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 LANGLEY
[2004] EWHC 216 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th July 2005

Lord Justice TUCKEY:

1. Tioxide Europe Ltd. appeals a judgment of Langley J., [2004] EWHC 216 (Comm), on preliminary issues arising out of its claim under two excess global liability policies for indemnity against its liability for the "pinking" of uPVC products manufactured and sold by others which included in their formulation a titanium dioxide pigment supplied by Tioxide.
2. The judgment deals with a variety of coverage issues but the threshold issue was whether the loss represented by the claims for pinking made against Tioxide had been notified to the excess policies under the terms of what was called a Loss Notification Option (LNO). If this Option had not been validly exercised the underwriters of the excess policies were not on risk at all. As the judge decided that the LNO had not been exercised this was fatal to Tioxide's claim. The other coverage issues which arose on the wording of the insuring agreements in the policies were decided on the assumption that Tioxide had exercised the LNO. For this reason we decided to hear argument on the threshold issue first.
3. At the conclusion of the argument we announced that we were against Tioxide on this issue and therefore found it unnecessary to deal with the many other issues raised by Tioxide in their Appellant's Notice and by underwriters in their Respondent's Notice. These are my reasons for this decision.
4. For present purposes it is only necessary to set out the background facts in the barest detail. Two of Tioxide's products were supplied for use in the manufacture of uPVC compounds which in turn were supplied for use in the manufacture of white rigid uPVC products for outdoor use, such as door and window frames. The function of the Tioxide products was to provide opacity, whiteness and thermal stability in the end product. The assumption upon which the preliminary issues were tried was that the Tioxide products had caused discolouration (pinking) of the end products in certain environmental conditions. By 1994 one of Tioxide's customers had started proceedings. Others followed. All claims have now been settled. We were told that the amount involved is substantial.

The Policies

5. Tioxide's liability insurance was arranged as part of the global cover for ICI of which it was then a subsidiary. The claims made policies were for the period from 30 June 1996 to 30 June 1997. The underlying primary policy was for £25m., the first excess for £50m. excess £25m. and the second excess for $50m. excess, £75m. The two excess policies were to all intents and purposes in identical terms. They were "except as otherwise provided" subject to the same "insuring agreements, definitions, exclusions and conditions" as the primary policy.
6. For present purposes I can summarise the relevant terms of the main insuring agreement. The policy was to indemnify Tioxide against a claim or claims first made during the policy period for the amount it was obligated to pay by reason of liability imposed by law or assumed under contract or agreement for damages on account of property damage resulting from each loss. Loss was defined as an accident including continuous or repeated exposure to the same general harmful conditions. Tioxide's cover was subject to a deductible of £10,000 each loss without aggregate. The judge decided that although Tioxide's liability was on account of property damage there had been no single loss as defined. The only basis for the policies to respond (if they did) was separately to each incident of pinking in which case it was unlikely that the deductible would ever have been exceeded and certain that the primary cover would not have been exhausted.
7. One loss as defined by this policy might give rise to a number of claims. If the first claim is made during the policy period and further claims are anticipated in subsequent years this would have to be disclosed to subsequent underwriters who might refuse cover or only provide it on prohibitive terms. Hence the LNO which, at Tioxide's option, enabled all claims in respect of one loss to be attributed to one policy period.
8. The wording of the LNO in the excess policies is as follows:

(I have numbered the relevant paragraphs for ease of reference).

Loss Notification Option

1. The insured may notify a Loss, other than arising out of Automobile Liability Hazard, to this Policy by sending notice of such Loss, in writing, by registered or certified mail during the period of this policy, to the entity designated in item 6 of the declaration [Marsh] provided:-

(1) the Loss being notified is a loss for which a claim or claims have already been made in writing, against the Insured, and

(2) the Loss is such that it is likely to involve this policy,

In the event the Insured so notifies a loss to this Policy then any claim which is made, in writing, against the Insured, as respects such Loss, within 10 years after the applicable date shown below shall be deemed to have been first made, in writing against the Insured on such date. …. [deals with loss arising out of Automatic Liability Hazard]

