England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Andrew Smith
NC No 2360

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th May 2004

Lord Justice Waller:

This is the judgment of the Court.

Introduction

1. This is an appeal from the decision of Andrew Smith J dated 15^th October 2003. It raises a question of construction under an all-risks insurance policy and in particular whether, when a bailee takes out such a policy covering goods in his possession and the policy expresses the cover to be on goods "held by the insured in trust for which the insured is responsible", the addition of the words "for which he is responsible" restricts the insurers' liability to those goods damaged in a way which imposes liability on the bailee, but not otherwise. The insurers submit that the authorities show that the addition of these words has been so understood for many years and that this court should not disturb that understanding. The insured submits that the wording on its plain meaning does not so restrict liability and that the authorities have been misunderstood, and should not now be followed. Andrew Smith J decided the issue in favour of the insurers.

The facts

2. The facts can be taken shortly and from the judge's judgment. The claim was brought by insureds under a Combined "All Risks" Policy of insurance issued by the defendant insurers and dated 12 April 2001. The insurance covered the loss, destruction or damage to property insured as a result of fire. On about 16 May 2001 there was a fire in Skegness, Lincolnshire at industrial premises occupied by the first claimant, Ramco (UK) Limited ("Ramco") and the second claimant, Resource Industries Limited ("RIL"). It is common ground that the fire occurred without fault on either of their parts.
3. Stock and other goods were destroyed or damaged in the fire. The insurers do not dispute their liability in respect of property owned by the claimants. However, some of the goods that were damaged or destroyed were bailed to the claimants, in particular goods owned by the Ministry of Defence were bailed to Ramco and goods had been entrusted to RIL by a businessman called Mr Neville Murray. The dispute between the parties is whether the insurers are liable in respect of those goods, and if so on what basis. The appeal is in fact only concerned with the goods said to have been entrusted by Mr Neville Murray, but there being a possible distinction between the basis on which the goods were bailed to the respective claimants we will not ignore completely the goods bailed by the MOD to Ramco.

The Policy

4. The insurance policy comprises seven sections and also general conditions, general exclusions and a schedule. The period of insurance is from 1 February 2001 to 31 January 2002. The insured include Ramco and RIL. The relevant section of the policy is section 1, which is headed "Material Damage-'All Risks'" It provides as follows:

"IN THE EVENT OF the Property Insured described in the Schedule being accidentally lost, destroyed or damaged during the Period of Insurance the Insurers will pay to the Insured the value of the property at the time of its loss or destruction or the amount of the damage or at the Insurers' option reinstate or replace such property or any part of it… "

There is a definition of Property Insured:

"a) Buildings…

b) Contents

Contents therein and thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible including

i) tenants' improvements alterations and decorations

ii) so far as not otherwise insured employees' directors' and visitors' personal effects of every description…

c) Stock

Stock and Materials in Trade therein or thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible."

Provisions described as "Supplementary Conditions - applicable to section 1" include a "Condition of Average (Underinsurance)", which reads as follows:

"The sum insured by each item of this Section… is declared to be separately subject to Average. Whenever a sum insured is declared to be subject to Average, if such sum shall at the commencement of any DAMAGE be less than the value of the property covered within such sum insured, the amount payable by the Insurers in respect of such DAMAGE shall be proportionately reduced".

There is also a provision that as far as Buildings and Contents are concerned – and it will be noted that "Contents" include property held by the Insured in trust for which the Insured is responsible– the basis for calculating the amount payable be the reinstatement of the property lost destroyed or damaged.

The Issues

5. On 11 April 2003 the court ordered the trial of preliminary issues. Before the judge these were redefined to two issues, and they were set out in an appendix to the judge's judgment. It is only the judge's decision on the first issue which is under appeal, but although his decision on the second issue is not appealed, it is of some interest how he decided that issue. We append to this judgment both issues, and simply say that on the first issue i.e. whether in order to recover under the policy the bailee must show that there was a liability for the damage to the goods, the judge was in the insurers' favour; as regards the amount that the bailee could recover if the goods were covered, he did not limit recovery to the amount of any liability, but found that it was the value of the goods which should be recovered, the bailee holding that value in trust for the owner of the goods. It might be thought that there was some inconsistency between those two views, indeed Mr Goudie QC for the claimants submitted there was. Since the insurers do not appeal the judge's decision on the second issue, we have not explored whether if the judge's decision were right on the first issue, his decision on the second issue should stand. In this case we fully understand how it may well be that the monetary difference between the rival contentions on the second issue makes it academic to explore that question, but we put down a caveat that if the judge is right on the first issue, we are not necessarily satisfied that his answer on the second issue would stand.
6. The issue which we must address accordingly is simply whether where the policy it provides for the payment to the insured of the value of the property at the time of its loss, and the property is defined to include contents held by the insured "in trust for which the insured is responsible" provides cover only if the insured has some legal liability in respect of the damage or destruction.

