Mr. Justice David Steel :
Introduction
- This is a claim by coalmine owners against underwriters in respect of a roof collapse in May 2000. The focus of liability issues is the unsuccessful attempt by the owners to mine through a roadway (or cross cut) that bisected the panel that was being mined. Underwriters contend that the planned attempt gave rise to material changes in the risk and associated obligations of disclosure. Subject to liability, there are also substantial issues of quantum relating to the property loss (put forward at £2.36 million) and business interruption loss (put forward at £4.25 million).
Mining History
- Mining Scotland Limited was formed from the remaining National Coal Board pits in Scotland after the coal industry was de-nationalised in the 1990s. It has two subsidiary mining companies; the Scottish Coal Company Limited which operates a number of open-cast coal mines in Scotland, and the Scottish Coal (Deep Mine) Company Limited which operated the Longannet Mine. This was the last underground coal mine in Scotland. It received government subsidies without which it would not have been viable. In fact the Longannet Mine later closed as a result of flooding and the owning company went into administration. However, for the purposes of this claim, there is no need to distinguish between the three companies.
- The Longannet Mine was next to the Longannet Power Station on the north shore of the Forth. It mined a seam of coal which is approximately 2 metres high, and extends northwards towards Solsgirth and the Devon Valley, and south beneath the Forth and under the Mid-Lothian shore.
- The coal is of relatively poor quality with low calorific value and a significant ash content. It is however attractive to Scottish Power who operate Longannet Power Station, since it has a very low sulphur content and allows the generator to meet emissions regulations. The power station was built specifically to burn the coal from the seam.
- Coal in the Longannet Colliery was mined using the longwall retreat and advance mining systems. The system involves driving two parallel roadways under ground some 200 to 300 metres apart to a distance of up to 1 or 2km. The seam to be mined lies between the two roadways. The two roadways are connected by another roadway which becomes the new 'faceline'. The mining equipment is the installed in the faceline. A coal cutting machine (or "shearer") travels along the face and cuts it. As the cutting occurs, hydraulically powered supports move forward to hold the ceiling above the machines. This roof area (or "goaf") then collapses behind the supports as it moves forward. The face is extracted until it terminates short of the main roadway leaving a "barrier pillar" of sufficient dimensions to absorb the vertical stress.
- Once the large panels have been mined, the smaller pillars are sometimes mined using the same technique. Because the distance between the access roads is smaller this is termed "shortwall mining". Indeed, by 2000 the northern area of the mine was largely worked out or limited by local faulting. The plan was for production to switch to the south. However, as an interim measure, it was decided that the last production from the northern area was to be from residual pillars or panels of coal between access roadways.
- The pillar which is at the centre of the present claim was entitled S89. It was in the northern section of the seam between two access roadways, designated S12 and S14. These two access roadways had been connected, and the pillar bisected, by three cross cuts. One of these was No 2 cross cut which was about half way along the pillar. It was this cross cut, almost double the height of the retreat shortwall face, which collapsed during the mining process.
The Defendants
- The Defendants are a consortium of insurance companies nominally led by Royal & Sun Alliance Insurance Plc ("RSA") who provided material damage and business interruption insurance to Scottish Coal pursuant to a Policy No. GA 00494099 dated 16 May 1997. As lead insurer RSA subscribed to just under 40% of the risk. The Defendants are referred to as "the underwriters".
IMIU
- Albeit named as the leading underwriter, in reality RSA were acting as a front for the International Mining Industry Underwriters Ltd ("IMIU") who wrote a 15% quota share reinsurance for the underlying insurers (on behalf of RSA together with International Insurance Company of Hannover Ltd and Gerling Global General Reinsurance Company Ltd).
- In the run up to the original cover and each annual renewal, underwriters arranged for a "risk assessment report" to be prepared by IMIU. The reports for February 1997, November 1997 and November/December 1998 were in similar format. The 1998 report recorded that, whilst operations still centred on Castlebridge area, the limited reserves in that area would lead to a change of focus to the adjacent Kincardine area by late 1999.
- As with the previous reports, the author, Mr. Allan Williams assessed the risks at the mine under the headings "Loss Probability Profile", "Maximum Forseeable Loss" and "Risk Exposure Profile". His analysis included a number of specific and enumerated recommendations for risk reduction.
- In November 1999, Mr Williams again visited the mine and prepared a risk assessment report for underwriters. His report recorded "the loss of the remaining workable reserves at Castlebridge". The plan, as Mr Williams understood it, was to concentrate all production on Kincardine with Castlebridge workings being salvaged (i.e. the recovery of machinery) and sealed off within 6 months.
- This focus on Kincardine involved in Mr Williams' view three particular "vulnerabilities":
(a) a major loss resulting from a spontaneous combustion event;
(b) a major roof collapse in a drift roadway;
(c) the risks associated with a very poor standard of housekeeping as regards the infrastructure.
- Mr Williams added that, given the pace of change, it was appropriate to "undertake a full inspection in February / March 2000 at which point the Kincardine operations should be running in a more normal mode and salvaging of Solsgirth and Castlebridge will be underway." He also specified various additional recommendations to those set out in his earlier report.
- In an internal letter dated 19 November 1999, the brokers, Marsh, recorded a proposal that IMIU should visit again at the end of February to "reconsider the exposure and the rates" and furthermore that the "renewal will contain a 'notice clause' at 1st April to allow a review of the policy."
- It seems fairly clear from the documentary material (as supplemented by the oral evidence) that underwriters were concerned in the light of Mr Williams' report that their risk exposure had increased. Indeed AIG Europe, one of the existing companies on the panel, was unwilling to renew save on terms of a minimum deductible of £2.5 million and was duly replaced. Underwriters in particular wanted to impose a deadline on compliance with the recommendations in the various reports. For this purpose they wished to be able to review matters in April.
- By the same token, the Claimants and their brokers were enthusiastic that such a review should take place since they were confident that safety standards would duly improve once production Kincardine was underway and the Castlebridge site vacated. Indeed it was hoped that underwriters would agree to a reduction in premium to reflect these factors not least because, as brokers understood it, the Kincardine area presented a lower hazard in terms of risks of spontaneous combustion, gas emission and geological faults.
The master slip
- The master slip incorporated as a matter of form the expiring policy wording albeit with the total sum insured increased from £89 million to about £130million and the premium increased from £389,050 to £519,827:-
Under Section B – PROPERTY DAMAGE
"INSURED EVENT
Loss or destruction of, or damage to, the Insured Property by the Insured Perils occurring during the Policy period (hereinafter called "Damage")"
The Insured perils at Section B – Property Damage included clause 10:
"IMPACT
Impact caused by roof fall, animals or vehicles, including railway locomotives, rolling stock and draglines, or articles dropped therefrom excluding damage to such vehicles (other than forklift trucks, draglines or mobile plant) or property in such vehicles."
"3. REINSTATEMENT CONDITIONS
1. In the event of Damage the basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the property lost, destroyed or damaged which for the purposes of this clause shall mean:
b. In the event of loss or destruction of insured property … the rebuilding or replacement of the insured property by new, similar property…
14. REASONABLE ABANDONMENT.
At the company's option, if the property insured or any part thereof is reasonably abandoned as a direct result of damage as defined because the cost of recovering it would exceed its repaired/recovered value … such property shall be regarded as lost or destroyed and the amounts payable shall be determined without the application of the reinstatement clause.
2. Under Section C – BUSINESS INTERRUPTION
"INSURED EVENT
Interruption of or interference with the Business in consequence of Damage referred to in the corresponding Material Damage insurance which shall mean the Property Damage, Theft and Money sections or any other Material Damage policy affording the same cover as provided hereby (hereinafter termed Damage) namely Section B D and E occurring during the policy period and in respect of which payment, reinstatement or repair has been made or liability admitted.
Liability shall be deemed to have been admitted if such payment, reinstatement or repair is precluded solely because the Insured is required to bear the first portion of the loss."
ITEM ON GROSS PROFIT
Subject to the provisions below the Company will pay as an indemnity:
In respect of Reduction in Turnover
the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period falls short of the Standard Turnover in consequence of the Damage.
