Scottish Coal Company Ltd & Ors v Royal and Sun Alliance Insurance Plc & Ors

Insurance cover is not avoided merely because an insured operation increases the chance of an insured peril. A change in risk must alter the risk described and covered by the policy. A clause requiring inspection and information does not impose a continuing duty of disclosure or operate as a condition precedent unless expressed in clear terms. A prevention-of-loss condition generally requires more than negligence: the insured must knowingly and recklessly court a recognised danger by taking precautions known to be inadequate. An insurer that, with knowledge of the relevant non-disclosure, extends the policy without reserving its rights may affirm the contract.

The claimants, owners and operators of a coal mine, sought indemnity under material damage and business interruption policies after a roof collapse in a cross-cut during extraction of a remnant coal pillar. The underwriters relied on policy provisions concerning non-disclosure, inspection, change in risk and prevention of loss.

The principal issues were whether the plan to mine through the cross-cut had been disclosed; whether the operation constituted a material change in the original risk; whether the underwriters had affirmed the policy after learning of the alleged non-disclosure; whether the inspection clause created a continuing obligation or condition precedent; and whether the claimants had failed to take reasonable steps to safeguard the insured property. The court also considered the measure of material damage and the causation of business interruption loss.

1. Disclosure and affirmation. The plan to mine through the cross-cut had not been disclosed before the underwriters reviewed continuation of the policy. Disclosure of the plan would have been sufficient to put the underwriters on enquiry about the proposed method. The evidence did not establish that the underwriters would necessarily have been influenced in the required sense, particularly in the absence of underwriting evidence. In any event, after learning the material facts, the underwriters extended the policy for an increased premium without an effective reservation. Viewed objectively, that was an unequivocal election to affirm the contract.
2. Inspection clause. The inspection condition was an innominate term requiring co-operation, access and the provision of relevant information to inspectors. It did not impose a continuing obligation of disclosure and was not a condition precedent to liability. Clear language would have been required for so substantial an extension of the insured’s obligations.
3. Change in risk. The decision to mine through the cross-cut might have increased the likelihood of loss, but it did not change the insured risk. The policy covered underground machinery damage and business interruption caused by named perils, including impact caused by roof fall. The cross-cut operation involved the same insured impact risk, so the change-in-risk condition did not avoid cover.
4. Prevention of loss. The claimants’ inadequate preparation and execution of the operation fell short of proving that they deliberately and recklessly courted the danger by knowingly adopting precautions inadequate to avert it. The prevention-of-loss condition was therefore not breached.
5. Quantum and causation. Because the equipment was reasonably abandoned, the reinstatement basis did not apply. The recoverable value was to be assessed under the abandonment clause, beginning with market value. The remaining Castlebridge panels would have been mined but for the collapse, although certain business interruption expenditure required further accounting evidence.

The claim accordingly succeeded on the principal coverage issues, subject to the assessment of loss.

First-instance judgment. No prior appellate decision is stated in the judgment.