The Starting Point

7. The starting point is common ground between the parties, and both parties recognise as accurate the following passage from the judge's judgment.

"Undoubtedly bailees in the position of Ramco and RIL may insure goods in their possession for their full value and in the event of their loss or destruction recover their full value: see Tomlinson v Hepburn, [1966] AC 451. The courts have acknowledged since the middle of the nineteenth century the commercial convenience of bailees being able to effect such insurance regardless of whether or not they are liable, or potentially liable, in respect of the goods: Waters v Monarch Fire and Life Assurance Company, (1856) 5 E&B 870. If a bailee insures goods bailed to him and recovers from insurers more than any loss that he suffers, he is required to account to the owners of the goods (or other persons bearing the loss) for the excess. The law does not object to this, or strive to avoid this result. In Tomlinson v Hepburn (cit sup) at p.471A, Lord Reid said that if this is an exception to the contractual principle of the common law preventing jus quaesitum tertio, "I do not think that we are bound to be astute to extend it [the contractual principle] on a logical basis so as to cut down an exception, if it be an exception, which has stood unchallenged since the decision in Waters case more than a century ago."

8. Of course as the judge points out the question whether the bailee has insured the goods of others and which goods must depend on the wording of the policy. But Waters not only approved the principle that enabled bailees to insure the goods held by them whether or not there was any liability for the damage, but had considered the language which could bring about that result. Once again the summary by the judge of the decision in Waters demonstrates the position:-

"The claimants were flour merchants, warehousemen and wharfingers, whose warehouse was destroyed by an accidental fire, together with goods in it of which they were bailees. They had taken out two policies of insurance covering, under one, "goods in trust or on commission therein" and, under the other, "property of the assured or held by them in trust or on commission". The court held that:

"i) As a matter of interpretation, the policies covered goods of third parties of which the claimants were bailees. Lord Campbell CJ said (at p.880), "What is meant in those policies by the words 'goods in trust'? I think that means goods with which the assured were entrusted; not goods held in trust in the strict technical sense, so that there was only an equitable obligation on the assured enforceable by a subpoena in Chancery, but goods with which they were entrusted in the ordinary sense of the word".

ii) The policies covered not just the claimants' "personal interest" in the goods but all damage and loss, and they were valid policies. Crompton J said (at p.882), "The parties meant to insure those goods with which the plaintiffs were entrusted, and in every part of which they had an interest, both in respect of their lien and in respect of their responsibility to their bailors. . . ."

9. It is of interest as Mr Goudie stressed to us and as was noted by the judge that Crompton J uses the word "responsibility", but it is not clear whether he is using it in the sense of legal responsibility or in some broader way.
10. If we were approaching the wording of this policy with only the principle in Waters in mind our conclusion would be as follows. The policy is certainly covering goods held in trust in the Waters sense. The object of the policy must be to identify the goods that are covered before they are damaged or destroyed. Although the present tense "is responsible" is used, the policy cannot have been intended only to cover those goods held in trust or for which the insured is responsible as at the date of the policy; it must include goods held from time to time during the currency of the policy. Therefore on the natural construction of the words, where goods have been damaged, the relevant question would seem to be - were those goods immediately prior to their damage or destruction goods held in trust for which the insured was responsible? Responsible would suggest the possibility of legal responsibility in some circumstances but would indicate a broad concept of "responsibility". We would suggest that it would not be a natural construction to be asking whether the damage to the goods was damage for which the bailee was responsible in order to discover which goods were insured. On that basis we would be concluding that Mr Goudie's submissions should be preferred to those of Mr Tozzi on behalf of the insurers. The difficulty for Mr Goudie is however that the authorities do not stop with Waters.