In respect of the Increased Cost of Working
the additional expenditure necessary and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which but for that expenditure would have taken place but not exceeding the total of
the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided plus
Additional Increase in Cost of Working
And the amount payable as indemnity thereunder shall be the Additional Expenditure (beyond the amount payable under B) above necessarily and reasonably incurred for the sole purpose of avoiding and diminishing the Reduction in Turnover which but for that expenditure would have taken place during the Indemnity Period in consequence of the Incident."
- Clause 1 of the General Clauses to the policy provided:
"1. MISDESCRIPTION, MISREPRESENTATION AND NON-DISCLOSURE.
The policy shall be voidable at the option of the Company in the event of misrepresentation or non-disclosure of any facts that would have influenced the Company's decision in either accepting or settling the terms of the insurance."
- There were in addition various General Conditions which provided:
"1. PREVENTION OF LOSS
The Insured shall at all times take all reasonable steps to safeguard the Insured's Property, prevent accidents and minimise loss or damage. Furthermore, in respect of the Insured's Plant and Machinery, shall take all reasonable steps to maintain the Insured's Property in efficient working order and to ensure that no item is habitually or intentionally overloaded."
"2. INSPECTION
The Company's officials shall at all reasonable times have the right to inspect and examine any Property insured hereunder and the Insured shall provide such material with all details and information necessary for the assessment of the risk. Any reports or other material provided to the Company, or to the Insured by the Company, in connection with this Condition shall be regarded as strictly confidential by the parties to this agreement which shall include any agent, broker, re-insurer acting on behalf of the parties to this agreement."
"7. CHANGE IN RISK
In the event of any:
(a) material change in the original risk…
the policy shall be avoided unless the continuance be agreed by endorsement signed by the company."
- The Policy provided for the following deductibles:
(1) Material Damage – Below Ground - £1,000,000 for each and every loss;
(2) Business Interruption - 7 days subject to a minimum of £1,000,000 for each and every loss. The period of indemnity was 12 months.
- As a result of both the underwriters' concerns and the brokers' expectations, the slip, as scratched by Mr. Medhurst of RSA, contained this 'information':-
"See separate information which initialled Leading Underwriter and shall be deemed agreed by all other underwriters hereon…. Further investigation by IMIU will be made in February to fully ascertain the "Kincardine Development." A review of values will also be undertaken at that time."
- In addition, the slip was endorsed with a Review Clause (probably constituting the separate information referred to above):
"It is noted and agreed by underwriters hereon that provisional notice of cancellation is given as at 1st April 2000 to the Insured."
- In addition, RSA's scratch was expressly subject to:
"IMIU Survey Recommendations 98/2 to 98/7 and 99/1 to 99/3 to be undertaken by insured and progress advised to L/O via IMIU by 31/3/2000. IMIU to revisit in March 2000 prior review date."
The witnesses
- Both parties called a number of witnesses. The defendants went first as it was accepted that the burden of proof was on them to establish a defence to the claim. Their witnesses included:
i) Patrick Plaisted. He had served for many years as an underwriter in the Sturge Syndicate specialising in mining risks. In 1994 he helped establish a specialist insurer for the mining industry called IMIU. It wrote business for RSA and others. He engaged Allan Williams to make a risk assessment of the mine. Indeed he visited the mine with Mr. Williams in November 1999 and, having discussed matters with Mr. Williams in June 2000, was instrumental in rejecting liability on the cover.
ii) Allan Williams. He was an experienced mine manager. He joined IMIU as a risk engineer in 1998. He visited the mine on several occasions to make reports in particular in November 1999 and again in March 2000.
iii) William Lloyd. He was a lead account executive of Marsh McLennan, the brokers retained by the claimants to place the risk. He also visited the mine in both November 1999 and March 2000.
iv) Dr. Keith MacAndrew. He was a senior engineer with Rock Mechanics Technology Ltd, a mining consultancy. RMT had been retained by the mine to advise on the method of supporting the cross-cut as the mining process passed through it. He was a regular visitor to the mine.
- The Defendants also put in statements from various witnesses, including:-
i) Neil Woodward. He was managing director of Midland Rock Bolting Ltd, the company retained by the mine to assist in the installation of the support structure of the cross-cut.
ii) Simon Loveday. He was a partner of the Defendants' solicitors. He had conducted an investigation into the documents relating to the mining of S89 and the cross-cut retained by HM Inspectorate of Mining.
iii) Professor Russell Frith. He was chief executive of an Australian geotechnical engineering company who visited the mine in March or April 2000.
iv) Chris Adams. He was a director of Megabolt Ltd who was consulted by the mine on strata control. He was at the mine at the same time as Professor Frith.
- The Claimants called the following witnesses:-
i) James Sorbie. He took up a consultancy post with the mine in January 2000 and was appointed Managing Director in April.
ii) William Dow. He was the Longannett colliery manager at the material time.
iii) John Leeming. He was an inspector with HM Inspectorate of Mines. He attended the mine on many occasions on 19 April 2000 when he saw the construction of the cross-cut support.
iv) Thomas Muir. He was the Mine Planner at all material times responsible for the deployment of equipment and the sequence of face workings.
v) Alan Berry. A mechanical engineer at the mine who made assessment of the replacement "value" of the equipment lost when the cross-cut collapsed.
- The Claimants also put in various statements, including one from Stephen Ellis who prepared the mine's plan for the structural support of the cross-cut.
- There can be no doubt that all these witnesses were anxious to give as much assistance to the court as they could. There were substantial differences from recollection but given that over 8 years had passed since the events had occurred, this was not remotely surprising. In resolving the disparities it is inevitable that the court will rely heavily on the contemporary documentation and the overall probabilities: The Ocean Frost [1985] 1 Lloyds Rep. 1 p. 57.
- Experts
Neither of the parties called any expert underwriting evidence but both parties called experts on mine engineering. The Defendants called:
a) Dr. Graham Daws: for some time he had been the Technical Manager of Celtite (Selfix) Ltd with responsibility for rock bolting systems: since 1987 he has provided consulting services within the mining industry.
b) Mr. Peter Myerscough:he had 28 years experience with British Coal and was later Colliery Manager at the Prince of Wales Colliery.
- The claimants called Dr. Don Hogkinson who had 43 years experience in the mining industry, including work in the capacity as colliery manager, followed since by work as a consultant.
- Following a meeting between these three experts a joint memorandum was prepared which demonstrated, as might be expected, a very substantial measure of agreement. Of particular note was their answer to two of the number of questions which had been posed to them for consideration:
"If the engineering problems associated with mining through cross-cuts are understood and controlled, is the process particularly risky".
"Dr Hodgkinson stated that there was always a risk associated with this type of operation but did not consider it to be high risk. Dr Hodgkinson continued the theme by stating that the engineering is not easy to understand. Dr Daws and Mr Myerscough agreed with this statement and Dr Daws added that the caving characteristics of a longwall face are not fully understood and are site specific. All agreed with this statement.
In summary it was agreed by DH and GD that the operation can be regarded as risky and without any understanding of basic mining mechanics can be regarded as high risk. PM was of the opinion that the operation of mining through a cross cut was always a high risk operation, whether mining mechanics were understood or not."
"In the year 2000 what was the experience in the UK of mining through a cross cut?"
"In the year 2000 experience in the UK of mining specifically through a cross cut to the best of our knowledge was very limited. Agreed by all. Nevertheless this was supplemented by experience and knowledge gained from operations not dissimilar [including S83 at Longannet]."
The chronology
- In early 2000, the strategic planning at the mine underwent a sea change. The mine was encountering problems at Kincardine which threatened a "face gap" of some 2 or 3 months. Accordingly, to make up the shortfall in production which was committed to Scottish Power, attention was refocused on the residual resources within Castlebridge. Rather than simply salvage equipment and shut down as originally proposed, it was proposed that short face panels between access roads should be worked (otherwise called pillar extraction). The first such pillar was to be S89 followed by B78, S82A and B03.
- There was a senior management meeting on 14 January 2000. Following the meeting a smaller group including Mr. Dow, Mr. Sorbie and Mr. Muir met to discuss this proposal. It was duly approved.