2. The applicable date as referred to above is:-

a) the date of the first written demand against the Insured for money or services as respects the notified attached Loss if the date of such written demand was during the period of this Policy, or

b) if the date of such written demand for money or services was prior to the inception date of this Policy, the date of the notification of the attached loss provided that it was notified in accordance with this Insuring Agreement …

3. If the Insured shall notify Underwriters of any Loss, as aforesaid, within 90 days of the end of any Annual Period of this Policy, then provided such Loss happened prior to the end of such Annual Period, Underwriters, at the Insured's request, will deem such notice as having been given on the last day of the Annual Period immediately preceding receipt of such notification.

4. Notwithstanding anything contained in the foregoing to the contrary, in the event that a Loss is notified to any of the Underlying Insurers… and is not notified to Underwriters because such Loss did not appear to involve this Policy yet subsequently would appear to involve this Policy, then this Policy shall not be prejudiced, provided notice, in writing, is given to Underwriters immediately after the Insured is aware of this situation. If the date of such written demand for money or services was prior to the inception date of this Policy, then for the purpose of this paragraph the date of the notification of the attached Loss shall be deemed to be the date upon which the notice of the said Loss was first sent, in writing, during the period of this Policy to any of the Underlying Insurers…

5. It is noted that this insuring agreement is an option for the insured and not an obligation and does not alter the provisions of condition B - reporting of claims.

9. The primary policy contained an LNO in identical terms except that it did not contain para. 4 and the entity to whom notice was required to be given during the policy period was Royal Sun Alliance (RSA) and not Marsh, who were Tioxide's brokers. RSA wrote 15% of the primary policy and about 18% of the first excess policy.
10. The judge found that Tioxide had validly exercised the LNO under the primary policy by a registered letter dated 2 July 1997 to RSA. The letter said:

LOSS NOTIFICATION

Dear Janet

PINKING CLAIMS

Further to our telephone conversation on Friday with regard to the above mentioned claims, I wish to trigger the Loss Notification Option of the policy with regard to the pinking problem.

I acknowledge the claims which have been notified to date will remain in their respective underwriting years, however, any future claims should attach to the 1996/97 underwriting year.

I accept this may well arise after the end of the present underwriting year but I believe I am well within the 90 day period which is set aside for notification of losses in such circumstances.

I trust that this letter is sufficient for the purpose intended and should you have any queries then please do not hesitate to come back to me immediately.

11. The LNO under the excess policies could be exercised during the period of the policy (paras. 1 and 2), within 90 days of expiry (para. 3) or under para. 4. Tioxide relied on para. 4. It claimed that it had given the required notice by a fax dated 25 January 2002. This was from a senior technical claims controller with RSA to Peter Carron at Marsh. It was headed "Re: ICI – Tioxide Pinking Claims – 1996/97 year" and said:

Dear Peter

Further to our telephone conversation of 25 January last I attach a copy of the letter we have received … triggering the Loss Notification Option under the policy. Please note our claim reference number as PL990101972.

Regards

A copy of the letter of 2 July 1997 was attached.

12. The judge said that a valid exercise of the LNO under para. 4 required:

(a) A loss to be notified to any of the primary insurers.

(b) The loss not to be notified to excess insurers because the excess layers did not appear to be involved.

(c) Notice in writing to be given to excess insurers immediately after Tioxide became aware that the loss did appear to involve the excess layers.

13. Addressing these three requirements the judge held that the loss was notified to a primary insurer (RSA) (a) and accepted the unchallenged evidence that the loss had not been notified to excess insurers because it did not then appear to involve the excess layers (b). He also accepted the unchallenged evidence that the fax of 25 January 2002 was sent when it first appeared that the excess layers might be involved so as to satisfy the requirement for the notice to be given immediately (latter part of (c)), although most of the excess insurers did not receive it until months (and in one case over a year) later.
14. The judge continued:

But the fax was not sent by or (at least expressly) on behalf of Tioxide nor was it sent to Excess Insurers but to Marsh, nor did it say any more than it was attaching the 2 July 1997 letter.