The further authorities

11. The courts recognised what is the obvious, that if a contract could be framed so as to allow a bailee to recover for goods held as bailee even if the bailee had no liability and had suffered no loss himself, it was equally possible for a contract to be framed so as to make it clear that the cover was restricted to covering damage to goods for which the bailee was liable or "responsible" in that sense. In London and North Western Railway Co v Glyn, (1859) 1 E&E 652 the court considered a policy taken out by common carriers which covered "goods their own and in trust as carriers" in their warehouse. It was held that the policy covered "the interest of the owners of such goods, as well as the more limited interest of the plaintiffs". But Erle J said (at p.663), "In future, if insurance companies wish, in granting such policies as the present, to limit their responsibility to the responsibility of the carrier, upon proceedings taken against him in invitum, they must employ precise words to that effect". Hill J said (at p.665), "My brother Erle has most truly said that insurance Companies must insert in policies express words to that effect, if they wish to limit their liability in the manner here contended for". One sees in the quotation from Erle J the use of the word responsibility in the sense of liability, and that may be important in considering the next development.
12. In 1871 came the critical decision of the Court of Common Pleas in The North British and Mercantile Insurance Co v Moffatt, (1871) LR 7 CP 25. This case concerned two policies covering "merchandise…the assured's own, in trust or on commission for which they are responsible" in specified warehouses, vaults and wharves etc. The issue was whether the policies covered certain chests of tea which were destroyed by fire while on a wharf named in the policy. The tea had been placed with the wharfinger by the importer; the importer had sold the tea to the insured transferring the warrants issued by the wharfinger by indorsing them in blank; the insured had sold the tea on to customers and been paid for the tea, but retained the warrants "merely for the convenience of paying if required to do so, the charges necessary to clear the tea."
13. In a judgment of the court delivered by Keating J the first holding appears to be that because at the time of the fire the property in the tea had passed to the customers, and remained at the customers' risk and not the insured's, the insured had "no longer any interest in them or responsibility to the vendees in respect of them in the case of fire." But the judgment went on to consider an argument on behalf of the insured that "even supposing that to be the case", the policy was a floating policy covering goods "in trust" and that the insurers were liable following Waters and Glyn. The court accepted that "If the words in the present policy had been similar to those in the policies [in Waters or Glyn], then we should have thought the cases were authorities in favour of the defendants' view [that the chests of tea were covered] notwithstanding that they had no interest even amounting to a lien upon the goods in question; but it will be observed the wording in the present policy is essentially different, for whilst in the cases referred to the insurance extended to 'goods in trust or on commission' generally, in the present case it is expressly limited to 'goods in trust or on commission, for which they (the assured) are responsible'" (at p.31). The judgment continued:

"In London and North Western Ry Co v Glyn, Erle and Hill, JJ., had thrown out that if insurance companies wished to limit their responsibility to the responsibility of the assured, they must employ express words to that effect. It seems to us that the present plaintiffs have done so in this policy, and have expressly limited their liability to such goods as were held in trust by the assured, and for which they are responsible. It follows that the goods in question for which the assured were not responsible were not covered by the policy, and consequently that the plaintiffs are not entitled to the judgment of the Court".