- The first pillar, S89, contained a seam of coal about 2.5 metres in height within a pillar some 40 metres wide and 270 metres in length. The total quantity of coal was assessed as about 60,000 tons. However about half way along it was bisected by a roadway or cross cut. This was about 5 to 6 metres wide and 4.5 metres high. It is this feature which is at the heart of the issues between the parties.
- Such a cross cut presented a potential difficulty. The reason was this. If the plan involved driving straight through the cross cut into the second half of the panel, the pillar of coal between the machinery and the cross cut as the shearer approached would progressively reduce. Absent support within the crosscut, there was a risk that it would collapse as the pressure increased.
- As the experts noted, the mine felt it had some experience of this process. In regard to a panel called S83 the face had been driven through a proving road some 2.5 metres wide and 2 metres in height. However, leaving aside the smaller dimensions of the road in comparison with the cross-cut, it was potentially very significant that the precaution taken had been to 'pack' the roadway with cementitious material first.
- Given this limited experience, the mine sought advice from Rock Mechanics Technology Ltd ("RMT"). This was a soil mechanics company that regularly advised the mine. In their report dated 18 February 2000, having recorded that success was "largely dependent on the speed of retreat" through the cross cut, RMT opined that conditions were favourable "provided the appropriate support is installed". The suggestion was made that the cross cut should be "cribbed" with standby support of "sufficient stiffness and density and back filed with foam".
- The advice went on to recommend:-
a) reinforcement of the coal ribs with GRP dowel bolts
b) standby supports to be made of fibre block in 2:1 pattern under each beam, with the space between thereafter filled with low density foam.
The advice concluded:
"It is considered that the above support should reduce the risk of roof control problems as the cross cut is traversed by S89's shortwall. However it should be recognised that this additional reinforcement should be in place before S89 starts production. If not and the cross cut is effected by the front abutment effects of S89's retreat, the risk of overbreak, roof falls and face spall will be increased. "
Attached to the report was a plan showing this arrangement (although the height of the cross cut was depicted as only 3.5 metres and not 4.5 metres and the width as only 5 metres not 5 to 6 metres).
- In the meantime, on 17 February, there had been a meeting between various senior personnel in the mine and the brokers Marsh. The primary purpose was to discuss progress on Mr. Williams' recommendations. A minute of the meeting was duly sent to IMIU and the response from IMIU was to the effect that, in the absence of problems emerging during Mr. Williams' scheduled visit in March, underwriters "will not invoke the cancellation clause". Notably the minute contained no reference to the proposal to continue mining operations at Castlebridge. To the contrary, it was merely contemplated that the winder and some other equipment at Castlebridge would be kept in operation for 12 months.
- RMT's report was considered at the mine and RMT was informed that the use of foam packing "to minimise roof control problems" was "impracticable in the time available". The mine suggested an alternative in the form of increasing the density of the standby supports and the creation of a false roof using steel girders.
- RMT were unimpressed with this and in their letter dated 1 March described it as "not an ideal system". RMT went on to recommend a number of methods to reduce the risk. The principal features of the proposal as shown in the diagram that accompanied it were as follows:
(a) The block cribs should form a 440mm x 440mm cross section: "where the cross-cut height exceeds 3.5 m the cross section should be increased to at least 660mm x 660mm."
(b) The cribs should be set at 1 metre intervals along the length of the cross cut.
(c) The block cribs shall all be made of wood crush boards running vertically in the same dimension both above and below the false roof.
(d) The beams of the false roof should extend outside the outer cribs to the wall of the face.
- The letter ended:
"It should be noted that, with the inclusion of a false roof, if the starblocks fall and the girders forming the false roof drop sufficiently below the seam height, the power supports [i.e. the hydraulic supports above the shearer] may not be able to pass under the steel work and through the cross cut without considerable delay. It should therefore be recognised that this revised support method is not without risk and quality control in crib construction is imperative to keep these risks to a minimum."
- The mine's own idea was very different and it produced its own plan. Mr Ellis was the principal author. Whether the plan in the papers (which is said to be Mr Ellis's diagram) was prepared before or after the letter quoted above is not entirely clear. The chronology is not easy to assess because the letter of 1 March 2000 was not produced by the mine on disclosure (nor was any mention of it made in their over elaborate witness statements).
- In any event, this plan was said by the mine to represent the method of support actually installed. It has the following features all of which differed from RMT's second plan dated 1 March:-
(a) The false roof is supported by 4 pillars or cribs made up of different materials, the outer 2 built from wood and the inner two from fibrocrate.
(b) The outer pillars abut the coal face: not set back away from the shearer as it entered.
(c) The steel girders only extended half way across the outer pillars and thus beyond the reach of the hydraulic supports as the shearer came in contact with the pillars
(d) The upper space is supported by only 3 pillars but there was no pillar underneath the central one of the 3.
- It is notable that it was the agreed view of the experts that the photographs taken after the collapse demonstrate the method of support as installed bore little relation even to the Ellis plan. In particular:-
(a) Only 3 and not 4 pillars were installed in the lower level.
(b) Only 2 and not 3 pillars were installed in the upper level.
(c) The spacing between lines of cribs was materially more than 1 metre.
The underwriters submitted that this demonstrated a lack of understanding of the engineering problems associated with mining through cross-cuts which the experts agreed was a prerequisite of limiting the high risks involved.
- One last point on the preparations made by the mine for cutting through the cross cut. The mine also approached two Australian mining experts who happened to be in England in late March – a Dr. Frith and a Mr. Adams. In turn, the latter sought some written comment from Megabolt Australia Pty. Ltd. The contribution of the two engineers was, however, limited and relatively informal. They both expressed concern at the width of the girders as being too short for the roadway. They also strongly confirmed the need for avoiding any face stoppages over the last section of the coal face prior to the cross cut.
- This last point led to the method statement prepared by the mine by way of accompaniment to their support design. This appeared to propose that production be halted when 10 metres from the cross cut until the support arrangements were fully complied with. For present purposes, it is only necessary to highlight this requirement as being potentially in conflict both with the desirability of completing all support construction before starting the face at all and with the desirability of avoiding any stoppages in close proximity to the cross cut.
- The method statement ended as follows:
"14. This method statement is a guide and shall not prevent the setting of additional supports over and above those described or present in the support rules of this statement."
Once again this emphasises the disparity between the planned form of support and the support actually constructed when only support that was additional to that designed was contemplated.
- Mr. Williams duly visited the mine on 21 March 2000. His note of the meeting makes clear that the two principal topics were the "culture changes" in terms of safety and the changes in production. As regards the latter, there was a considerable controversy as to what he was told and what documents he was shown (or at least had been in view).
- As regards the production changes, his note records:
"Changes to the mine plan have been introduced to boost the short term cash flow situation at this time. These require the installation of advancing faces in some 'pillar reserves' of the Castlebridge workings. These offer low development and installation costs, whilst at the same time make available an immediate source of production now urgently required as a result of unfavourable geology displayed recently in the Kincardine developments."
- One of the broker's representatives also prepared a memorandum of the meeting; the only potentially relevant entry reads:
"It has been decided to prolong production in this area [Solsgirth] and there will be some small cuts where they will be working a 2 pattern."
- No note or memorandum of the meeting was made by any representative of the mine. It was however said by both Mr Sorbie and Mr Dow that Mr. Williams had not only been told about the plan to keep Castlebridge in operation but also was fully instructed in the detail of the mine's plans including in particular the proposal to mine through the whole of S89 including the cross cut. In any event, it was said such a proposal, even if not explained, was fully apparent from documents which were pinned on the wall and which Mr. Williams examined. I will deal with this issue in due course.
- The immediate outcome of the meeting was confirmation by IMIU that lead underwriters had "no intent to suspend the current insurance arrangement". This was duly treated by the brokers as a withdrawal of the notice of cancellation endorsed on the policy on the basis that IMIU were "fully satisfied with the action taken to meet the standards required". A further endorsement, "it is hereby noted and agreed that
NCAD provisional notice of cancellation at 1st April 2000 is hereby withdrawn", was scratched by leading underwriters on 30 March. It appears that the following market had all agreed with this by late April.
