[2002] EWHC 968 (Comm)	Case No: 2001 Folio 1330
 
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

	Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 15th May 2002

B e f o r e :

THE HONOURABLE MR JUSTICE MOORE-BICK
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	JAMES BUDGETT SUGARS LIMITED		Claimant	
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	NORWICH UNION INSURANCE LIMITED	Defendant	

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Mr. Richard Siberry Q.C. (instructed by Bentleys, Stokes & Lowless) for the claimant
Mr. Robert Moxon Browne Q.C. and Miss Alison Green  (instructed by Gouldens) for the defendant

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JUDGMENT

Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.

The Hon. Mr. Justice Moore-Bick

Mr Justice Moore-Bick: 
1.	This matter comes before the court by way of a claim brought under Part 8 of the Civil Procedure Rules for a declaration as to the meaning of certain clauses in a policy of insurance. The claimant, James Budgett Sugars Limited, carries on business as a trader and distributor of sugar. The policy in question is of a type commonly known as a combined commercial policy which contains wording providing cover against a variety of different types of risk from which the insured may choose those which suit his needs. The policy was underwritten by GA Bonus plc whose business has since been taken over by the defendant, Norwich Union Insurance Ltd.
2.	In the summer of 1996 James Budgett renewed its cover under the Material Damage, Business Interruption, Liability and Trade All Risks sections of the policy for the period 1st June 1996 to 31st May 1997. This claim concerns only the Liability section which provided cover in respect of both public and products liability. The schedule notes that the cover extended to merchanting between a UK supplier and customer at an estimated turnover of £142,500,000. The scale of the insured’s business at the time was therefore quite substantial. The limit of indemnity was £1 million, but James Budgett had excess of loss cover protecting it for a further £4 million.
3.	The following terms of the Liability section of the policy are directly relevant to the present claim. I set them out as far as possible in the form in which they appear in the policy document:
“Definitions
Damage
Damage means physical damage
Property
Property means material property
. . . . . . . . . . . . . . . . . . . .
Section One – Public and Products Liability
Event
In the Event of accidental
1.	Personal Injury
	or
2.	loss of or Damage to Property
	or
3.	obstruction trespass nuisance or interference with any right of way air light or water or other easement
which arises in connection with the Business and which occurs during the Period of Insurance and within the Territorial Limits
Indemnity
In respect of such an Event the Company will provide indemnity against
1.	legal liability for compensation up to the Limit of Indemnity
	and
2.	Costs and Expenses”
4.	In the latter part of 1996 James Budgett sold and delivered to Kerry Ingredients (UK) Ltd 200 tons of raw cane granulated sugar which Kerry used in the manufacture of mincemeat. It subsequently became apparent that the sugar had been contaminated with magnetite and as a result Kerry and its customers took steps to withdraw and replace products containing the mincemeat.
5.	In October 2001 Kerry began proceedings against James Budgett claiming damages for breach of contract. It alleged that the sugar did not comply with the express or implied terms of the contract, being unfit for the purpose of use in the manufacture of food to be sold for human consumption. James Budgett has admitted that in this respect it was in breach of contract.
6.	In its particulars of claim Kerry pleads loss and damage under a number of different heads. The only one that needs to be mentioned for present purposes is head (4) which relates to loss of business resulting from the action of two particular customers, Newforge Foods Ltd and the Booker Group. Kerry alleges that, as a result of its supplying contaminated mincemeat, Newforge ceased trading with it, giving rise to a loss of profit of £77,205, and the Booker Group insisted on renegotiating its contract, resulting in a loss of profit of £428,460. No further details are give of either of these losses.
7.	James Budgett has denied liability in each case on the grounds that neither of these losses was caused by its breach of contract and that the loss is in any event too remote to be recoverable in law. The question I have to decide in the present case, however, is whether Norwich Union would be bound to indemnify James Budgett if it were to be held liable in respect of either of the losses claimed.
