Cape Distribution Ltd v Cape Intermediate Holdings Plc

On the proper construction of a commercial agreement, wide words such as “all debts, liabilities and obligations whatsoever” may include contingent liabilities arising from pre-contract events, even where the cause of action has not accrued. An indemnity may cover the indemnified party’s own negligence where the contract, read in its commercial context, shows that intention. An indemnity is not reduced by insurance recoveries merely because the indemnifier receives the benefit of insurance contracts, absent an express or clearly implied limitation. An endorsement adding a parent company as an insured may give it cover for liability arising from injury to the subsidiary’s employees. Where the interests of co-insureds are coterminous, the insurer’s subrogated claim against one co-insured is not maintainable.

The claimant, formerly an asbestos-products manufacturer, sought indemnification from its parent company under a 1964 sale agreement for liabilities arising from asbestos-related claims by former employees. The parent company sought indemnification from the insurer under an employers’ liability policy and endorsement, and disputed the insurer’s right to bring subrogated proceedings.

The court tried preliminary issues concerning the construction and effect of the sale agreement, the scope and renewal of the insurance policy, the effect of the endorsement, estoppel, and the interaction between co-insurance, indemnity and subrogation.

1. Sale Agreement. Clause 2 transferred to the parent company all actual and contingent asbestos-related liabilities and obligations subsisting at the time of sale. A liability was “subsisting” where it arose from pre-sale events, even though damage and the cause of action occurred later. The clause also covered primary and secondary contractual obligations owed to employees. However, “contracts and engagements” did not extend to tortious obligations.

2. The words “indemnified against the same” applied both to the undertaking to discharge liabilities and to the undertaking to adopt, perform and fulfil contracts and engagements. Clause 4 created a one-way calculation of the balance of consideration and did not give the parent company a matching claim against the subsidiary where liabilities exceeded assets. Clause 2 took effect whether or not every transfer and novation required for completion had occurred.

3. The Clause 5 indemnity covered liabilities caused by the subsidiary’s own negligence or breach of duty as agent. The agreement did not entitle the parent company to recover damages from the subsidiary for those defaults, and neither Clause 2 nor Clause 5 limited recovery to liabilities not met by insurance proceeds.

4. Each renewal of the employers’ liability policy created a separate contract. The endorsement made the parent company an additional insured alongside the subsidiary, but its effect was prospective only. The parent company obtained cover for liability to employees of the subsidiary arising from their employment with the subsidiary.

5. The parent company was not estopped by convention from relying on its status as an insured. The policy exception for liability attaching only by virtue of an agreement applied where the parent company’s liability arose solely under the sale agreement, but not where liability also arose under the Civil Liability (Contribution) Act 1978.

6. The interests of the subsidiary and parent company were coterminous and inseparably connected for the relevant employee claims. Accordingly, co-insurance prevented the insurer from maintaining subrogated claims against the parent company for periods covered by the co-insurance. The alternative argument based on Mark Rowlands Ltd v Berni Inns Ltd was accepted in principle only in relation to the relevant insurance arrangement. The preliminary issues were answered accordingly, subject to consequential matters reserved for later hearing.