- On 4 May there was a collapse in the cross cut as the face being excavated by the shearer entered it at a slight angle. The immediate result was the loss of equipment and the permanent inability to mine the remainder of S89 which was assessed as having a balance 29,000 tons of coal reserves. A report was duly dispatched to underwriters on 15 May 2000.
- Loss adjusters, Messrs. Cunningham & Lindsay, were appointed and met with representatives of the mine and the brokers on 30 May. There was obviously some discussion about the decision to go through the cross cut as the adjusters wrote the following day asking for a cross sectional drawing of the cross cut and a "copy of the paper by the Australians about the technique."
- The adjusters prepared a preliminary report but were asked by IMIU to discuss it with Mr. Williams when he returned from abroad on 7 June before issuing it. Following that meeting with Mr Williams, the final version recorded the author's understanding that "the technique of mining through an existing opening in the seam has never been previously attempted by the mine." It also referred to the fact that the discussion with Mr. Williams revealed that his view was that the roof above the cross cut "should have been much more extensively reinforced".
- It concluded as follows:
"Quite clearly the collapse took everyone by surprise. The advice given by the Australian consultants does not seem to have conflicted with that of the British consultants, although Alan Williams has expressed surprise at the design of the roof support. We may take independent advice to review whether the advice given by the consultants was negligent and whether a recovery action might be possible."
The adjuster wrote again to the mine on 8 June 2000 asking who the consultants for executing the 'mine-through' had been and requesting copies of their reports.
- On 14 June, RSA's claims manager Mr. Ray Evans met with Steven Medhurst, the relevant underwriter at RSA. It was clear from Mr. Evans' note of the meeting that Mr. Medhurst was surprised at the level of reserve being recommended. Having also recorded Mr. Medhurst's concern that extraction of coal had been continuing at Castlebridge when he had been under the impression (from Mr. Williams' November 1999 report) that the Castlebridge workings were exhausted, the note goes on:
"There seems to be a follow up report in March 2000 which does however touch upon some workings in the Castlebridge area. I said I would take this up direct with IMIU. If they were aware of the new mining method to be used by the Insured we cannot consider alteration in risk etc as IMIU provide all risk and survey facilities to us. It they were fully aware and satisfied, we are deemed to be also.
Spoke to Francis Barber. He will contact Marsh and ask for the inventory. He will also contact Alan Williams and ask for his survey reports and also whether IMIU were aware of what the Insured were doing in the Castlebridge district. If they were not, he will pose the question of whether they feel such a working method should have been disclosed to Insurers…..
Subsequent conversation with Steve Medhurst. He has spoken to Alan Williams who says he was unaware of the working practice employed and if he had been told beforehand he would have been very concerned and recommended numerous safety checks. Alan also feels that there is something odd about the claim which may be related to the geological problems the Insured are facing elsewhere at the pit."
- On 19 June the adjuster wrote to the mine again asking for a copy of the advice from the consultants, together with any written method statement for executing the mine-through. The letter also asked whether the technique had been employed elsewhere in the UK together with details.
- The response from the mine in a letter dated 29 June was as follows:
"The decision to mine S89 face was taken by the Colliery as part of our normal decision making process and was taken without hesitation in the knowledge that this type of operation had been undertaken at various other mines within the UK. (Details are with the mine operators) Indeed we had already undertaken a similar type of operation in S83 face some years previously and were planning to repeat the operation later in the year in c30/c31 area.
It was considered prudent to seek a consultant's view to endorse our decision and he was available in the UK at that time, one of his suggestions being to put an "angled cut" on the face, which we adopted.
My staff are currently looking into your points about the method statement and the management scheme reports…"
- The adjusters immediately replied pressing for more details of experience in other mines and the mine's own experience with S83 (specifically raising the query whether it was "a cut through a room twice as high as the seam"). The brokers replied on their clients behalf on 31 July:
"You have been asking for information on previous experience and advice given on mining through crosscuts. Michael Buckle has suggested it may not be the mining through crosscuts that underwriters are concerned with but rather the rood support system employed in the exercise. It is clear to me that the probable, if not the only, possible reason for requiring such information is to with a view to underwriters invoking General Condition 7 of the policy i.e. material change in risk. As you are surely only too aware it is for underwriters to prove that there has been a material change in risk and I must therefore recommend to Scottish Coal that until such times as underwriters make quite specific their views in this regard, they do not respond (to generalities) for the time being."
- The reply from Mr. Evans dated 8 August 2000 was to the effect that since a number of matters remained outstanding, underwriters reserved their position under the policy.
- On 14 August 2000 Mr. Evans met with the adjuster, Francis Barber, Mr. Williams and Mr. Plaisted. Mr. Evans note reads as follows:
"We again touched upon what Alan was told when he visited the mine in March. Again he says that he was told of the plan to extract the remaining coal from between previously worked longwall panels which is a fairly common occurrence but he was not told of the proposal to cut straight through the crosscut. If he had been told he would have wanted to know exactly how they proposed doing it. He is personally unaware that such a method has been successfully undertaken previously in the UK. This may explain why the Insured found it necessary to seek advice from an Australian consultant.
Patrick Plaisted is hardening his attitude. Whilst we must be careful not to rely on hindsight, he is saying that if this method of working is so unusual it is enough to say that mining through a roadway presents additional risks.
Francis will write to the Insured asking them for full details of what they did on face S83 in which they claim to have undertaken a similar operation."
- There matters stood until 21 November 2000 when Mr. Evans wrote to the brokers as follows:-
"Insurers do not consider the Insured has provided full and proper information in respect of this claim in response to proper and appropriate enquiries.
You ask for Insurers response to the claim. Insurers are of the opinion that the method of extraction used to recover the coal from the pillars represented a "material change in the original risk" taking place which would entitle Insurers to avoid the Policy under General Condition 7 unless its continuance be agreed. Insurers do not consider the Risk was disclosed to Insurers prior to the incident. Further Insurers will rely on General Condition 1 and General Clause 71
As noted above Insurers do not consider that full and complete information has been provided by the Insured. Insurers therefore give the Insured a further opportunity to provide the information previously requested. In view of the above, further matters may require to be confirmed/clarified. In the circumstances Insurers continue to maintain and fully reserve their position with regard to policy indemnity."
- It was two months before a substantive response was received by which time underwriters, in circumstances which are somewhat obscure, had agreed to extend the period of cover for one month. To this end, the master slip was endorsed as follows:
"It is noted and agreed that this insurance is extended from the 24th December 2000 at 12.01 am local standard time to the 24th January 2001 at 12.01 am standard local time with the following amendments
Limits To pay up to Full value excess of deductibles as attached [Appendix A increased the below ground material damage deductible to £1.25million]
Premium £692,593 Annual [up from £519,827] … pro rata for period
Information Total sum insured… £91,173,146 [down from about £130 million]
All other terms and conditions remain unchanged"
Notably, the endorsement also contained a "Loss record net of proposed deductibles" which included the roof collapse on 4 May 2000. The endorsement was scratched by the entire security in the period between 19 December 2000 and sometime in February 2001.
- The broker's letter of 18 January 2001 in response to Mr Evans asserted that the intention to mine S89 had been "conveyed" to Mr Williams in March 2000 and for that purpose two documents had been made "available" to Mr. Williams - the Colliery Action Plan and the Budgeted Output Projections. These had gaps or breaks which made it, it was stated, obvious to a mining expert that there was a crosscut. As regards advice, reliance was placed on two further documents - H.M. Inspector's Report and RMT's letter of 18 February 2000.
- Mr. Evans duly replied on 16 March. He made a number of points:-
i) He asserted that Mr. Williams had not been told of any specific workings that were to be undertaken.
ii) He denied that any of the documents referred to had been shown to him (let alone would, if shown, have put him on notice).
iii) He drew attention to the material difference between the RMT drawing and the plan of support shown to adjusters.
iv) He contended that RMT's letter identified the fact that there had been a material change in the risk.
v) He challenged the point that experience with S83 was comparable.
