JAMES LONGLEY & CO v FOREST GILES LTD

Under a contractor’s public-liability cover for liability for damage to property, defective workmanship requiring rectification is not, without physical damage to other property or interference with another’s property rights, insured property damage. A definition providing that damage includes loss extends the cover to loss of property; it does not convert the cost of remedying defective work or consequential financial loss into damage to property.

Where any damage is confined to the defective product supplied or contract works, an exclusion for the defective part and the cost of repairing or replacing it applies. An extension indemnifying a principal remains conditional on the occurrence of insured property damage.

Forest Giles, a flooring subcontractor, installed vinyl flooring before the underlying screed had dried sufficiently. The flooring bubbled and required removal and replacement. James Longley, the main contractor, incurred remedial costs and later paid £160,000 to the developer under a consent award.

In a Part 8 claim, His Honour Judge Lloyd QC in the Technology and Construction Court decided that neither claim fell within section 3 of Forest Giles’s public-liability policy. Longley appealed. The central issue was whether the defective flooring, the remedial expenditure, and the payment to the developer arose from insured damage to property.

1. Appeal dismissed. Potter LJ held, with whom Latham LJ and Lord Mustill agreed, that neither the remedial costs nor the £160,000 payment was covered by section 3 of the policy.
2. Section 3 was public-liability insurance. In the context of the composite policy, it was not intended to insure the cost of rectifying defective workmanship where that work had caused no physical damage to a third party’s property and had not interfered with a third party’s property rights. The flooring and screed were simply defective and had to be redone. No physical damage to adjacent works, underlying works, or the developer’s property was alleged.
3. The definition that damage includes loss did not cover financial loss associated with defective work. In context, it meant that the policy covered loss of property as well as damage to property.
4. Even if the vinyl surface or screed could be treated as damaged property, it was a product supplied by Forest Giles or part of its contract works. Exception 4 therefore excluded both damage limited to the defective part and the costs of repairing or replacing it. The associated expense of other contractors removing and storing equipment did not escape that exclusion. The observations in Cementation Piling and Foundations Ltd v Aegon Insurance Co Ltd and Commercial Union Insurance Co Plc [1995] 1 LLR 97 arose in a different context and did not assist Longley.
5. Extension 3 did not improve Longley’s position. Its indemnity for the principal depended on proof of the insured event, namely damage to property. That event had not occurred. Any part of the payment representing liquidated damages was additionally excluded by the extension’s proviso.

• Court of Appeal (Civil Division). Appeal dismissed: [2001] EWCA Civ 1242.
• Technology and Construction Court. His Honour Judge Lloyd QC answered the agreed insurance-coverage issues adversely to James Longley, holding that the remedial costs and the claimed liability arising from the £160,000 payment were outside section 3 of the policy.