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A riot at a detention centre has resulted in a clearer definition of ‘damages’ in public liability cases, says Richard Mattick
The question: ‘What are the ‘damages’ for which an insurer must indemnify its policyholder under a public liability (PL) policy?’ has come up for judicial determination on more than one occasion in the field of PL insurance.
It is clear that the word ‘damages’ will cover an award of damages against the policyholder in a tort action.
However, policyholders have also sought to argue that a clause in a policy providing an indemnity to the policyholder against, for example, ‘legal liability for damages in respect of accidental loss of or damage to property’, covers the policyholder’s liability to pay sums other than tortious damages.
Until very recently, insurers have mainly been successful in persuading the Courts to apply a narrow interpretation of ‘damages’. Now, however, the Court of Appeal has given some hope to policyholders, in the case of Bedfordshire Police Authority v Constable (2009), which offers a more practical construction of PL policies that may well herald a broader recognition of liability coverage.
The Bedfordshire case resulted from a riot which took place at a detention centre in 2002.
The owner of the centre sought to recover the costs of repairing the damage to its property from Bedfordshire Police Authority under a statute that obliged a police authority to compensate those who have suffered certain types of property damage during the course of a riot.
The police authority’s PL policy indemnified it against sums that it was “legally liable to pay as damages”. The court was therefore called upon to determine whether the obligations to make payments of compensation pursuant to a statute were in the nature of ‘damages’.
The police authority was successful both at first instance and before the Court of Appeal.
The Court of Appeal held that a policyholder will be liable to pay damages if the sums for which it is alleged to be liable are due to be paid by reason of a “responsibility” owed by the policyholder.
The police authority had a responsibility to maintain law and order. Longmore LJ stated that: “Once one appreciates that the reason for the 1886 Act placing the burden of paying compensation to the victims of riot damage on the police authority is that the police are responsible for law and order and that they are (notionally) in breach of that responsibility, it seems to me, as an English lawyer, that the compensation payable is a sum which the police authority is liable to pay as damages.’’
The Court of Appeal’s decision appears to herald a new approach to the manner in which the courts will determine whether a particular payment is, or is not, in the nature of ‘damages’ for the purposes of a PL policy.
There is now scope for revisiting the recoverability from liability insurers of payments made in a variety of circumstances other than as a result of claims in tort.
Richard Mattick is of counsel in the insurance coverage practice at Covington & Burling