The letter concluded: "Insurers therefore decline to indemnify the Insured in respect of this claim".
- Matters were then put in the hands of solicitors. It is perhaps of some note that in their initial letters on the claimant's behalf Messrs. McClure Naismith said on instructions that at the meeting in March, Mr. Williams was also shown:
i) A letter from Megabolt dated 10 March 2000 to Mr. Adams;
ii) The RMT letter dated 18 February 2000I.
These suggestions have since been withdrawn. It also noteworthy that the response from Messrs Vizards Wyeth acting for underwriters also concentrates on the alleged "material change in risk" without any suggestion that the contract had been or could be avoided for non-disclosure.
Discussion
- It is convenient to discuss the merits of the claim by reference to the specific policy terms relied upon by the underwriters as affording an entitlement to avoid the policy or otherwise furnish a defence.
General Clause 1
- Clause 1 of the General Clauses to the policy provided:
"The policy shall be voidable at the option of the Company in the event of misrepresentation or non-disclosure of any facts that would have influenced the Company's decision in either accepting or settling the terms of the insurance."
- It was the underwriters' case that they were entitled to (and did) avoid the policy on learning of the mine's failure to disclose the proposal to mine through the cross-cut (and the mode of doing so) in the run up to the underwriters' decision whether to revoke the provisional notice of cancellation as at 1 April contained in the Review Clause.
- The starting point must be, accordingly, the meaning and effect of the Review Clause:
i) The Claimants contended that the word 'provisional' qualified the word 'notice' but not the word 'cancellation'. Thus, it was contended, if the risk assessment by IMIU was unsatisfactory, the notice became unprovisional. This notice, so the argument ran, only expired on the anniversary of renewal. In short, it was a provisional NCAD constituting formal advance notice of an intention not to offer renewal when the policy term expired.
ii) The underwriters submitted that the clause simply meant that, in the event they were not content with the level of risk revealed by 1 April, the policy would terminate.
- I unhesitatingly prefer the underwriters' construction. The policy was renewed from year to year. The underwriters were not obliged to renew at the end of the year and did not need any notice of cancellation to bring the policy to an end at that stage. What was provisional was "the notice of cancellation" which was to take effect on 1 April. In the meantime there was to be a further examination by IMIU to assess (i) the extent to which the earlier recommendations had been satisfactorily complied with and (ii) the risks associated with the anticipated concentration of mining operations to Kincardine.
- On this basis, it was common ground that the mine were under an obligation to make disclosure appropriate to the underwriters' assessment of whether, in the light of the report from IMIU, to allow the policy to terminate or whether to withdraw the cancellation either on new terms or otherwise. Further, it is accepted by the claimants that the scope of the necessary disclosure at least extended to the significant change in the mine plan since December 1999: that is to say the decision to reverse the plan to abandon Castlebridge and to resume mining operations there to fill the emerging face gap.
- It follows that logically the next question is whether there was a need to disclose not just the plan to resume mining but also the fact that the operation was to involve mining through a cross-cut in a remnant pillar. But it is probably convenient to start with the question whether in fact, required or not, such disclosure was made.
Was the plan to mine through the cross-cut disclosed to Mr. Williams at the 21st March meeting?
- The claimants' case was quite straightforward. They relied upon the evidence of Mr. Sorbie (corroborated by Mr. Dow) that it was explained to Mr. Williams that it was proposed to mine through pillar S89 and that this involved going through the No. 2 cross-cut. This contention was said to be supported by the following considerations:
i) The oral evidence of Mr. Sorbie (and Mr Dow) was impressive and patently reliable.
ii) Mr. Williams, it is accepted, was told of the plans for reactivating Castlebridge by mining remnant pillars: it is accordingly inevitable that Mr. Williams would have made sure that the relevant pillars and their characteristic features were identified.
iii) The contemporary documentation is more consistent with concern on underwriters' part that the method of establishing a proper roof support system had not been disclosed rather than the very fact of mining through a cross-cut. It could thus be inferred that the latter had been disclosed.
- I am unable to accept the Claimants' case on this issue for the following reasons:
i) It is common ground that Mr. Williams was not told of the manner in which the cross-cut would be mined (this material either not forming part of fair presentation of the risk or disclosure of which was waived). However having regard to his explosive reaction when told by Mr. Plaisted of the lead up to the roof fall, I accept Mr. Williams evidence that, if told of the plan, he would have been alarmed and certainly would have asked for details of the method.
ii) It is not possible to reconcile the evidence of Mr. Sorbie with that of Mr. Williams: given the passage of time it is appropriate to place reliance on the contemporary documentation.
iii) The only contemporary notes of the meeting which were prepared by Mr. Williams and Mr. Lloyd make no mention of the cross-cut, let alone the proposal to cut through it.
iv) Mr. Williams's first recorded reaction to the news of the roof collapse is contained in Mr. Evans note of 4 June 2000. He said that he had not been told of the "working practice" employed and "if he had been told before hand he would have been very concerned". In this context I accept that "working practice" means the practice of mining through a cross-cut not the manner of doing it.
v) All this is confirmed in my judgment by Mr. Evans' note of 14 August in which Mr. Williams is recorded as stating in terms that "he was not told of the proposal to cut straight through the cross cut" and that "if he had been told he would have wanted to know exactly how they proposed doing it".
vi) When the mine was pressed for a copy of the method statement, together with the advice received from consultants, and details of other examples of the technique being employed elsewhere, there was no suggestion in the mine's reply of 29 June 2000 that the scheme had been disclosed to Mr. Williams during his visit.
vii) In a note of a discussion with Michael Buckle of Marsh on 20 July 2000 he was said to have confirmed that it was his understanding that "no mention had been made of this plan to mine through the cross-cuts".
viii) In their letter of 21 January 2000 the mine reacted to the underwriters' reservation of position with regard to any possible indemnity under the policy. This was on the basis that there had been non-disclosure in regard to "the method of extraction used to recover coal from the pillars." In response, the mine appeared to assert merely that it would have been apparent to Mr. Williams during the meeting in March that the plan included mining through No. 2 cross-cut from the content of the Colliery Action Plan and the Budget Output projection made "available" to Mr. Williams. There was no suggestion that Mr. Williams was told about it. Furthermore, the claimants no longer contend that any such documents, even if shown to Mr. Williams at any stage, would of themselves have constituted appropriate disclosure.
ix) In June 2002, the claimants' solicitors set out in their letter before action their understanding that Mr. Sorbie would say that, in addition to the documents referred to above, Mr. Williams was shown both the Megabolt letter dated 10 March 2000 and the RMJ letter and plan dated 18 February 2000. This of course would have revealed both the proposal and the method in terms. However this allegation has been withdrawn.
x) Whilst the pleadings asserted that a clutch of other documents were shown to Mr. Williams, it was not until service of Mr. Sorbie's statement in December 2007 that it was first stated in terms that Mr. Williams was told of the intention to go through the cross-cut.
Did the underwriters waive disclosure?
- The claimants did not contend that underwriters had waived disclosure of the fact of the plan to mine through the cross-cut. It was accepted that any fair presentation must at least include that. It follows that, in the wake of my decision that no such disclosure was made, the issue of waiver does not arise. However, for the sake of completeness I should indicate that although the underwriters contended that proper disclosure should include the details of the method by which this was to be achieved. I would have accepted the claimants' submission that disclosure of the plan to mine the cross-cut would have been sufficient to put underwriters in enquiry as to the details of the method to be employed if that was of interest.
Would the plan to mine through a cross-cut and the method of doing so influence underwriters?
- On this issue it was somewhat troubling to have no evidence from the defendant underwriters themselves - even from Stephen Medhurst who wrote the underlying risk for RSA. Nor, unusually, was there any independent underwriting evidence.
