By Michael Nadin - Employment Law Associate P&O Ferries’ controversial mass sacking of employees on…
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A recent case concerned a processing plant, which supplied the claimant, a pet food manufacturer, with meat that was unfit for consumption. The pet food manufacturer mixed this with material from other suppliers, with the result that the whole of the meat was unfit for consumption.
The pet food manufacturer was unaware of the contamination and sold the meat in good faith to another firm, which was successful in a claim for compensation.
The pet food manufacturer then sued the supplier for damages arising under breach of contract. It was successful in its claim, but because it was a claim in contract, there was no ruling of negligence against the processing plant. The company operating the processing plant became insolvent, so the pet food manufacturer sought to recover damages from the supplier’s insurance company – the claim being a claim in tort (for damages due to a civil wrong).
The insurer denied liability on the ground that the insured’s liability arose under the law of contract and the policy contained an exclusion for liability arising under ‘any contract or agreement unless such liability would have arisen in the absence of such contract or agreement’.
The court considered that the claimant had suffered a loss which was one of the perils covered by the supplier’s insurance policy and the fact of the loss was demonstrated by the judgment. However, this was not determinative of the legal status of the loss under the policy as the insurer was not party to the judgment relating to the loss. The court ruled that the claimant could therefore ‘go behind’ the judgment to establish that the supplier was liable in tort as well as contract. The insurer could attempt to show, for example, that the loss was due to fraud or negligence not covered by the policy, but otherwise would be held liable if the risk was an insured risk.
Under the Third Parties (Rights Against Insurers) Act 2010, which is not yet in force, claimants against an insolvent person will have the right to claim directly against their insurer, which will enable the court to rule in one sitting regarding the liability of the insurer under the policy and to a third party claiming against the policy.