Ramco (UK) Ltd. & Ors v International Insurance Company of Hannover Ltd. & Anor

In a bailee’s insurance policy, wording covering goods held in trust for which the insured is responsible ordinarily limits cover to goods for which the insured has legal liability to a third party. That limitation does not, without more, convert the policy into liability insurance. Where the policy promises payment of the value of lost property, the amount of damage, or reinstatement or replacement, it is property insurance. The insured may therefore recover the property’s full value or the relevant damage, subject to the policy terms and any obligation to account to the owner for excess recovery.

The claimants operated premises containing their own goods and goods belonging to third parties which had been bailed to them. A fire damaged or destroyed the goods. The insurers accepted liability for the claimants’ own property but disputed liability for the bailed goods.

The court determined preliminary issues concerning whether cover for bailed goods depended on the claimants’ legal liability to the owners and, if so, whether the policy indemnified only that liability or responded to the full value of the goods or the damage to them.

1. Preliminary issues answered. Section 1 responded to claims for third-party stock and materials only where the claimants were liable to a third party for the loss or damage. It nevertheless responded to the full value of the stock or materials lost or destroyed, or the amount of the damage, subject to the insurers’ option to reinstate or replace them.
2. The construction of a bailee’s insurance depends on the wording of the particular contract. The authorities recognised that a bailee could insure bailed goods for their full value and account to the owner for any excess recovery: Waters v Monarch Fire and Life Assurance Company (1856) 5 E&B 870 and Tomlinson v Hepburn [1966] AC 451.
3. In the present policy, “responsible” naturally connoted legal liability. Otherwise the words “for which the Insured is responsible” would add nothing of business significance to the requirement that the goods be held in trust. The reasoning in North British and Mercantile Insurance Co v Moffatt (1871) LR 7 CP 25, as applied in Engel v Lancashire & General Assurance Co Ltd (1925) 21 Ll L R 327, supported that construction.
4. The policy was property insurance, not liability insurance. The obligation to pay the property’s value or damage, the power to reinstate or replace, the average condition and the absence of provisions characteristic of liability cover all pointed to that conclusion. The court was not driven by authority to treat the cover as hybrid or composite liability insurance.
5. The observation of Jessel MR in North British and Mercantile Insurance Company v London, Liverpool & Globe Insurance Company (1876) 5 Ch D 569 was obiter and carried reduced weight in light of Tomlinson v Hepburn [1966] AC 451. The court declined to infer from a parenthetical remark in that decision that wording referring to goods for which an insured was responsible necessarily denoted liability insurance.