- I have not forgotten that the structure of the cover and the process of risk assessment was itself somewhat unusual. It is clear from the evidence that IMIU were the lead underwriters in all but name. More importantly it is apparent that IMIU's system in organising the cover fronted by the underwriters was that it was only disposed to write its share of the risk against a written assessment from one of their engineers. This, it was said, reflected the fact that the whole nature of the risk was highly specialised and any assessment for insurance purposes would have to focus on the expert analysis. Thus, as I understood the argument, if the expert engineering assessment (whether in-house or independent) would have treated the undisclosed fact as highly significant in terms of enhancing the risk, it would be correct to conclude that a prudent underwriter would regard the matter as material in the sense that it would influence him in accepting or setting the terms of the insurance.
- The Claimants submitted that underwriters had failed to make good their case on materiality. They submitted that, in the absence of evidence to the contrary from the underwriters themselves, it was reasonably clear from the nature of the overall cover being furnished and the content of the IMIU reports that underwriters were only concerned about factors impacting on their maximum exposure or which gave rise to long term risks. They were not interested, it was submitted, in "individual transient mining operations". In short, it was contended by the mine that, since it was accepted by the experts that a well designed and properly executed scheme would have allowed for a successful passage through a cross-cut, the mere existence of such a plan, albeit "at the margins of materiality", was in fact "risk neutral".
- The underwriters counter can be summarised as follows:
i) Both Mr. Sorbie and Mr. Dow maintain that Mr. Williams was told about the plan to mine through S89 cross-cut at the 21st March meeting. I have rejected this contention. But it can be inferred from it, say the underwriters, that they both recognised that Mr. Williams would want to know about the plan which would not have been apparent from simply reporting on a proposal to mine residual pillars.
ii) To similar effect, the mine's finance director Derek Walker prepared a note in July/August 2000 discussing the implications of the roof fall in S89. He commented that it had occurred "during what was recognised as the high risk and difficult operations". This was a gloomy but realistic assessment which he could only have gleaned from his mining colleagues on the board.
iii) It was the joint view of the experts as set out earlier in this judgment that the operation was difficult and risky: it was certainly not routine or conventional. It required careful preparation and swift execution. It was precondition to any successful operation that that the engineering problems were both understood and controlled. The watering down of the RMT plan and the subsequent failure even to install the mine's own support structure demonstrates that the engineering problems were not understood and thus not in the event controlled.
iv) The risks were enhanced by the fact that the mine had little experience of undertaking such a process. Indeed their only experience was with a road of very much smaller dimensions using supporting material of a kind which was impractical (or at least expensive and time consuming) to use on the cross-cut.
v) It was Mr. Williams' evidence that he would have perceived such a plan as involving a potential "change in the risk" and thus would need to have full details of the proposed method before making an assessment. It was quite clear that Mr Plaisted would have been strongly influenced by Mr Williams' advice.
- It is at least clear that Mr. Plaisted was induced to continue the reinsurance on the basis of Mr. Williams' advice. Whilst the file is not complete it is also clear that all the Defendants were then approached by the brokers and separately agreed to withdraw the cancellation. But the absence of any evidence from Mr Medhurst for RSA, let alone underwriters from any of the following market, on the basis for their decision and the significance of the non-disclosure presents a difficulty from the defendants' point of view. It may be that this is attributable to the focus on the question of a "material change in risk" (see General Condition 7 below).
- It might have been legitimate to presume that the whole market which in effect had previously followed IMIU were induced again to follow IMIU: see St. Paul Fire & Marine Insurance Co Ltd v Mc Connell Dowell Constructors Ltd [1995] 2 Lloyds Rep. 114. It might also have been legitimate to conclude that, if the plan to go through the cross-cut had been disclosed (as it should have been) and if Mr Williams had duly expressed his concern, the underwriters would have been influenced in the sense prescribed by the Clause. I am not sure that I can go further, the more so in the absence of any independent underwriting evidence. If in the event matters had turned on this aspect (see below), there would have been significant obstacles to this defence to the claim.
Did the underwriters with knowledge of their entitlement to avoid the contract of insurance nonetheless elect to affirm it?
- The adjusters' report of 7 June (completed after discussion with the recently returned Mr. Williams) explained in terms that the face was to be retreated straight through cross-cut No. 2, the technique being one, as the adjusters understood it, never previously attempted by the mine. Accompanying the report was both a plan of S89 and Mr. Ellis' drawing of the (proposed) support system in the cross-cut. Mr. Williams in discussion with Mr. Plaisted made it clear that he was amazed at the very idea which he had never been told about.
- By the time of the meeting with Ray Evans on 14 June, the question of non-disclosure was already being raised. Mr. Plaisted's "attitude" was "hardening" by mid-August. It is true that in the meantime the adjusters had been seeking further information from the claimants relating to any advice received from consultants at the time. But this was because the underwriters had in mind a possible subrogated claim against the consultants. The mine was regarded as having "stonewalled" as regards any response.
- The brokers were under the impression, as revealed by their letter of 31 July, that underwriters were threatening to rely on General Condition 7 of the policy relating to a material change of risk rather than non-disclosure within General Clause 1. In these circumstances, the brokers advised the mine not to respond until underwriters made their position clear. By letter of 8 August underwriters simply stated that it was "necessary to reserve their position under the policy".
- The adjusters continued to press for further information. In particular, in addition to the consultant's report they wanted details of the mine's claimed previous experience with face S83. Little if any progress was made. In their letter dated 21 November in further response to the broker's letter of 31 July, underwriters made reference to General Clause 1 as well as General Condition 7. They also expressed reliance on General Condition 1 which required "reasonable steps" on the part of the assured to safeguard the insured property. Underwriters stated that they would afford a further opportunity to provide the information that had been requested pending which they continued "to fully reserve their position with regard to policy indemnity."
- The position at this stage was this. Underwriters had neither affirmed nor avoided the policy: they had reserved their position. But they were fully aware of the fact that the mine had not disclosed that it had already made plans to go through a cross-cut before Mr. Williams visit on 21 March let alone before the provisional cancellation notice was withdrawn in April. Underwriters had also been advised by Mr Williams that if he had been so advised he would have wanted full details of a project which he regarded as inherently risky.
- It may have been sensible for underwriters to glean details of the claimants (and other mines) experience (if any) in conducting such an operation and all the consultancy advice received by the mine in order to assess what stance to take on other issues such as whether:
i) to treat the contract as avoided under General Condition 7 by reason of a material change of risk
ii) to defend the claim under General Condition 1 for want of reasonable steps
iii) to meet the claim
iv) to meet the claim but pursue a subrogated claim against the mine's consultants.
- But as regards non-disclosure the underwriters had, by November at the latest, the requisite knowledge of both its existence and its implications: ICCI v. Royal Hotel [1998] Lloyd's Rep Ins & Rein 151. The policy was due to expire on 23 December. A meeting was organised at the mine on 14 December between Mr. Dow, Mr. Sorbie, Mr. Plaisted and Mr. Lloyd. The brokers described the original purpose of the meeting in an e-mail dated 6 December as "to look at various parts of the deepmine operation in order for Patrick to consider renewal and to have a "clear the air" meeting on the claim" although a later exchange of e-mails made it clear that IMIU were not prepared to get involved in discussing "the settlement of the outstanding loss."
- Against this background, the underwriters then agreed to extend the policy to 24 January 2001 on payment of a pro rata share of an increased premium. The premium calculation disclosed in the brokers' file is clearly based on a calculation for the year 2001. The attached loss record includes the roof collapse claim without any suggestion that a reserve was inappropriate. Whilst it is not entirely clear, there even appears to have some adjustments to the written lines. Indeed Gerling did not confirm its line until 14 February 2001. Even more strikingly there was further endorsement relating to the Appendix A deductibles in May 2001.
- The burden rests on the claimants but it is striking that little if any evidence is tendered by underwriters (either from the leader or the following market) other than the individual endorsements affording the extension. Further, there is no indication that the extension was granted against any reservation of rights by all (or any) of the underwriters. Against this background, it is difficult to categorise this extension, viewed objectively, as being other than an unequivocal election to affirm the contract.
