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Article by Celso De Azevedo – ‘Construction of Deliberate Acts Exclusions in Liability Insurance’

27th May 2021

In the Scottish case of Burnett or Grant v International Insurance Company of Hanover Ltd [2021] UKSC 12, the Supreme Court considered the scope of an exclusion of “liability arising out of deliberate acts” of an employee in the public liability section of an insurance policy. The Insurer (the “Insurer”) appealed the decision of the lower court which dismissed the application of the exclusion.

Background

In 2013, the victim, who was a customer at a bar, was killed by a door steward after being placed in a neck hold causing mechanical asphyxiation and death. As a qualifying relative under the Damages (Scotland) Act 2011, the victim’s widow sued (i) the door steward’s employers (the “Insured”), a security company (in liquidation), and (ii) pursuant to the Third Party (Rights against Insurers) Act 2010, the security company’s Insurer under a policy covering, among other risks, public liability. The widow sued the Insurer in relation to the security company’s vicarious liability for the wrongful acts of its employee.

At the door steward’s criminal trial, the jury did not accept that the door steward caused the victim’s death and only convicted him of assault. The trial judge found that his actions were badly executed but not badly motivated.

The Policy

The “Public/Products Liability” section of the security company’s policy provided coverage for

 “all sums which the INSURED shall become legally liable to pay as compensatory damages and claimant’s costs and expenses arising out of accidental

(a)   INJURY to any person.”

The Insurer argued that the policy excluded under Clause 14 (“Clause 14”):

“DELIBERATE ACTS

Liability arising out of deliberate acts wilful default or neglect by the INSURED any DIRECTOR PARTNER or EMPLOYEE of the INSURED other than as set out in Extension 1 (if such Extension is operative) and Extension 2 (if such Extension is operative).”

The Insurer also argued, in the alternative, that the lower indemnity sublimit of £100,000 under an extension of coverage for “Wrongful Arrest” applied to the claim.

The Lord Ordinary decided against the Insurer holding that since the injury was not intentional, the exclusion under Clause 14 did not apply as it “applies only when the outcome giving rise to liability, namely death, was the intended objective”. 

Issues before the Supreme Court and Insurer’s arguments

The issues on the appeal were as follows:

(1)              Was the death of the victim brought about by a deliberate act of the door steward within the terms of the exclusion under Clause 14 of the policy, with the effect that the Insurer’s liability to indemnify the victim’s widow was excluded?

 

(2)              Was the death of the victim brought about by the door steward’s wrongful arrest of the victim, with the effect that the Insurer’s liability to indemnify the victim’s widow was limited to £100,000?

The Supreme Court highlighted (at para. 34) that the “critical issue” was what was meant by “deliberate acts”. The Insurer argued “that it means acts which are intended to cause injury, or acts which are carried out recklessly as to whether they will cause injury”. In response, the victim’s widow argued “that it means acts which are intended to cause the specific injury which results, in this case death, or at least serious injury, but that on any view it does not include reckless acts.”

The Insurer also argued that the “deliberate acts” exclusion separated “deliberate acts” from “wilful default or neglect”, but the intention was that both “acts” and “default or neglect” (i.e. omissions) should be interpreted similarly. Therefore, since there was case law which determined that “wilful” included ‘recklessness’, the whole exclusion should be interpreted as only requiring recklessness for both acts or omissions.

The Decision

In reaching its decision, the Supreme Court mentioned the established principles of policy interpretation in Wood v Capita Insurance Services Ltd [2017] UKSC 24, and held that:

“The policy is to be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean. This involves a consideration of the words used in their documentary, factual and commercial context. This approach applies equally to exclusion clauses.” 

On that basis, the Supreme Court unanimously dismissed the appeal, rejecting the Insurer’s case on the following six grounds:

i. First, the natural meaning of “deliberate acts” connotes a different state of mind to recklessness.  It involves consciously performing an act intending its consequences; in the present context this means “carrying out an act intending to cause injury”. 
ii. Secondly, the natural meaning of ‘wilful’, in “wilful default” in the exclusion, includes deliberate but ‘wilful’ may have a wider meaning. 
iii. Thirdly, wilful may well have a wider meaning where it relates to a breach of duty. “Default or neglect” in Clause 14 is apt to refer to a breach of duty rather than merely omissions. 
iv. Fourthly, the Insurer was unable to refer to any case in which ‘deliberate’ has been held to include recklessness.
v. Fifthly, if, exceptionally, ‘deliberate’ was intended to include recklessness, the policy should have made clear what that means.
vi. Sixthly, if Clause 14 excluded reckless acts causing injury, as the Insurer argued, this interpretation “would lead to a very wide and commercially unlikely exclusion” in view of the nature of the Insured’s door supervising business.

Accordingly, the Insurer failed in its main argument that because ‘wilful’ could include recklessness, “deliberate acts” should also be interpreted as including recklessness. As regards the door steward’s “intention to injure”, the Supreme Court referring to the lower court, held that:

Not only there is no express or implied finding of intention to injure, but Lady Wolffe’s conclusion that what was done was not “badly motivated” is inconsistent with there being such an intention.” 

As a result, the Supreme Court concluded that the Insurer failed to establish that the exclusion of deliberate acts applied to the facts found by the lower court. Further, since there was no finding of recklessness at trial, the same conclusion would have followed even if “deliberate acts” had included recklessness. 

In relation to issue (2), the Supreme Court followed the decision of the lower court, concluding that the sub-limit for Wrongful Arrest did not apply since the losses claimed did not arise out of wrongful arrest where there was no factual basis for such a claim.

Comment

The Supreme Court’s decision emphasises the approach taken by the Courts in relation to policy interpretation where the commercial context of the policy is given its full weight. It was an important factor in the Court’s decision that if merely reckless acts could suffice for the “deliberate acts” exclusion to apply, it would be a “commercially unlikely exclusion” in view of the nature of the Insured’s business – described in the policy as “Manned Guarding and Door Security Contractors”. The Supreme Court observed that if ‘deliberate’ included recklessness, the policy coverage would be stripped of much of its content.

Importantly, although the Supreme Court interpreted the “deliberate acts” exclusion against the Insurer, it did not do so on the basis of the contra proferentem doctrine (i.e., by means of interpreting the exclusion against the party who sought to rely on it). The Supreme Court referred, with approval, to the case of Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] UKSC 57; [2017] AC 73 (at paras 6-7 per Lord Hodge) and observed that the doctrine of interpretation contra proferentem was “only relevant in a case of genuine ambiguity or real doubt as to the meaning of the words used.” 

The exclusion clause was restrictively interpreted by the Supreme Court due to the overall “documentary, factual and commercial context” of the words used in the policy, not on the basis of the contra proferentem doctrine. This case illustrates the ongoing departure by the Supreme Court, in the recent years, away from the unchecked application of the contra proferentem doctrine against insurers. 

 

By Celso De Azevedo

36 Commercial

www.36commercial.co.uk

clerks@36commercial.co.uk

Tel: +44 (0)20 7421 80512

Celso De Azevedo is a highly experienced international cyber, reinsurance and commercial dispute resolution barrister and qualified New York Attorney. He is regarded as a leader in the fields of high value international litigation and arbitration.

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