Ramco (UK) Ltd. v International Insurance Company of Hanover

Where a bailee’s property policy covers goods held in trust for which the insured is responsible, those words may restrict cover to loss for which the bailee is legally liable. The court will treat a long-established construction as settled where insurers and brokers have used the wording to select between full-value cover and liability-based cover, and the wording has operated satisfactorily in practice. The established exception allowing a bailee to recover the full value of bailed goods should not be extended beyond its proper limits without good reason.

Ramco and Resource Industries occupied premises at which a fire destroyed or damaged stock. Their combined all-risks policy covered property owned by them and property held in trust for which they were responsible. The insurers accepted liability for the claimants’ own property but disputed liability for goods entrusted to them by third parties, including goods entrusted to Resource Industries by Neville Murray.

Andrew Smith J determined preliminary issues in favour of the insurers on the first issue, holding that cover for third-party goods depended on the claimants’ liability for the loss. He held on the second issue that, if the goods were covered, recovery was not limited to the amount of that liability. The appeal concerned only the first issue: whether the policy responded to third-party goods only where the bailee was legally liable for their loss.

1. Appeal dismissed. The Court of Appeal, in a judgment delivered by Lord Justice Waller on behalf of the court, upheld the judge’s construction of the policy. The words “held by the Insured in trust for which the Insured is responsible” restricted cover for third-party goods to goods for which the insured bailee was legally responsible for the loss or damage.
2. The natural wording, considered without the authorities, might suggest a broader concept of responsibility. The policy identified the goods covered before loss, and the words could be read as describing goods for which the bailee had general responsibility rather than liability for the particular damage.
3. That construction could not prevail against the settled meaning established by North British and Mercantile Insurance Co v Moffatt and Engel v Lancashire & General Assurance Co Ltd. Moffatt treated the additional words as express words limiting cover, and Engel regarded itself as bound by that decision. The subsequent treatment of the wording in insurance texts and in Tomlinson v Hepburn confirmed the established understanding.
4. The wording reflected a commercially available choice between insurance of the goods regardless of the bailee’s liability and insurance limited to the bailee’s liability. After about 80 years of use, it would be meddlesome for the court to alter the settled meaning absent a real reason to suppose that the wording was unsatisfactory in practice. The Court of Appeal treated the earlier decision in Moffatt as a compelling reason for maintaining that meaning, consistently with The Kleovoulos of Rhodes.
5. The principle in Waters v Monarch Fire and Life Assurance Company, allowing a bailee to insure and recover the full value of goods despite suffering no personal loss, was commercially convenient but anomalous. It remained an exception to the ordinary rule that a claimant cannot recover for loss not suffered by him, and should not be extended beyond its proper limits. The court expressed no concluded view on the judge’s answer to the second preliminary issue because that issue was not appealed.

Order: appeal dismissed with costs. Leave to appeal to the House of Lords refused.

• Court of Appeal (Civil Division) — [2004] EWCA Civ 675. Appeal from the Commercial Court dismissed with costs. Leave to appeal to the House of Lords refused.
• Queen’s Bench Division, Commercial Court — Andrew Smith J, decision dated 15 October 2003. The first preliminary issue was decided in favour of the insurers: cover depended on the bailee’s liability for the loss. On the unappealed second issue, the judge held that a covered bailee could recover the value of the goods rather than only the amount of liability.