- This conclusion receives support from the subsequent correspondence. The broker's letter of 18 January 2001 reveals that it was understood that underwriters were relying on the clauses to "repudiate the claim" not avoid the contract. Furthermore Mr. Evans letter of 16 March does not suggest that the policy had been avoided for non-disclosure by underwriters. All that is suggested is the potential for avoidance having been established by a material change in the risk pursuant to General Condition7. The pleaded case is that this letter constituted the exercise of the option to avoid. To the contrary, there is no avoidance - simply a refusal to indemnify in respect of the claim.
- As already noted, in the initial exchange of letters between solicitors, Messrs Vizards Wyeth in their letter of 22 April 2003 (i.e. nearly a year after the letter from McClure Naismith) focussed on the allegation that there had been a material change of risk. It was not suggested that the contract had been avoided by the letter of 16 March 2001 or otherwise.
- I appreciate that the issue of affirmation was only introduced by amendment during the course of the trial. But there was no objection to the amendment and no application to adduce evidence from Mr Medhurst or any of the other underwriters. In my judgment, far from there having been any avoidance, the contract was affirmed by reason of the extension in circumstances where the underwriters were fully aware of the potential for avoidance under General Clause 1
General Condition 2
- This provides as follows:
"2. INSPECTION
The Company's officials shall at all reasonable times have the right to inspect and examine any Property insured hereunder and the Insured shall provide such material with all details and information necessary for the assessment of the risk. Any reports or other material provided to the Company, or to the Insured by the Company, in connection with this Condition shall be regarded as strictly confidential by the parties to this agreement which shall include any agent, broker, re-insurer acting on behalf of the parties to this agreement."
- It was underwriters' case that this condition raised the same issues as discussed above under General Clause 1 in the sense that the relevant failure to provide information was the failure to disclose the plan to go through the cross-cut.
- Against that background, it is submitted that:
i) There had accordingly been a failure to comply with a condition precedent; or
ii) Alternatively, the underwriters were entitled to damages amounting to an indemnity by reason of breach in respect of any liability under the insurance cover.
- The claimant's submissions were in summary as follows:-
i) it was not a condition precedent as was evident from its own terms and from the remaining General Conditions;
ii) on its proper construction it did not touch on the insured's duty of disclosure whether under General Clause 1 or at common law;
iii) it merely provided the administrative machinery to allow access for the inspectors to the premises and the provision of information required by the inspectors.
- I accept the claimants' submissions on this issue. By way of introduction it is of some note that no contemporary reliance was placed by the underwriters on the clause. Perhaps that is not surprising given that the construction now relied upon by the underwriters would involve imposing on the claimant a continuing obligation of disclosure, whether as a condition precedent or otherwise, throughout the currency of the contract. The right of access for the underwriters "officials" is "at all reasonable times" and the asserted obligation of disclosure is to "such officials". In my judgment, any such startling extension of the requirements of good faith would need to be expressed in the clearest language.
- The suggestion that the clause is a condition precedent to liability is a wholly strained construction. A failure to give timely access or a shortfall in the details provided could not conceivably justify discharging underwriters from liability. The essential nature of the clause is revealed, in my view, both by the heading "Inspection" and by the second half of it which imposes a duty of confidentiality. I accept the claimants' submission that the clause is an innominate term obliging cooperation by the mine in receiving visits and spelling out that the underwriters are entitled to be shown everything which might be relevant to such visits and furnish responses to any inquiries from the inspectors whether or not the mine found it convenient.
- It is right that underwriters made a number of complaints about failure on the part of the mine to give full details of the cross-cut mining operation after the vent. But it was not suggested that this failure (categorised at one stage as already noted as stonewalling) gave rise to any defence on the part of underwriters.
General Condition 7
- General Condition 7 provided:
"In the event of any:
(a) material change in the original risk…
the policy shall be avoided unless the continuance be agreed by endorsement signed by the company."
- It was this clause which was very much at the forefront of underwriters' initial decision to refuse an indemnity but which played a much less emphatic part in their case at trial.
- A similar clause was considered in Kausar v Eagle Star Insurance Co. Ltd [2000] 2 Lloyd's Rep. I.R. 154:
"I now turn to the third ground of appeal, which relates specifically to condition 3 of the policy. This condition was in the following terms:
'You must tell us of any change of circumstances after the start of the insurance which increases the risk of injury or damage. You will not be insured under the policy until we have agreed in writing to accept the increased risk.'
…….. In my judgment all that this condition does is to state the position as it would exist anyway as a matter of common law, namely that without the further agreement of the insurer, there would be no cover where the circumstances had so changed that it could properly be said by the insurers that the new situation was something which, on the true construction of the policy, they had not agreed to cover. The mere fact that the chances of an insured peril operating increase during the period of the cover would not, save possibly in the most extreme of circumstances, enable the insurers properly to say this, since the insurance bargain is one where, in return for the premium, they take upon themselves the risk that an insured peril will operate. In calculating that premium it is for the insurers to assess the chances of insured perils operating; and the fact that they may (in hindsight) have got this assessment wrong does not begin to establish that what has happened falls outside the cover they have agreed to give: per Saville LJ p.156
"Thirdly there is the difficult issue as to the meaning of condition 3. On its plain wording the meaning would appear to be that, if there is a change of circumstances during the currency of the policy which increases the chance of injury or damage, all cover will cease until the insurers have agreed in writing to accept the increased risk; that consequence follows whether or not the insured tells the insurers of the change of circumstances, and whether or not a reasonable time has elapsed since the change. The appearance of a hurricane on the weather forecast, or of a fire spreading, down the street, would bring cover to an end. That cannot be right; or at least if it was intended the parties should have made it abundantly clear.
There is some history of clauses which were similar to condition 3 although not exactly the same. In particular the case of Exchange Theatre Ltd v Iron Trades Mutual Insurance Co [1984] 1 Ll Rep 149 concerned a policy with this term:
'2. This policy shall be avoided with respect to any item thereof in regard to which there be any alteration after the commencement of this insurance … whereby the risk of destruction damage is increased … unless such alteration be admitted by memorandum signed by or on behalf of the insurers.'
Eveleigh LJ said (at p. 152):
'What condition 2 is concerned with, as I see it, is alteration of the subject matter of the insurance. This is frequently referred to as "risk". We find it in the General Principles of Insurance Law, 4th ed. at p. 319, where it is said:
"… Nor is there any alteration of the risk where the alteration does not effect the description in the policy, even though it increases the danger of loss, since the risk is defined in the policy, it remains the same".'
I would adopt the same meaning in this case…: per Staughton LJ at p. 158."
See also Law Guarantee Trust and Accident Society v Munich Reinsurance Co. [1912] 1 Ch 138, Swiss Reinsurance Co v United India Insurance Company Ltd [2005] EWHC 237.
- The question accordingly arises whether the risk in respect of which the claim is made against underwriters differs from the risk that they have insured. The underwriters assert that the cross-cut mining operation amounted to such a difference. The risks being insured so the argument ran were those associated with conventional long wall mining: mining through a cross-cut did not fall within that description.
- The claimants submit that the cover extends to all mining operations whether or not routine or conventional. The relevant risk, as expressly defined in the policy, is that of impact caused by roof fall if such was to occasion property damage or consequential business operation.
- I accept the claimants' submission. The decision to mine through the cross-cut may well have increased the risk but it did not change it. The scope of the cover "in respect of underground workings" was restricted to machinery damage and business interruption against all the named perils including impact. The risk of impact during a cross-cut mining operation is no different from the impact risk covered.
General Condition 1
- General Condition 1 provides:
"1. PREVENTION OF LOSS
The Insured shall at all times take all reasonable steps to safeguard the Insured's Property, prevent accidents and minimise loss or damage. Furthermore, in respect of the Insured's Plant and Machinery, shall take all reasonable steps to maintain the Insured's Property in efficient working order and to ensure that no item is habitually or intentionally overloaded."
- The claimants in effect conceded that their preparations for the mining of the cross-cut and their execution of the process were faulty in one or more of the following respects:
i) They failed to allow properly for the risk of roof control problems as the cross-cut was traversed.
ii) They failed to heed the fact that the height of the cut was 4.5m and that this was twice the height of the coal seam to be excavated by the shearer.
iii) They failed to adopt the advice of RMT as to the method of support.
iv) They failed to follow their own design.
v) They failed to ensure that the support structure was in place before commencing mining the face.
vi) They failed to ensure that passage through the cross-cut was carried out with dispatch.