There was no obligation upon Tioxide to exercise the Option. The question is did Tioxide exercise it. The first difficulty for Tioxide is, therefore, that the fax did not comply with the provisions of the LNO as regards at least the addressee. Marsh were, absent agreement otherwise, the agents of the insured not agents of excess insurers to receive such a fax. Moreover, if Tioxide is to rely on the opening words of the LNO as applicable to the fax it was not sent by registered or certified mail. Whilst these deficiencies might well have been of no significance if there was evidence that excess insurers in fact received the "immediate" notice for which the LNO stipulates, in the absence of such evidence I think they are fatal, and certainly so taken together with the second difficulty faced by Tioxide. Nor do I think the bare facts that insurers did not take these points until April 2003 could amount to a waiver of them and there is no evidence at all to support any case of estoppel in favour of Tioxide.

The second difficulty Tioxide faces is that the fax itself merely refers to an earlier telephone conversation with a representative of Marsh and encloses the 2 July letter. It does not purport to give notice to anyone of the exercise of the LNO in the excess policies or of awareness that those polices might be involved albeit I think it may be a fair inference that the fax was sent to enable Marsh to give such a notice and in the expectation that Marsh would do so. But for this reason also in my judgment the fax fails to comply with the LNO.

15. Mr Symons Q.C. for Tioxide submits that the judge was wrong to hold that the notice required by para. 4 of the LNO had to be given to underwriters and could not be given to Marsh. He says the opening words of para. 3, "if the Insured shall notify Underwriters of any loss, as aforesaid," show that notice in the 90 days after expiry must be given to Marsh, so it must have been intended that notification to underwriters in para. 4 should be made in the same way. This is supported, he says, by the fact that the words "not notified to Underwriters" in the third line of para. 4 must also be a reference to notification to Marsh. He submits that a requirement for notice to be given to underwriters at one time and to brokers at others makes no commercial sense.
16. I do not accept these submissions. I do not think one can get away from the difference between the wording of para. 1 and para. 4: para. 1 requires notice to be given "to the entity designated in item 6 of the declarations"; para. 4 requires notice to be given "to Underwriters", that is to say the underwriters subscribing to this policy. If the addressee in each case was intended to be the same, para. 4 could have used the same language as para. 1 or referred back to it, but it did not. Whilst the reason for the difference is not clear it is not difficult to think of one: during the policy period underwriters could expect losses to be notified and would allow the insured's brokers to receive notice on their behalf, but after that time for a period of up to 10 years they would require notice to be given to them immediately to enable them to know as soon as possible that they were on risk and make provision for it. It cannot therefore be said that there is no commercial justification for the difference. Mr Symons' reference to the words "as aforesaid" in para. 3 does not help him. If they refer to the method of notification in para. 1 then one asks why the same words are not used in para. 4. It is possible however that they refer, not to the method of notification, but to the two types of loss (a loss and a loss arising out of automobile liability hazard) the subject of the LNO.
17. The next point about the fax is that it does not purport to be sent by or on behalf of Tioxide. The judge does not give this as a reason for his conclusion, although he refers to the point without disapproval in the passage from his judgment which I have quoted. By their Respondent's Notice underwriters say that this is another reason why the fax did not validly exercise the LNO.
18. Tioxide's pleaded case about this was that the notice did not need to be given by or on its behalf. Before the judge it was allowed to contend that RSA were or must have been acting on its behalf, although there was no evidence that this was the case and no plausible reason was advanced as to why one of its insurers should be acting as Tioxide's agent. Before us Mr Symons also contended that para. 4 did not require the notice to be given by Tioxide. He submitted that Tioxide were not in effect exercising an option at all. Once the LNO in the primary policy had been exercised this put the loss into the policy period of the excess policies and fixed the applicable date from which the 10 year period would run. This was all excess underwriters needed to know plus the fact that the loss was being notified to their policies. That could be done by anyone.
