Encia Remediation Ltd v Canopius Managing Agents Ltd

An insurance policy is construed by reading the relevant words in the context of the clause, the policy as a whole and the surrounding factual matrix. The expression “Civil and Environmental Engineering” was sufficiently wide to include design and build contracts. Words stating that the business was “more fully declared” in proposal documents were expansive, not limiting. Where two risks had previously formed one insured risk and were later placed side by side after a business division, relevant materials presented for the related risk could form part of the factual matrix. An exclusion for claims arising from advice, design or specification where the insured contracted to construct or install applied only if that contracting activity was outside the business stated in the schedule. Here it was within the stated business, so the exclusion did not apply.

Encia sought declarations concerning cover under an environmental consultants’ professional indemnity policy issued by Canopius and other subscribing insurers. The dispute arose from a claim by Shepherd Homes concerning allegedly defective piling and related civil engineering works undertaken before Encia’s management buyout.

The policy insured negligent acts, errors, omissions and negligent breach of contract in the professional conduct of Encia’s business. Exclusion 2 excluded claims arising from advice, design or specification where the insured contracted to manufacture, construct, erect, install or supply materials or equipment, unless that activity was defined in the business stated in the schedule.

The preliminary issues concerned the meaning of “Civil and Environmental Engineering”, the relevance of proposal and accompanying documents, the effect of the factual matrix, the scope of Exclusion 2, and the parties’ alternative rectification claim.

1. The court held that the policy provided professional indemnity cover for professional services only. It did not insure construction as such. The central question was whether the design element of a design and build contract was insured.

2. Applying the principles in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, BCCI v Ali [2002] 1 AC 251, The ‘Tychy’ [2001] 2 Lloyd’s Rep 403, Sirius International Insurance Co v FAI General Insurance Ltd [2004] UKHL 54 and MDIS v Swinbank [1999] Lloyd’s Rep I & R 516, the words had to be read in their contractual and commercial context.

3. “Business” in the schedule described business activities, while the insuring clause and definition 4 confined indemnity to professional services arising from those activities. “Civil and Environmental Engineering” had a wide ordinary meaning. In the factual circumstances, including the side-by-side broking of the Encia and AIG Southern risks after the management buyout, the schedule included design and build contracts. “And as more fully declared” did not restrict that meaning.

4. The AIG Southern proposal form, covering fax and corporate profile formed part of the surrounding circumstances or factual matrix for the Encia policy. The 5 November 2002 proposal form and 6 November 2002 fax were directed to professional activities and did not narrow the wider business description.

5. Exclusion 2 required the business stated in the schedule to include contracting to manufacture, construct, erect, install or supply materials or equipment generally. Encia’s stated business was wide enough to include those activities and, specifically, the Shepherd Homes piling contract. The exclusion therefore did not remove cover for professional design, advice, specification, supervision or project management.

6. The declarations reflected the common ground on proximate causation. Cover applied where liability was caused by negligent professional services, but not where liability was caused solely by defective workmanship or materials, or where a separate proximate cause was excluded. The insurers’ obligation to pay reasonable claim investigation, defence and settlement costs had been triggered by the Shepherd Homes claim.

7. The court stated the rectification principles identified in The “Nai Genova” [1984] 1 Lloyd’s Rep 353, but found it unnecessary to decide the alternative rectification claim.

Declarations were granted substantially in Encia’s favour.