Insurance coverage: exclusions for deliberate acts

23 Apr 2021

Today, the Supreme Court handed down its judgment in Burnett v International Insurance Company of Hanover Ltd [2021] UKSC 12, which marks its second decision of the year on insurance coverage. It alerts insurers and, in particular, brokers about purporting to drastically delimit the scope of cover via exclusions, and cautions against interpreting policies in a way which could lead to “commercially unlikely” cover. The facts and implications are considered below by members of BLM’s Policy Indemnity Unit.

The facts 

The Claimant, Ms Burnett, was the widow of Mr Grant who sadly died on 9 August 2013 following an altercation with a number of door stewards at a bar in Aberdeen after his ejection*. 

Whilst one of the stewards who had applied a neck hold for three minutes pending the arrival of police stood trial for murder, a jury did not accept that the hold had asphyxiated or caused death, but instead convicted him of assault.  

It was agreed that the steward, in applying the hold, did not intend to kill the deceased, and the remarks of the sentencing judge were that “… what you did was badly executed, not badly motivated … You believed you were acting in defence of your fellow door stewards and to minimise the danger you felt [the deceased] posed to others.” 

At the time of the fatal incident, the steward was employed by the Insured, Prospect Security Ltd, which had obtained its public liability insurance (amongst other cover) from the Defendant Insurer. The Insured’s business was described as “Manned Guarding and Door Security Contractors”. 

As a result of the Insured’s liquidation, the Claimant claimed directly against the Insurer under the Third Parties (Rights against Insurers) Act 2010. However, the Insurer submitted that it was not liable to indemnify the insolvent Insured for its vicarious liability and, by extension, the Claimant under the 2010 Act on two grounds: 

The Policy 

1. The Insurer submitted its liability to the Insured was wholly excluded under the terms of its policy, which ousted “liability arising out of deliberate acts, wilful neglect or default" at clause 14.  

2. Alternatively, the Insurer submitted that the steward’s actions qualified as a "wrongful arrest" within the meaning of the policy, for which the Insurer’s liability was limited to £100,000 at Extension 3. 

Wrongful arrest was defined as “any unlawful physical restraint by one person on the liberty of another and includes assault and battery committed or alleged to have been committed at the time of making or attempting to make an arrest or in resisting an overt attempt to escape by a person under arrest before such person has been or could be placed in the custody of the police…” 

The Supreme Court’s decision 

The liability to the Claimant was neither (a) excluded by the policy as arising from a deliberate act, nor (b) limited under the relevant extension as a “wrongful arrest”. 

The Court found that whilst many acts – negligent or otherwise – would be deliberately carried out, in order to effectively exclude liability under the policy, the causing of the damage or injury must have been deliberate. Accordingly, “deliberate acts” meant acts which were intended to cause injury or damage. This reflected a basic rule of insurance law recited by the Scottish Court of Session (Inner House) in its judgment below:

… It provides cover against risks incidental to the insured’s business while being consistent with ‘a basic rule of insurance law’, namely, ‘that a contract of insurance does not cover an assured against his deliberate or wilful infliction of loss, at any rate in the absence of express stipulate or necessary implication’: Charlton v Fisher [2002] QB 578, para 51 ...

The submission that deliberate acts (consciously performing an act intending its consequences) should also include reckless acts was roundly rejected. The Court held recklessness requires a very different state of mind, namely that the Insured is aware that acts or omissions risk damage, or does not care whether such a risk exists. Irrespective of its conclusion here, there was no finding by the courts below of an intention to injure, or even of recklessness by the steward, and the conviction for assault did not establish any intention beyond one to perform the act of assault, namely the hold.

Having determined Issue 1 in favour of the Claimant, it was not necessary for the Court to consider Issue 2, which was dealt with in a single paragraph, at [67] “… The losses claimed do not relate to wrongful arrest and the factual basis for such a claim is not made out.” 

What this means for you

This judgment suggests that exclusions from cover for deliberate acts – which reflects the basic principle of insurance law that a contract of insurance does not generally cover an assured against their deliberate infliction of loss – will be interpreted narrowly, given how exclusions are designed to delimit the scope of cover under an insuring clause.

It suggests insurers wishing to oust cover for reckless acts or omissions must include express provision to limit cover, by implication, to negligent acts or omissions only rather than also insuring reckless or deliberate damage. That would reflect the Supreme Court’s earlier judgment in The Financial Conduct Authority & Ors v Arch Insurance (UK) Ltd & Ors [2021] UKSC 1, which held at [196], that “… if the insurers had wished to impose such an exclusion, it was incumbent on them to include it in the terms of the policy.” However, in its latest judgment, the Court was clearly influenced by additional commercial considerations, holding at [57]: 

… If, as the insurer contends, clause 14 [also] excludes reckless acts causing injury, it would seriously circumscribe the cover provided… An exemption of reckless acts would lead to a very wide and commercially unlikely exclusion, given the nature of the [insured] business. 

This suggests that express exclusions should be accompanied by corresponding reductions in premia to reflect circumscribed cover. If the intention had been to put a further substantive limit on the risk, this must be achieved transparently, ideally as part of the wording of the insuring clause or any relevant extension rather than, for example, relying upon general exclusions elsewhere in a policy.

 

*Similar facts link this case to Hawley v Luminar Leisure Ltd [2006] EWCA Civ 1818, in which a nightclub doorman, employed by the Defendant, assaulted a customer and the question was whether cover would attach under a policy which featured the insuring clause “accidental bodily injury to any person”. The court in Hawley decided that the policy was triggered because whether the injury was “accidental” had to be considered from the perspective of the insured - ie the employer rather than the doorman. The Supreme Court cited Hawley and observed that “the policy in this case [ie Burnett] would cover deliberate acts by an employee which were ‘accidental’ from the perspective of his or her employer.”

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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