14. Mr Goudie submitted that in Moffatt the merchants simply were not bailees at the time of the fire, and therefore the decision is explicable on the basis that the insured did not have any "responsibility" at the time of the fire. Certainly Mr Arthur Cohen QC in the first edition of Halsbury thought that all that Moffatt had decided was that if goods were not the "responsibility" of an insured, then the goods would not be covered, and Mr MacGillivray in his first edition suggested that the case should be supported only on that basis. But it does seem to us that on any view the court in Moffatt were prepared to treat the insured who held the warrants as bailees, and was indicating clearly that if the form of language used in Waters or Glyn had been used the court would have decided the case in favour of the insured, but that the addition of the words "for which they are responsible" had achieved the restriction on the insurers' liability which Erle J had previously contemplated.
15. Since the court was deciding that there was no liability, the court did not need to wrestle with the problem of the extent of the indemnity.
16. Apart from an observation of Sir George Jessel MR in North British and Mercantile Insurance Company v London, Liverpool & Globe Insurance Company, (1876) 5 Ch D 569, 35 LT 231, 45 LJ Ch (NS) 548, where he suggested in the context of a completely different issue that that the wharfingers were insured in respect of the goods "against liability", explaining in parenthesis (at p.578): "for they have only insured them for goods held in trust, for which they are responsible, and it is therefore an insurance in terms against liability", the addition of the words "for which they are responsible" received no further attention at least so far as the courts were concerned. That observation and the fact that the judgment was upheld in the court of appeal it is right to say was much relied on by Roche J in the authority to which we are about to turn and we shall come back to it in that context.
17. Engel v Lancashire & General Assurance Co. Ltd.(1925) 21 Ll L R 327reported more accurately at (1925) XXX Commercial Cases 202, is another critical authority. I gratefully take the summary of what the case was concerned with from Andrew Smith J's judgment:

"Engel's case came before the court by way of a special case, and was an appeal by the insurers from the decision of an umpire in favour of the insured, Mr Engel. The insurance was against risks including burglary and theft, and the subject matter of the insurance was Mr Engel's stock-in-trade as a manufacturing furrier. The policy covered his own property on his business premises, and also goods that were held in trust or on commission for which he was responsible. The claim arose from a theft from Mr Engel's premises of goods, including goods that he did not own but were in his possession. The arbitrator found that the theft occurred without any negligence on the part of Mr Engel, and that he was therefore not liable to pay damages to the owners of the goods. One question before the court was whether in these circumstances the goods not owned by Mr Engel were covered by the insurance, the insurers contending that, although the goods were held in trust by him, they were not goods for which he was responsible. Roche J stated the issue as follows: "If 'responsible' means liable in case the goods were lost by the perils covered by the policy, then the [insurance] company is correct in its contention. If on the other hand the word 'responsible' is a word which extends rather than limits the words 'in trust', then [Mr Engel] is correct in his contention… The contention of [Mr Engel] may be summarised by saying that the word 'responsible' means and refers to the general responsibility of a bailee of goods and does not refer to or is limited by his liability in the event of loss."

18. Roche J described this question as "a difficult point and a very nice point", and thought it strange "that it does not seem to be the subject of any reported decision clear and definite in its purport". He however said that the matter had a history and reviewed the authorities Waters, Glyn and Moffatt. In relation to Moffatt he said this at 208 of the Commercial cases report inaccurately reported in the Lloyds List Reports:-

" Now it is true that it might be argued that that case was decided, or might have been decided, on the particular facts, without a decision that the words in question "for which the assured were responsible" were words of limitation, an observation which is actually made in MacGillivray on Insurance at page 150, yet it is equally plain that the Court did not so decide it. It is to my mind abundantly clear that the Court regarded those words and decided that they were words of limitation cutting down and not either defining or extending the liability of the assured which would be otherwise contained in the words "in trust". I think I am bound by that decision"

19. Roche J then referred to North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co, and, having cited a passage from the judgment of Jessel MR, including the remark in parenthesis that we have set out above, he said this:

"It is impossible to read the words in parenthesis without concluding that the Master of the Rolls took exactly the same view of the scope and effect of the words 'for which they are responsible' as was taken by the Judges who decided the case of the North British Insurance Co v Moffatt. I have no doubt… that the case of [Moffatt] was cited to the Court of Appeal. To my mind the general scope of the judgments, and in particular the judgment of Mellish LJ, indicates that the same view of the words 'for which they are responsible' was held by the Lord Justices. Quite true it is not a decision, but having regard to the fact that the case of [Moffatt] was cited I think that the expression of view which I gather from this judgment is really a matter to which I should have regard. Really it comes to this, that the real basis of my decision is the actual decision in [Moffatt]."