However, this concession falls a long way short of establishing a failure to "take all reasonable steps to safeguard insured property" within the meaning of General Condition 1.
- The starting point here is Fraser v BN Furman (Productions) Ltd [1967] 2 Lloyd's Rep. 1:
"There are three considerations to be borne in mind on the wording of this condition. (i) It is the insured personally who must take reasonable precautions. Failure by an employee to do so, although the employer might be liable vicariously for the employee's negligence or breach of statutory duty, would not be a breach of the condition….(ii) The obligation of the employer is to take precautions to prevent accidents. This means, in my view, to take measures to avert dangers which are likely to cause bodily injury to employees. (iii) The third word to be construed in this context is "reasonable". "The Insured shall take reasonable precautions to prevent accidents". "Reasonable" does not mean reasonable as between the employer and the employee. It means reasonable as between the insured and the insurer having regard to the commercial purpose of the contract, which is inter alia to indemnify the insured against liability for his (the insured's) personal negligence….
What in my judgment is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognize a danger, should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted. The purpose of the condition is to ensure that the insured will not refrain from taking precautions which he knows ought to be taken because he is covered against loss by the policy."
- That case concerned an employer's liability policy which may raise somewhat different considerations. A similar issue involving an all risks insurance in respect of theft of a car was considered in Soft v Prudential Assurance Co Ltd [1993] 2 Lloyd's Rep. 559 where it was submitted unsuccessfully that a different test was applicable to property insurance (a point left open in what was in fact a much earlier Court of Appeal decision in Devco Holden Ltd v Legal & General Ass. Soc. [1993] 2 Lloyd's Rep 567).
- In my judgment the underwriters have failed to make out any case that Mr. Sorbie or Mr. Dow deliberately courted the risk of a roof fall by virtue of taking precautions which they knew were inadequate to avert the risk - in other words reckless:-
i) No such case was properly pleaded;
ii) No such case was ever put to them;
iii) Given the level of the excess on the policy, it would be surprising for them to act in any such way;
iv) Having heard them give their evidence I entirely acquit them of the allegation;
v) The explanation for the shortfall in design and performance was a lack of understanding of the relevant engineering principles.
Material Damage Claim
- It is common ground that the equipment in the S89 cross-cut was reasonably abandoned within the meaning of Clause 14 of the policy. It follows that the reinstatement clause does not apply. In the circumstances the parties seek resolution of the following issue:
"What is the correct measure of the claim- is it:
(a) the cost of replacing the lost plant and equipment?
(b) the actual value of the lost equipment at the time it was lost?
(c) the recorded value (which is to be taken to represent the value to the insured) however that is to be defined either by evidence or agreement?"
- This issue can be dealt with quite shortly. First, by reason of the exclusion if the reinstatement condition, the amount payable is not to be assessed by reference to the replacement of the equipment by new property. Clause 14, in my judgment, contains its own valuation of the claim namely by reference to the "recovered value" of the property. The clause in effect is directed at a situation where there has been a constructive total loss i.e. where the costs of recovery (including the cost of any repairs) exceed the recovered value.
- I accept the mine's evidence that but for the roof fall the face supports would have been used to complete S89, then moved to S82A and thereafter transported to K2 at Kincardine. I also accept the mine's case that the abandoned supports could not have been replaced by those on A4: the latter were not surplus to requirements.
- The starting point must be the market value of the equipment: see Leppard v. Excess Insurance [1974] 1 WLR 512. In this regard there was a remarkable dispute between the parties about the powered face supports. The claimants maintained that there was no second hand market and thus in practice it would have been necessary to purchase new equipment. The underwriters maintain that there was a second hand market and this was flooded by a surplus of such equipment because of other closures.
- I am not on the material available sure that it is possible to give any further guidance on the proper measure of indemnity. It does seem improbable that the market was so flooded as to render the supports almost valueless. Indeed to the contrary Mr. Dow gave evidence of going to Germany to inspect some second hand supports (said to be older and of limited utility) for which a substantial price was being asked. It may well be that a useful cross check of the market value of the supports would involve a discounted replacement value by reference to 15 years service out of a 30 year full life.
- The other item of equipment lost was the AM500 shearer together with its associated AFC machinery. The plan was that after completion of S82A the shearer was to be transferred to Kincardine as part of the creation of a bunker for a buffer stock of coal. The shearer would have been used to load coal from the bunker onto a conveyor for delivery to the power station. Whilst naturally this claim is challenged, I did not understand it to be a controversial issue at the trial.
- As regards the recovered value again the starting point is the market value. Given its proposed use, a discounted replacement value would also give a guide.
Business Interruption Losses
- The parties have asked the court to determine the following issue:
"Have the Claimants established that face S82A and/or BO3 were not mined because S89 collapsed or is it the case that these faces were not mined for other reasons?"
The mine plan was as follows:
i) S89 was planned to complete by July 2000.
ii) B78 was to commence in July and complete in October.
iii) The shearer from B78 was to be transferred to S82A
iv) In October the power face supports from S89 were to be transferred to S82A
v) S82A was to commence in November and complete in January 2001
vi) Following completion of S78 the power supports were to be transferred to BO3
vii) BO3 was to commence in February 2001 and complete after April.
- It was the mine's case that the collapse of S89 meant the mine plan could not be achieved because the supports from S89 to be installed on S82A were lost. In the result, the mine decided to cease mining at Castlebridge following the completion of S78.
- The underwriters made two points:
i) There was a prolonged gap between the collapse of S89 and the proposed installation of supports into S82A and replacement supports could have been obtained from A4.
ii) The true reason for not mining S82A and BO3 was endemic manpower problems which necessitated the closure of Castlebridge.
- As regard i), I am not persuaded that it would have been practicable to take supports from A4 to use on S82A:
a) S82A required specifically modified supports (called buttress and anchor supports);
b) the buttress supports had already been removed from A4 and taken to Kincardine;
c) there was no source of anchor supports from A4.
- Even then I accept the Claimants' evidence that a substantial face gap (of about 2 to 3 months) would have been created which was properly regarded as unacceptable.
- As regards manpower, I am again not persuaded that the decision not to mine S82A and BO3 was attributable to manpower shortages. As is apparent from the management meeting minutes:
i) there were some manpower difficulties particularly in the holiday season;
ii) however the active staffing level remained at about 370 or more throughout;
iii) shortfalls were made good by contracting in staff;
iv) strong concerns were expressed in July by the Finance Director on the basis that two advance faces would be undertaken in Kincardine but this staff heavy proposal was reversed so as to establish retreat faces which required much less than half as many staff.
v) In reality, as Mr. Sorbie explained in his oral evidence, it was the interference with the continuity of mining which was so damaging.
- Once the roof fall occurred it was inevitable that the focus would change to Kincardine. In my judgment the remaining panels at Castlebridge would have been mined but for the roof fall in the S89 cross-cut.
- I was also invited by the underwriters to consider the following issues that arise in relation to Business Interruption:-
"(1) Were the costs (the amount of which is, if necessary, to be subsequently determined by evidence or agreement) of the matters listed below within Section B Item on Gross Profit clause B, that is additional expenditure necessarily and reasonably incurred by the insured for the sole purpose of avoiding or diminishing a reduction in turnover
(a) Isolating the Castlebridge District;
(b) Shortening the cable belt;
(c) The matters recorded in the Finance Review Meeting Minutes of the 12th July 2000 at paragraph 4 namely:
(i) Underground contractor's costs of £0.2m due to the increased activity to commence B78 face production ahead of budget and the continued Aberdona Salvage.
(ii) Labour costs of £0.1m worse due mainly to the additional overtime bonus payments associated with week end production and unusually high sick pay.
(iii) Equipment and repairs £0.1m worse due to necessary earlier than budget spend on B78 face and driveage equipment, this is expected to reverse over the year"
- Save to the extent that my earlier findings bear on this matter, it is not appropriate to determine these issues without the assistance of accounting evidence.
