Businesses normally carry insurance against a variety of mishaps and a recent case reiterates that it is good advice to make sure you read your policies and understand what is covered and what is not.
It involved a company which had a fire at its premises as a result of which pollutants were spilled into the watercourse. This necessitated a clean-up to be carried out by the Environment Agency, which also required the company to do some works.
The company claimed from its insurers the cost of both sets of remedial works. The insurers declined to pay because the relevant clause of the policy insured losses arising as a result of ‘damage to property’ and ‘interference with…air light water or way’.
The nub of the problem is that the expenses incurred by the Environment Agency arise by operation of statute. They are therefore not damages in tort (ie resulting from civil wrongs), but debts. There was no wrong done which could lead to an action being taken against the company and therefore the insurance policy did not cover the cost…there was no basis under which a legal liability for damages could arise.
The company also argued that if it failed to carry out the remedial work required by the Environment Agency, it could have faced an action for damages by a third party, so under that basis the cost of the company’s work should be recoverable from the insurers. The policy, however, did not have a clause which obliged the company to mitigate losses which might fall onto the insurers. Accordingly, that loss was also not recoverable.