20. Engel has not it seems been criticised, and in the second edition of Halsbury's Laws published in 1935 in that part of the Title "Insurance" for which Mr Baker Welford was responsible, it is cited. It could be said that the sentence does not make absolutely clear that it is only if liability is established that goods will be held to be covered, since it reads "In practice the condition is further limited to goods for which the insured is responsible.." and the footnote citing Engel reads simply "This means "legally responsible", but Engel itself is absolutely clear. In the latest edition of Welford and Otter-Barry The Law Relating to Fire Insurance published in 1948, it is put, unsurprisingly, much the same way:-

"Where goods held in trust are specifically described as such the assured is entitled in the event of their loss to recover their full value (s); and it is immaterial unless the condition expressly provides to the contrary (t) that he himself is not responsible (u) to the bailor for their safety.(x)"

Footnote (t) cites Moffatt as authority. Footnote (u) says this means "legally responsible" citing Engel.

By the third edition of Halsbury published in 1958 in the Title for which Sir William McNair was responsible the position could not be clearer. Para.723 of that Title reads as follows.

"Goods for which the assured is responsible. To the general phrase "goods in trust or on commission" there is frequently added the additional phrase "for which the assured is responsible." These words are derived from a suggestion (o) that, if insurers wished to limit their responsibility to the responsibility of the assured, they must use express words to that effect (p). These words then came to be used and were held to achieve the desired result (q). Thus, where a vendor holds goods after the property and the risk have passed, the goods cease to be goods for which he is responsible ; plainly the intention in such a case is that the purchaser should effect any necessary insurance. Similarly, where a bailee is only liable for negligence and goods are lost or destroyed without any negligence on his part, there is no legal liability such as these added words postulate (s). In other words, the addition of these words has the effect of making the policy, not so much an insurance on an interest, but a liability insurance. The position is made quite plain if the policy indicates that the subject matter of the insurance is the legal liability of the bailee, not loss or of damage to goods (t)

21. It furthermore does not stop there. In Tomlinson v Hepburn at first instance Roskill J, whose judgment was upheld in the appellate courts, said (at [1964] 1 Ll L R 416, 427) that he considered it clear that "under this form of policy, which does not contain the words suggested by Mr Justice Erle in Glyn's case… and adopted by the insurance company in Moffatt's case… the assured can recover even though they are not legally liable as bailees to the owner of the goods for the loss". From this, and his further observation that "it was held that under that form of wording the underwriter was not responsible for the loss unless the assured was in law responsible to his bailor" it is apparent that Roskill J regarded the reference in the policy in Moffatt to the bailees being "responsible" for goods as connoting legal liability for the damage to the goods.
22. In the House of Lords in Tomlinson v Hepburn (cit sup at p.475A-C), Lord Pearce said this: "It would have been easy, had the parties so intended, to insert express words showing that the policy was confined to the legal liability of the assured, or indeed, to use any of the language which is usually associated with legal liability policies. Erle J. observed in London & North Western Ry v Glyn: 'In future, if insurance companies… '. In that case the policy was upon goods 'in trust': in the present case the insurance was by hauliers upon 'the property of Imperial Tobacco Co' and this was clearly a case for using the 'precise words' suggested by Erle J (as was done for example, in North British & Mercantile Insurance Co v Moffatt) if any such limitation was intended". Lord Reid also seems to be reflecting an approval of Moffatt as having achieved a restriction on liability by the use of "for which it is responsible" . We say that because Moffatt was being cited in support of that proposition[see page 463A ], and Lord Reid albeit without citation of Moffatt says at page 467F:-

"A bailee can if he chooses merely insure to cover his own loss or personal liability to the owner of the goods either at common law or under contract and if he does that of course he can recover no more under the policy than sufficient to make good his own personal loss of liability. But equally he can if he chooses insure up to his full insurable interst – up to the full value of the goods entrusted to him. And if he does that he can recover the value of the goods though he has suffered no personal loss at all. But in that case the law will require him to account to the owner of the goods who has suffered the loss or, as Lord Campbell says, he will be trustee for the owners."

