Company B. [Para 38][Para 132][Para 161][Para 192]
- Clause 4 of the policy was said to apply only if the Plaintiff discovered and reported the risk before damage occurred; otherwise it could not assist. [Para 39][Para 67][Para 183][Para 185]
- The Plaintiff’s construction of the exclusion clause was said to be too broad, because it would deprive the policy of the ordinary fire cover it was intended to provide. [Para 77][Para 78]
Pursuer's Arguments
- Company B’s undisclosed use of gas burners materially increased the fire risk and was one of the grounds on which the insurer purported to avoid the policy. [Para 81][Para 82]
- The policy had to be construed as a whole, using ordinary contractual principles and commercial context. [Para 83][Para 84]
- Clause 4 prevented invalidation by unknown acts or omissions of an occupier and was not limited to cases where the insured discovered the problem before loss occurred. [Para 87][Para 91][Para 92][Para 183][Para 185]
- The Plaintiff also argued that the exclusion clause did not remove cover for the destruction of the unit as a whole by fire. [Para 94][Para 95]
First Defender's Arguments
- The Plaintiff’s loss should be characterised broadly as the absence of insurance cover at the time of the fire, not narrowly as avoidance of the policy actually in place. [Para 125][Para 126][Para 128]
- Had Company B disclosed the burners, the insurance arrangements would likely have been renegotiated and a valid policy, possibly with another insurer, would have been obtained. [Para 126][Para 129]
- Company B’s conduct was therefore potentially causative of the Plaintiff’s loss, even if the first defender had also been negligent. [Para 127][Para 129]
Second and Third Defenders' Reply
- The loss was said to have been caused long before Company B began using the dryers, because the Plaintiff had already failed to comply with conditions precedent and the policy was retrospectively avoided ab initio. [Para 132][Para 133]
- The first defender, not Company B, was said to be liable on a straightforward but-for analysis; alternatively, Company B had no relevant duties because the Plaintiff itself was in breach. [Para 134][Para 135]
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Mark Rowlands Ltd v Berni Inns Ltd |
Insurance arrangements in a lease may show that the landlord’s loss is to be met from insurance moneys rather than by a claim against the tenant. [Para 36][Para 37] |
The court accepted the lease and insurance provisions formed a single contractual scheme, but held that this did not automatically excuse Company B from all obligations. [Para 36][Para 49] |
| The Seashell of Lisson Grove Ltd v Aviva Insurance Ltd |
A non-invalidation clause can protect the insured against unknown increases in risk, and may still apply even if damage occurs before notice is given. [Para 68][Para 183][Para 184][Para 185] |
The court accepted Teare J’s analysis and rejected the narrower construction urged by Company B. [Para 91][Para 92][Para 183][Para 185] |
| Ansari v New India Assurance Limited |
Supports the meaning of “invalidated” in a non-invalidation clause as preventing avoidance rather than creating new cover. [Para 68][Para 91] |
The court used it to support the view that clause 4 prevented avoidance, but did not extend cover to materially different risks. [Para 91][Para 92] |
| Re United London and Scottish Insurance Co Ltd |
Insurance contracts are construed by ordinary contractual principles. [Para 83] |
The court relied on that approach in construing the policy as a whole. [Para 83][Para 84] |
| Glenfiddich Wind Ltd v Dorenell Windfarm Ltd |
Context and commercial objectives are relevant to contractual construction. [Para 83] |
The court treated context and purpose as central to the meaning of the policy clauses. [Para 83][Para 87] |
| Greenock Steamship Co v Maritime Insurance Co Ltd |
A clause requiring additional premium presupposes a risk the insurer would still be willing to insure. [Para 92] |
The court used it to explain that clause 4 did not oblige the insurer to continue covering a risk it would never have accepted. [Para 91][Para 92] |
| Financial Conduct Authority v Arch Insurance (UK) Limited |
The “but for” test is generally the starting point in causation analysis, but it may be insufficient in cases of concurrent causes. [Para 102][Para 103][Para 144][Para 145] |
The court used it both to frame causation and to support the recognition of cumulative causes. [Para 102][Para 104][Para 144][Para 145] |
| Baker v Willoughby |
A later event does not necessarily break causation where the original wrong remains legally relevant. [Para 113][Para 146][Para 147] |
The court discussed it as an analogy for overlapping causation, but noted the different context. [Para 112][Para 113][Para 146][Para 147] |
| Williams v The Bermuda Hospitals Board |
Successive events can each make a material contribution to loss or injury. [Para 116][Para 118][Para 149][Para 151] |
The court relied on it to accept that independent breaches may cumulatively contribute to the Plaintiff’s loss. [Para 116][Para 120][Para 149][Para 151] |
| McGhee v National Coal Board |
Cumulative factors operating concurrently or successively can be legally relevant causes. [Para 117] |
The court referred to it through Williams to support cumulative causation. [Para 116][Para 117] |
| Hotson v East Berkshire Health Authority |
Sequence of events may matter evidentially in assessing material contribution. [Para 118] |
The court noted it as an evidential, not decisive, consideration. [Para 117][Para 118] |