19. Skilfully though these arguments were deployed, I cannot accept them. The LNO is what para. 5 says it is: an option for the insured and not an obligation. The insured does not need to exercise it, but if he decides to do so he or someone on his behalf must notify underwriters that this is what he has chosen to do. That is clear from the first two ways in which the option may be exercised (paras. 1 and 3) because the wording says so: "The Insured may notify…" and "If the Insured shall notify...." Although para. 4 is not expressed in these terms the notices are required to be given "immediately after the Insured is aware of this situation". I think this makes it clear that it is the insured who must give the notice. Para. 4 makes notification of a loss to the primary policy a condition precedent to the exercise of the option, but that notification does not of itself exercise the option under the excess policies. Looked at another way unless the insured or someone on his behalf exercises the option it has not been exercised at all. An unauthorised notice would be ineffective.
20. So for these reasons I conclude that the fax did not validly exercise the option because it was not sent by Tioxide or on its behalf as the LNO required.
21. Mr Symons submits that the second of the judge's reasons for finding that the fax failed to comply with the LNO was not open to him because it had not been pleaded. This is disputed by underwriters and we were taken through the pleadings and the written and oral opening and closing submissions which each party said supported its position.
22. A brief summary of this material is as follows. Tioxide pleaded that the fax was a notification in accordance with the LNO. Underwriters denied this in their defence relying "in particular" on a number of points including the assertion that the fax was "incapable of amounting to a valid exercise" of the LNO. It seems that Mr Symons thought that underwriters were only saying this because the fax had not been sent by Tioxide or to underwriters. But in his written opening Mr Bartlett Q.C. for underwriters took these points and added that the fax was "a curious way of attempting to exercise the LNO" and that it was not a proper notice. At the request of the judge, his written closing submissions simply referred back to his opening submissions although they identified the valid exercise of the LNO in the excess policies as a core point in the case. In the course of his closing oral submissions however it is clear that Mr Bartlett did take the point fairly and squarely without objection from Tioxide (see transcript 19 July 2004 3/2/886-896 and particularly at 887 lines 7-19, 888 lines 7-15 and 895 line 14-896 line 2).
23. From my review of this material I conclude that it was open to underwriters to take this point on the pleadings which generally put in issue the validity of the fax and referred, perhaps somewhat unclearly, to the fact that it was incapable of amounting to a valid exercise of the LNO. They took the point clearly in their closing submissions. So I think it was open to the judge to rely on it in his judgment. I accept, as I think Mr Bartlett did, that the point could have been more clearly signalled and that this is probably why Mr Symons did not deal with it specifically in his submissions.
24. Has this led to any unfairness? Mr Symons suggested that Tioxide might have wanted to call evidence to put the fax in context and explain what the telephone call referred to in it was about. But no such evidence has been produced, although this could have been done after the judge sent out his draft judgment or for the purposes of this appeal. Be that as it may, however, the answer to my question is I think that no amount of evidence of the kind suggested could have the effect of transforming this fax into a valid notice. It does not purport to be a notice at all. It simply confirms that Tioxide have exercised the LNO under the primary policy. It makes no reference to the excess policies or to the fact that the pinking claims might involve them. It may be, as the judge said, that this information was passed to Marsh as Tioxide's brokers to enable them to give the necessary notice on Tioxide's behalf, but I can see no way in which it can be said that it was such a notice itself.
25. Accordingly I think the judge's second reason for saying that the fax did not exercise the LNO was open to him and was correct. Add to this that the fax was not sent by or on behalf of Tioxide or to underwriters and I think the conclusion, of which we have already informed the parties, was inevitable.
26. Mr Symons invited us to consider deciding the other issues arising on this appeal because they might be relevant to claims which Tioxide might have against others and because of the possibility of a successful appeal to the House of Lords. I do not think either of these reasons justified prolonging the hearing of the appeal for what would have been at least another day and half.
27. For the reasons I have given I would dismiss the appeal by confirming the judge's answer to issue 9 which was as follows:

Have the formal requirements for the LNO contained in the … excess layers of the policy been complied with?

No.

Lord Justice Keene: I agree.

Lord Justice Ward: I also agree.