23. Furthermore in recent editions of MacGillivray on Insurance Law it has been said of Moffatt that, "By limiting the cover to goods for which the assured was responsible, the insurers had indicated that they did not intend to cover the proprietary interests of other persons in the goods assured": see MacGillivray and Parkington on Insurance Law (6^th Ed., (1975) at para.62 and MacGillivray on Insurance Law (10^th Ed., 2003) at para.1-182.
24. Thus there has been a clear authority from at least 1925 when Moffatt, was fully considered by Roche J in Engel, and very probably a common understanding in the insurance world before that following Moffat, that the addition of words such as "for which he is responsible" restricts liability for damage to goods held by a bailee for third parties, to circumstances when the insured bailee is liable for the damage.
25. We should mention Maurice v Goldsbrough Mort and Company Ltd, [1939] AC 452, a decision of the Privy Council. In that case the respondent wool brokers insured "merchandise the assureds' own property or held by them in trust or on commission for which they may be liable in the event of loss or damage by fire". Wool belonging to the appellant was in the possession of the woolbrokers when a fire destroyed the same. It was not in issue in that case that the value of the wool was recoverable under the policy. The issue was whether in accounting for the value of the wool the respondent brokers were entitled to deduct the charges they would have made for receiving weighing, lotting and valuing. In deciding that issue it was necessary to conclude whether the brokers were insuring their own insurable interest or whether they were insuring as agents for the owners. Lord Wright recognised that the brokers were insuring on account of their own insurable interest, but having examined Moffatt Waters and Glyn, he stated:

"After this insurance companies limited, as in the present policy, the extent of the risk they were taking. A warehouseman who has assumed an obligation to insure the goods while in his possession has an insurable interest, because he will be bound to answer in damages to the bailor if he has not insured and the goods have been destroyed or damaged."[page 462].

The brokers in that case had undertaken to insure the goods, and that rendered the brokers liable or "responsible" if they did not insure. Thus Maurice is not a case where somewhat similar wording has been recognised as not restricting liability, and indeed Mr Tozzi has conceded that if the appellants were under an enforceable obligation to ensure the goods bailed to them in this case, the insurers will be liable. Maurice therefore does not assist Mr Goudie's arguments. If anything it is an example of recognition of Moffatt as reliable authority for such words as "for which he is responsible" placing the restriction on liability for which the insurers through Mr Tozzi contend.

26. Finally, we should refer to Petrofina (UK) Ltd v Magnaload Ltd, [1984] QB 127, a decision of Lloyd J upon which Mr Goudie relied both in the court of appeal and below. It is convenient to quote the summary and discussion of this case from the judge's judgment.

"The case concerned the meaning and effect of section 1 of a contractors all risks insurance policy that was taken out by the main contractors for the construction of an extension at an oil refinery. The insurers agreed to indemnify the main contractors, sub-contractors, the company who had a lease of the refinery and the freeholders and managers of the refinery. Damage occurred to work in progress in the course of lifting operations for which the defendants had supplied the lifting equipment. The insurers, having paid a claim made by the lessees of the refinery, brought against the defendants a subrogated claim for negligence. The defendants denied that the insurers had rights of subrogation against them because they were insured under the same policy in respect of the same property."

27. Section 1 of the policy provided that, "The insurers will indemnify the insured against loss of or damage to the insured property whilst at the contract site from any cause not hereinafter excluded occurring during the period of insurance". The insured property was defined as:

"Item No1. The works and temporary works erected… in performance of the insured contract and the materials… for use in connection therewith belonging to the insured or for which they are responsible brought on to the contract site for the purpose of the said contract…

Item No2. Constructional plant comprising plant and equipment … if and in so far as not otherwise insured belonging to the insured and for which they are responsible brought on to the contract site for the purpose of the insured contract."

