Aspen Insurance UK Ltd.v Adana Construction Ltd

An insurance policy must be construed as a whole and in its commercial context, giving effect to the reasonable expectations created by its wording. A construction contractor’s in-situ work will not ordinarily be a Product merely because the policy definition includes items constructed or installed. Where the work is part of a construction contract and remains integrated with the works, the product-liability provisions must be applied according to their language and purpose. A foundation exclusion concerning loss or damage to a superstructure does not ordinarily extend to a temporarily installed construction crane. A declaration of non-liability may be refused where the underlying liability claims have not been determined and the policy issues cannot safely be resolved in the abstract.

Aspen sought declarations that it was not liable to indemnify Adana under a contractors’ liability policy for claims arising from the collapse of a tower crane. Adana had constructed the reinforced-concrete crane base and sought declarations of cover and entitlement to defence costs.

The parties disputed whether the crane base, its dowels or bonding materials were Products, whether any liability arose from a Product failing to fulfil its intended function, and whether the Foundation Clause excluded liability for damage to the crane superstructure. The court also considered whether the claim for a negative declaration was premature.

1. Construction of the policy. The policy was to be construed as a whole, by asking what a reasonable person with the relevant background knowledge would have understood the language to mean. Where competing meanings existed, the more commercially sensible interpretation was preferred. The policy was intended to address the range of liabilities ordinarily faced by a building-services contractor and should not readily be construed as leaving an expected gap in cover.
2. No Product. The crane base was created in situ under a contract for work and materials. It was part of Adana’s construction works, not an item manufactured for supply as a product. The base, the dowels and the resin were not, individually or collectively, Products within the policy definition. The base had no separate component parts in the relevant sense, and the resin was connected with its manufacturer’s product rather than being a product of Adana.
3. Alternative intended-function analysis. Even if the crane base or another item were a Product, the evidence showed that the base transferred the crane loads to the piles and remained intact. The failure occurred in the connection within the piles. The alleged defective workmanship therefore did not establish that the relevant Product had failed to fulfil its intended function or caused the loss in the manner required by the Product Liability exclusion.
4. Foundation Clause. In its construction context, superstructure referred to a building above permanent foundations. It did not describe a temporarily installed crane. The Foundation Clause therefore did not exclude the relevant liability.
5. The insurer’s application for a declaration of non-liability was refused. The court was in principle prepared to grant Adana a declaration of its rights under the policy, subject to careful formulation. The defence-cost issue did not require determination because cover existed on the evidence available.