8.	Mr. Siberry Q.C. submitted that the words of the insuring clause are broad and clear. All that the insured needs to establish is that an Event has occurred which has given rise to legal liability to a third party. Provided those conditions are satisfied the insurer must indemnify the insured against that liability, whatever its nature. It is common ground that an event in the form of damage to physical property has occurred and that insofar as Kerry is entitled to recover damages from James Budgett that can only be because its loss is to be regarded in law as having been caused by the supply of the contaminated sugar. In those circumstances there would be a liability in respect of the event and Norwich Union would be bound to indemnify James Budgett against it
9.	 Mr. Moxon-Browne Q.C. submitted that this policy was not intended to provide cover against consequential loss of the kind represented by these two controversial heads of damage. He submitted that the word “Event” is in effect defined by the policy to mean physical loss of or damage to property and that the expression “In respect of such an Event” limits the scope of the indemnity to liability for the physical loss and damage itself and its direct consequences. Accordingly, the policy does not provide an indemnity against liability for losses resulting from decisions on the part of Kerry’s customers to cease trading with it or to renegotiate existing contracts, even if they can be regarded as a consequence of the breach of contract.
10.	In order to put these rival submissions in context it is necessary to refer to two authorities to which my attention was drawn, each a decision of the Court of Appeal in which the leading judgment was given by Hobhouse L.J.
11.	The first of these cases is A. S. Screenprint Ltd v British Reserve Insurance Co. Ltd [1999] Lloyd’s Rep. IR 430. In that case the claimant, Screenprint, was insured by the defendant in the following terms:
“The company will indemnify the Insured against all sums which the Insured shall become legally liable to pay in respect of death, bodily injury, illness, loss or damage happening . . . . . . . . during the period of insurance and caused by goods . . . . . . . . sold . . . . altered . . . . . or treated in the course of the Business . . . . . . . .” (emphasis added).
12.	Screenprint had supplied printed card to a customer, LMG Folding Cartons Ltd, for making up into boxes for sweets. LMG had supplied the card to Mars. Mars alleged that sweets packed in the boxes had been contaminated by the packaging and made a claim against LMG which in turn brought proceedings against Screenprint. In that action LMG sought to recover not only the sum it had paid to settle Mars’ claim but also the profit it said it had lost as a result of Mars’ decision to cease trading with it. Screenprint brought proceedings against its insurer seeking a declaration that it was entitled to be indemnified against any liability in respect of LMG’s claim for loss of profit.
13.	The judge at first instance held that Screenprint was not entitled to an indemnity because the loss in question was not caused by the defective goods but by the decision of Mars not to continue trading with LMG. Hobhouse L.J. (with whom the other members of the court agreed) reached the same conclusion, but he also pointed out that the policy provided an indemnity against liability “in respect of” loss or damage which he construed as meaning physical loss or damage. Given the context in which those words appeared in the insuring clause I do not find that surprising. However, it is apparent from the emphasis he placed on the expression “in respect of” in conjunction with physical loss or damage that he regarded it as an important element in defining the scope of the indemnity provided by the policy. He expressed the view that it was not possible to treat a liability to pay compensation in respect of an economic loss arising from a loss of goodwill as being a loss in respect of physical loss or damage. 
14.	Although the language of the insuring clause in that case was very different from that of the present case, the argument necessarily proceeded on the assumption that Screenprint might be held liable to LMG for this head of loss. That could only be the case, however, if the loss flowed from the breach of contract in supplying defective goods. To that extent it can be said that Hobhouse L.J. was seeking to draw a distinction between liability in respect of purely economic losses (which fell outside the terms of the policy) and liability in respect of physical damage (which fell within them).