28. Lloyd J decided that the defendants were insureds under the policy. More importantly for present purposes, he also decided that the policy was not a liability insurance but an insurance on property comprising the works and temporary works on the site, and that all the insureds were insured for loss and damage in respect of the whole of that property. He rejected the insurers' submission that section 1 of the policy was "a composite insurance", that is to say an insurance of property so far as it related to property belonging to an insured and a liability insurance so far as it related to other property comprised in the contract works. Lloyd J referred to Tomlinson v Hepburn, and said that he could find no relevant distinction between the language of the policy that he was considering and that considered in Tomlinson. Referring to the remarks of Jessel MR in the North British and Mercantile Insurance Co case, he said (at p.135) that "that dictum (for it was not more) cannot now stand against the decision of the House of Lords in [Tomlinson]."
29. It was also necessary for Lloyd J to consider whether the law permits the defendants to recover from insurers the full value of the property insured even though they were not bailees of it. This involved consideration as to the reason that the courts have since Waters' case permitted bailees to recover the full value of goods. Lloyd J said that one reason for the law accepting that a bailee might effect such insurance is "that, as bailee, he was 'responsible' for the goods. Responsibility is here used in a different sense from legal liability. A bailee might by contract exclude his legal liability for loss of or damage to the goods in particular circumstances, e.g. by fire. But he would still be 'responsible' for the goods in a more general sense, sufficient, at any rate, to entitle him to insure the full value."
30. The views expressed by Lloyd J very much reflect the view expressed at the commencement of this judgment as to the view we might have taken of the terms of this policy without taking into account Moffatt and Engel, The difficulty with placing any reliance on Lloyd J's observations is that he too was expressing a view when neither Moffatt nor Engel nor indeed the judgment of Roskill J in Tomlinson v Hepburn had been cited to him.
31. It is obvious that if Mr Goudie is to succeed he must persuade us to distinguish or overrule Moffatt, and overrule Engel. In spite of the references to Moffatt in the House of Lords it may well be that Moffatt being a decision of the Court of Common Pleas we would be free to refuse to follow that part of the judgment by which Roche J felt himself bound in Engel, and to overrule Engel if we thought it right to do so. The question is whether it is right to do so.
32. We have expressed a view on construction earlier, and we find it particularly troublesome that as a matter of language we find it difficult to conclude that what was meant by the policy was that goods would only be covered if legal liability was established, but we have ultimately concluded that it would not be right to overrule Moffatt and Engel. Our reasons are twofold:

(i) The first is that once one accepts that an insurer of a bailee can choose either to insure the goods regardless of the bailee's liability to the goods-owner or to insure the bailee only if he is liable to the goods-owner, the actual words chosen to achieve either result are merely a matter of form. To put the matter the other way round a bailee (or, more realistically, his insurance broker) can decide which of the two sorts of insurance he (or his client) wants for the purposes of his business and can negotiate the premium accordingly. If a form of words has been in use for 80 years which describes one sort of insurance rather than the other, it would be meddlesome for this court to decide that the selected form of words do not achieve their intended purpose, unless there were some real reason for supposing that the form of words is unsatisfactory in practice. The fact that the form of words is the subject-matter of a previous decision of this court is a compelling reason why the courts should not depart from that settled meaning, as recently stated by this court in The Kleovoulos of Rhodes [2003] 1 Lloyds Rep 138, 144-5.

(ii) The principles established by Waters were highly convenient principles, but constituted an exception to the equally ancient common law principle that normally a claimant cannot sue for loss which he has not himself suffered; this was particularly striking where the cause of action was contractual (as a claim on an insurance policy always will be) since it appears inconsistent with the doctrine of privity of contract to enable a goods-owner to recover his loss when he is not a party to the contract. There is thus something of an anomaly in allowing a bailee to recover for a loss he has not suffered. It was, of course, especially anomalous in 1925 when the doctrine of privity of contract applied in its full rigour as it still did in 1966 when Lord Reid observed [1966] 1 AC 451, 470-1, that the English legal principle preventing what he called a "jus quaesitum tertio" must be upheld until it is altered. He added that the House of Lords should not be astute to extend that principle to cut down the exception "if it be an exception" which had stood unchallenged for over a century since the decision in Waters v Monarch. The anomaly is much less striking now that the Contracts (Rights of Third Parties) Act 1999 is on the statute book. But enabling a party to a contract to recover for a loss he has not suffered or enabling a goods-owner to recover pursuant to a contract to which he is not a party is still the exception rather than the rule; the "exception" established in Waters should not itself be extended beyond its proper limits without good reason and no such reason exists in the present case.

33. With some reluctance we therefore would dismiss this appeal.
Order: Appeal dismissed with costs. Leave to appeal to the House of Lords refused. Order not to be drawn up for 21 days. (Order does not form part of the approved judgment) Appendix

A Does Section 1 of the combined "All Risks" policy of insurance number CCUK 1338-02 dated 12 April 2001 ("the insurance policy") respond to claims in respect of stock and materials in trade on the Claimants' premises which are not the property of the Claimants only where the Claimants are liable to a third party in respect of loss or damage to such stock and materials in trade?

B. If so, does the insurance policy respond to the full value of the stock and materials in trade or only to the extent that the Claimants are liable?