Tioxide Europe Ltd v CGU International Insurance Plc & Ors

In claims-made liability insurance, the insured must identify a Loss falling within the policy wording. An error in supplying a product is not ordinarily an accident or continuous exposure to harmful conditions. The definition of Loss cannot be converted into a wide aggregation clause where the policy contains no such clause.

Damages may be claimed “on account of” physical injury even where the claimant is liable to indemnify others, but the connection must be direct. Repair or replacement costs may qualify; consequential loss of business or profits does not.

Policy notification provisions must be complied with. An insured’s actual expectation that property damage will occur can exclude cover, and reasonable-precautions conditions require at least reckless failure to avoid the relevant risk.

Tioxide sought indemnities from excess-layer insurers under claims-made liability policies for present and potential claims arising from the pinking of uPVC products containing titanium dioxide pigments supplied by Tioxide.

The policies covered liability for damages on account of Property Damage resulting from a Loss, defined as an accident including continuous or repeated exposure to the same general harmful conditions. Tioxide relied on a Loss Notification Option to bring later claims within the 1996–1997 policy year.

The court tried issues concerning Property Damage, Loss, notification, knowledge, reasonable precautions and policy exclusions. The central questions were whether the pinking claims resulted from a single covered Loss and whether the notification provisions had been validly exercised.

1. Coverage. The claim wholly failed. The relevant Property Damage was the unwanted physical change to finished uPVC products caused by pinking. Such a change could constitute physical injury if it impaired value or usefulness. Damages for repair or replacement could therefore be “on account of” Property Damage, even though the claims were brought by parties liable to others. Loss of business or profits lacked the required direct connection.
2. The proposed single Loss, namely an error in supplying pigments or exposing the supply chain to harmful conditions, was not an accident or continuous exposure in ordinary language. The wording contemplated an identifiable event or condition. The numerous supplies, made over many years, produced pinking in a small proportion of products at different times and places. The definition of Loss could not be used as a wide aggregation clause, particularly where the policies contained no express aggregation clause and imposed a deductible for each Loss.
3. The Loss Notification Option did not alter what constituted one Loss. The primary-layer notification was effective because it was made within the contractual 90-day period and was deemed to have been made on the last day of the policy period. The excess-layer notification was invalid. It was not given in the required manner or to the required addressee, did not clearly notify exercise of the option, and was not shown to have been received by the excess insurers. There was no waiver or estoppel.
4. In any event, Tioxide expected that some products supplied for use with all-lead stabilisers would pink. Claims arising from supplies made after March 1994 were therefore excluded by the policy requirement that Property Damage be neither expected nor intended. The court applied the established rule that a reasonable-precautions condition requires at least reckless failure to avoid the relevant risk: Fraser v B.N. Furman [1967] 2 Lloyd’s Rep 1; Sofi v Prudential Assurance [1993] 2 Lloyd’s Rep 559. That issue did not affect the result because the obligation arose, at the earliest, on 30 June 1996.
5. The insurers had not proved that the relevant accident occurred before 29 June 1986 for the purposes of the applicable exclusion. The claim nevertheless failed on the other grounds.