15.	The second case is Rexodan International Ltd v Commercial Union Assurance Co. Plc (reported as Rodan v Commercial Union Assurance Co. Plc) [1999] Lloyd’s Rep. IR 495. Rexodan supplied soap powder in bulk to a company called Newbrite for re-packaging and distribution to consumers in cardboard cartons under the ‘Newbrite’ brand name. Defects in the powder caused staining of the cartons and the absorption of water from the atmosphere which in turn caused the powder to cake. Newbrite sued Rexodan and obtained judgment for damages to be assessed. Judgment was entered for the following four heads of damage which were accepted by Rexodan: (1) the difference between the value of sound powder and the value of the defective powder; (2) extra expenditure incurred withdrawing the defective powder from customers; (3) expenditure on cartons thrown away as the result of Newbrite’s decision not to purchase any more powder from Rexodan and to discontinue the use of the ‘Newbrite’ brand; (4) loss of profits over the 18 month period it would take to re-establish a similar brand. Rexodan sought to recover these sums from its insurers.
16.	The policy in question provided as follows:
“Commercial Union will indemnify the Insured against
	a.	all sums which the Insured shall become legally liable to pay for compensation and claimants’ costs and expenses in respect of any Occurrence to which this Cover applies  . . . . . . . . 
Occurrences
. . . . . . . . . . . . 
3.	Products Liability
	. . . . . . . . . . .
b.	Loss of or physical damage to physical property . . . . . . . . caused by any commodity article or thing supplied installed erected repaired altered or treated by the Insured . . . . . . . . ” (emphasis added).
17.	The judge below held that the first two heads of loss were covered by the insuring clause but fell within the scope of a policy exclusion. A majority of the Court of Appeal agreed with him. The judge held that heads (3) and (4) represented loss of future profits which were recoverable as damages for breach of contract. He considered that the words “in respect of an Occurrence” meant that there had to be a connection of some kind between the occurrence and the liability, but he found it unnecessary to define it precisely because he was satisfied that there was a sufficient degree of connection in that case. He therefore held that the insurers were bound to indemnify Rexodan against liability for those losses.
18.	It was at this point that the Court of Appeal parted company with the judge. Hobhouse L.J. accepted that there had been an Occurrence by virtue of the fact that the powder had caused damage to the cartons which had in turn caused damage to the powder, but he did not consider that Rexodan’s liability for the losses under heads (3) and (4) was a liability “in respect of” that Occurrence. He held (page 500, col. 1) that 
“the phrase “in respect of” carries with it a requirement that the liability relate to the identified Occurrence. It is not sufficient that it should simply have had some connection with the Occurrence”.
19.	What Hobhouse L.J. meant by saying that the liability must “relate to” the Occurrence is explained  by the passage that follows. In view of the importance which Mr. Moxon Browne attached to this decision I think it is worth citing in full. He said this (page 500 col. 1):
“The effect of the decision of the judge to treat the words “in respect of the Occurrence” as meaning no more than “in connection with the same causes of action as gave rise to the liability for the Occurrence” transforms this cover from a products liability cover to a policy covering general contractual liabilities. A products liability policy in which the cover provided is defined in words such as those used in the present policy is confined to liability for physical consequences caused by the commodity or article supplied. The liability of the assured in damages will have to be expressed in terms of money but that liability must be in respect of the consequences of the physical loss or damage to physical property (or some personal – “bodily” – injury). Provided that the commodity or article supplied has caused the physical consequence, the compensation payable by the assured to the third party will include, and the liability of the insurer to indemnify the assured will extend to, the totality of the loss which the third party is entitled to recover from the assured by way of damages in respect of that physical consequence. Thus, if a defective article supplied by the assured causes bodily injury to the third party disabling him or, for example, causes his premises to be destroyed by fire, the third party will be entitled to recover from the assured the full value of what he has lost which will, in the two examples I have given, include compensation for future loss of earnings. They are part of what the third party has lost as a consequence of the physical loss or injury and they are accordingly part of the liability of the assured in respect of that physical consequence.
Items 3 and 4 in the claim of Newbrite were not of such a character. They relate to the future non-performance of obligations of Rexodan towards Newbrite. They do not relate to any quantification of the loss which Newbrite suffered as a result of the relevant physical Occurrence, the staining of the cartons in which Newbrite packed the first 80 tons delivered. In my judgment the Judge’s decision in favour of Rexodan on Items 3 and 4 was clearly wrong and cannot stand.”