| Performance Cars Ltd v Abraham |
If a loss already exists, a later wrong that does not change the position is not causative. [Para 119][Para 120] |
The court distinguished it because Company B’s breach was said to have contributed to the absence of cover, not merely to an already-existing loss. [Para 119][Para 120] |
| London Joint Stock Bank Ltd v Macmillan |
Cited for the proposition that a defendant may be liable where its duty is to guard against third-party intervention. [Para 138] |
The court noted it as part of the first defender’s authorities on novus actus interveniens. [Para 137][Para 138] |
| De La Bere v Pearson Ltd |
Also cited on liability where the duty was to protect against third-party conduct. [Para 138] |
The court treated it as supporting the first defender’s submission that its duty extended to guarding against the tenant’s conduct. [Para 137][Para 138] |
| Stansbie v Troman |
Cited on a duty to protect against foreseeable third-party acts. [Para 138] |
The court mentioned it among the authorities relied on for the novus actus argument. [Para 137][Para 138] |
| Home Office v Dorset Yacht Co Ltd |
Cited on responsibility for foreseeable intervention by third parties. [Para 138] |
The court referred to it in rejecting the suggestion that the first defender was automatically exonerated. [Para 137][Para 138] |
| P Perl (Exporters) Ltd v Camden LBC |
Cited as part of the same novus actus line of authority. [Para 138] |
The court noted it but did not treat it as displacing the pleaded causal case. [Para 137][Para 138] |
| Maloco v Littlewoods Organisation Ltd |
Cited for the proposition that a duty may encompass protection against third-party wrongdoing. [Para 138] |
The court referred to it in the course of the first defender’s argument. [Para 137][Para 138] |
| Weld-Blundell v Stephens |
Cited in connection with limits on causal responsibility for independent wrongdoing. [Para 138] |
The court mentioned it among the authorities on intervening acts. [Para 137][Para 138] |
| Wardlaw v Bonnington Casting Ltd |
Referenced as part of the development of material contribution analysis. [Para 149] |
The court used it through Williams to explain that successive events can each materially contribute. [Para 149][Para 151] |
| Anderson v Minneapolis, St Paul & Sault Ste Marie Railway Co |
Example of two independent fires each being a cause of destruction. [Para 104] |
The court cited it via FCA to illustrate cumulative causation. [Para 103][Para 104] |
| Kingston v Chicago & Northwestern Railway Co |
Same cumulative-fire example as Anderson. [Para 106] |
The court cited it via FCA for the same proposition. [Para 103][Para 106] |
Court's Reasoning and Analysis
The court began by locating the relevant sequence of events. As at March 2021, fire cover had already ceased because the electrical-inspection condition precedent had not been met by 7 February 2021, and the later avoidance letter relied on non-disclosure of composite panels. On that footing, the absence of fire cover in the policy actually in place was not caused, in fact or law, by Company B’s conduct. [Para 153][Para 158][Para 161][Para 162][Para 164][Para 192]
The court rejected the Plaintiff’s broad construction of the exclusion clause. It held that the clause was aimed at damage to the part of the property itself undergoing a heating or treatment process, not at fire spreading from waste being processed on the premises. That reading preserved the ordinary function of property-damage cover. [Para 171][Para 172][Para 173]
The court also construed clauses 3 and 4 in context and by reference to commercial purpose. Clause 3 was not confined to a case where the owner was not the named insured, and clause 4 was a true non-invalidation clause that protected the insured against unknown occupier acts or omissions without creating cover for a materially different risk. The court relied on Seashell, Ansari, and Greenock Steamship, and noted that any new risk profile could justify prospective cancellation rather than avoidance ab initio. [Para 174][Para 179][Para 180][Para 183][Para 185][Para 189]
On causation, the court accepted the general proposition that independent wrongs can each be causatively relevant, drawing on FCA v Arch Insurance, Baker v Willoughby, Williams, McGhee, Hotson, and the two-fire examples. But it distinguished the facts before it: the first defender’s negligence had already deprived the Plaintiff of effective fire cover, while the second defender’s undisclosed change of process could not have altered that existing position. [Para 102][Para 104][Para 113][Para 120][Para 144][Para 151]
Even so, the court held that the pleadings were sufficient to leave open a relevant case under clause 1.3 of the lease. It considered it at least arguable that starting to use gas burners without checking whether an additional premium was payable breached that clause, and that the Plaintiff might yet prove a causal sequence in which proper disclosure would have led to renegotiated or substitute cover. The court therefore declined to dismiss the case at debate. [Para 201][Para 204][Para 206]
Holding and Implications
DISPOSAL: the action will proceed to proof before answer, and the motion to dismiss Company B and Company C was not upheld. The parties may also address whether any averments should be refused probation and how the abandoned alternative case should be formally excised. The decision leaves liability unresolved and determines only that the Plaintiff has an arguable case sufficient to proceed to proof. [Para 208]