TESCO STORES LTD V CONSTABLE

[2008] EWCA Civ 362, Court of Appeal, Lord Justice Tuckey, Lord Justice Thomas and Lord Justice Hughes. 16 April 2008

Insurance (public liability) – Claimant incurring liability under contractual indemnity – Claimant insured under public liability policy – Whether policy covered pure contractual liability

Tesco wished to construct a supermarket on land itself surrounded by land owned by Network Rail. There was a railway track on NR’s land, owned by NR but operated by Chiltern as licensee. In 2003 a plan was devised whereby concrete tunnel sections would be installed over a railway cutting, and the supermarket would be built on the top. Tesco entered into a Deed of Covenant with Chiltern under which Chiltern was granted a contractual indemnity up to £155 million: this provided that Tesco was to pay to Chiltern “on demand such sums as shall from time to time fairly compensate them for all and any costs, losses or expenses arising out of or resulting (directly or indirectly) from …. the carrying out of the Works …. on its existing and/or future railway passenger business.” Tesco itself procured a public liability policy (in layers) which provided an indemnity in respect of “all sums for which [Tesco] shall be liable at law for damages in respect of a) death of or bodily injury to or illness or disease of any person b) loss or damage to material property....c) obstruction, loss of amenities, trespass, nuisance or any like cause …” There was also a Contractual Liability Extension which provided indemnity in respect of “liability assumed by [Tesco] under contract or agreement and which would not have attached in the absence of such contract or agreement”. On 30 June 2005 a section of the tunnel collapsed onto the railway lines below. Chiltern’s own property was not damaged, but the line was as a result closed for 51 days which prevented Chiltern from operating its trains on that route for that period. Chiltern asserted that, even after the track had been reopened, there would be future loss in that it was less likely – at least up until 2010 – that passengers would not wish to use the line. Chiltern accordingly made a claim under the Deed, and Tesco sought an indemnity. The Court of Appeal, upholding the decision of Field J, held that the insurers were not liable. A public liability policy was generally regarded as not affording cover against liability in contract for pure economic loss. As for the wording itself, the specific heads of cover all related to tort claims. Contract claims were covered, but only if they were co-extensive with a duty of care in tort. Any other construction would have converted the policy from a “public liability” policy into a “private liability” policy, covering specific contractual obligations. The words “in respect of” required the liability to relate to the identified occurrence, and it was not sufficient that there was a connection with that circumstance. As far as the Contractual Liability Extension Clause was concerned, this was to be construed as doing no more than extending cover to Tesco where it faced liability in contract for a tort falling within the insuring clause. The function of the Extension was to permit the parties to a construction contract to transfer tortious liabilities between themselves, and the Extension permitted this without impairing the cover provided.