20.	It is clear from that passage that Hobhouse L.J. was not seeking to exclude liability for all consequential loss so as to limit the policy to providing an indemnity against liability for physical loss and damage alone. On the contrary, he expressly contemplated that the insurers would be liable to indemnify the insured against liability for consequential loss in the form of compensation for future loss of earnings where that was directly related to physical loss or damage. However, he plainly did consider that the expression “in respect of” when used in conjunction with the word “Occurrence” was intended to limit the scope of the insurer’s liability to the physical damage and its direct consequences. That, it seems to me, is the explanation of his remark that the effect of the judge’s decision was to transform the cover from a products liability cover to a policy covering general contractual liabilities. He regarded heads (3) and (4) of Newbrite’s loss as resulting from the breach of contract in supplying defective goods, not from the physical damage to the cartons.
21.	Mr. Moxon Browne submitted that these decisions show that the expression “in respect of” in a policy of this kind is intended to denote a certain kind of relationship between the circumstances giving rise to the insured’s liability and the loss in respect of which the insurer is bound to indemnify him. Applying the same approach to the present policy, he submitted that Norwich Union is bound to indemnify James Budgett in respect of its liability for the damage to the mincemeat and the costs of withdrawing the product, but not in respect of any liability for losses sustained as a result of Newforge’s decision to withdraw its custom or the Booker Group’s  insistence on re-negotiating its contracts. These losses, he submitted, are essentially of the same kind as those suffered by LMG in A. S. Screenprint v British Reserve Insurance Co. 
22.	Although the two cases to which I have referred are illuminating, it is right to say that in each case the wording of the policy was different from that of the policy I have to consider. The expression “in respect of” is not a term of art but is one which is in general use and takes its meaning from the context in which it is found. In each of the cases to which I have referred it was used as part of a larger phrase which made it clear that the liability against which the insurer was undertaking to indemnify the insured was liability relating to a physical event. Nonetheless, the distinction drawn by Hobhouse L.J. between liability for causing physical harm and liability for breach of contract generally is one which must be borne in mind when dealing with liability insurance.
23.	The insuring clauses in the present policy are worded rather differently. In the first place, the “Event” which provides the basis for the indemnity is not defined in a formal manner, either in the Definition section or in the clause headed “Event”. What one finds instead is a clause which begins with words which suggest that a positive undertaking is to follow (“In the Event of . . . . . ”), but which appears to peter out without a substantive provision of any kind. That is followed by an Indemnity clause which provides that “In respect of such an Event the Company will provide indemnity against legal liability” without appearing to state in clear terms what the liability relates to. In this respect it differs from the insuring clauses in A. S. Screenprint v British Reserve Insurance Co (“legally liable to pay in respect of loss or damage”) and Rexodan International Ltd v Commercial Union Assurance Co. Plc  (“legally liable to pay for compensation in respect of any Occurrence”) (emphasis added in each case).
24.	Herein lies the real dispute between the parties. Mr. Siberry submitted that the indemnity clause contains an undertaking to indemnify the insured against any legal liability linked to an Event of the kind described in the Event clause. He submitted that the expression “In respect of such an Event”, coming as it does at the beginning of the sentence, merely establishes the need for a broad relationship between the Event and the liability and is not intended to limit the indemnity to liability in respect of the physical loss or damage constituting the Event. Mr. Moxon Browne, on the other hand, submitted that the intention of the policy was to define an Event in physical terms, i.e. loss of or damage to property, and to provide an indemnity against liability in respect of the Event as so defined. In effect, that involves reading the Indemnity clause as if it said
“The Company will provide indemnity against
1.	legal liability for compensation in respect of such an Event up to the Limit of Indemnity . . . . .”
25.	If the Indemnity clause had been worded in that way, this case would be virtually indistinguishable from Rexodan International Ltd v Commercial Union Assurance Co. Plc., but the fact is that it is not. The duty of the court when construing a contract is to give effect to the intention of the parties which is to be collected primarily from the language in which they have chosen to express themselves. Sometimes the contract as a whole or the commercial background enables one to see that certain words or expressions have not been used in their ordinary sense, but in general it is necessary to give the words used in the contract their natural and ordinary meaning.
26.	This was a stock policy in the sense that it was available off the shelf and was not the result of negotiation between the parties. It was said by Mr. Moxon Browne that product liability insurance is not intended to cover liabilities of the kind now under consideration and that the insured could have obtained full cover against purely financial consequential loss had it wished to do so, albeit at a price. No doubt it is right to have some regard to the broad nature of the policy, but the availability and cost of alternative types of cover are not in my view relevant factors unless it can be shown that they were present to the minds of both parties at the time when the policy was renewed and there is no evidence to suggest that that was the case here.
27.	In the end, therefore, it comes down to construing the Event and Indemnity clauses. I have already observed that these two clauses, especially the Event clause, are not altogether happily worded, but the style in which the policy is written (see, for example, Extension A to the Public and Products Liability section) suggests that despite the introduction of the sub-headings, these two clauses are intended to be read together as a single sentence. This goes some way towards explaining the apparently incomplete nature of the ‘Event’ clause and it also sheds a little more light on the meaning of the clause as a whole. If it had been intended to provide an indemnity in respect of any legal liability connected in any way with the Event, it would have been unnecessary to include the words “In respect of such an Event” in the Indemnity clause. The whole sentence would then have read
“In the Event of accidental . . . . . . Damage to Property the Company will provide indemnity against legal liability for compensation up to the Limit of Indemnity”.
That is, in effect, how Mr. Siberry suggests the provision should be read. 
28.	I think it is clear that the “Event” clause, although not worded in quite this way, is intended to define the circumstances giving rise to liability in respect of which the insurer will provide an indemnity. In view of the definitions of “damage” and “property” these are physical events. Although the wording of the “Indemnity” clause is inelegant, I think that when one reads the two clauses together as a single sentence, as I am satisfied was the intention, the words “In respect of such an Event” must have been included in order to govern the liability against which the insurer is agreeing to provide an indemnity. In other words, they were included to limit the scope of the indemnity to liability in respect of physical loss or damage.
29.	Although the wording differs, therefore, the present policy does not in substance differ very greatly from those considered by the Court of Appeal in A. S. Screenprint v British Reserve Insurance Co and  Rexodan International Ltd v Commercial Union. For the reasons I have already given I think that the expression “in respect of such an Event” was used in this case as well to limit the extent of the indemnity provided under the policy to losses relating to physical damage and I am not persuaded that there is any real ambiguity about the meaning of the clause as a whole such as would justify invoking the contra proferentem rule of construction.
30.	One final point should be mentioned. Although it was common ground that an Event in the sense of physical damage to material property had occurred in this case, it transpired in the course of argument that there was some disagreement between the parties as to what constituted the Event. Mr. Siberry submitted that it was the contamination of the sugar before it left James Budgett’s premises. Mr. Moxon Browne submitted that it was the damage to the mincemeat caused by the incorporation of the contaminated sugar. In my view the latter is probably the better view, though I do not think that anything turns on it in the present case. The commercial purpose of the policy is to indemnify the insured against liability to third parties and it makes better sense, therefore, to construe the expressions “personal injury” and “loss of or damage to property” as referring to injury to a third party or damage to property belonging to a third party. That is also consistent with the third limb of the “Event” clause which refers to various infringements of legal rights relating to property.
31.	The losses claimed by Kerry resulting  from the responses of Newforge and the Booker group to the contamination of the mincemeat were not in my view losses relating to the physical damage to the mincemeat, but were at best losses relating to James Budgett’s breach of contract. As such I do not think that they fall within the policy. There will no doubt be lively debate as to whether these losses were caused by the breach of contract at all and, if they were, whether they are recoverable as a matter of law, but these are not matters which arise for decision on this occasion.
32.	In these circumstances the claim must fail.