Wheeldon Brothers Waste Limited v Millennium Insurance Company Limited
In this recent pro-policyholder decision, the Court examined the construction of Conditions Precedent and Warranties. Here, the insurer attempted, rather opportunistically, to import a meaning to these terms which was far more onerous than the common sense approach adopted by the policyholder and ultimately endorsed by the Court.
Wheeldon Brothers Waste Limited (‘Wheeldon’) owned a waste processing plant (‘the Plant’) situated in Ramsbottom. The Plant received a number of combustible and non-combustible wastes, and, via a number of separation processes, produced a fuel known as ‘Solid Recovered Fuel.’
Wheeldon had a policy of insurance (‘the Policy’) with Millennium Insurance Company (‘Millennium’), who provided cover against the risk of fire.
In June 2014, a major fire occurred at the Plant, which was believed to have been caused by the collapse of a bearing on a conveyor. Prior to the fire, Millennium had appointed a surveyor to undertake a risk assessment, which led to the issuing of “Contract Endorsement No 1” (‘CE1’). CE1 required compliance with a number of Risk Requirements, each of which was incorporated into the Policy as a condition precedent to liability.
Millennium refused to indemnify Wheeldon following the fire, relying upon the following grounds (‘the Grounds’):
- A failure to comply with the Risk Requirement relating to the storage of Combustible Materials at least six metres from any fixed plant or machinery (‘the Storage Condition);
- A breach of warranty requiring the removal of combustible materials at the close of business each day (‘the Combustible Materials Warranty’);
- A breach of the condition relating to the maintenance of machinery (‘the Maintenance Condition’);
- A breach of the condition relating to housekeeping (‘the Housekeeping Condition’).
Wheeldon issued proceedings against Millennium.
Before addressing the Grounds, the Judge was first required to make a finding on the cause of the fire.
Millennium asserted that the fire was caused by heat or fragments leaving ‘the housing of the bearing’, causing the usual materials that drop through the machine to catch and burn. Wheeldon, however, argued that the fire was the result of smouldering, which was caused by combustible materials falling through a ‘gap’ in the housing of the conveyor, which had been created by the failed bearing.
The Judge rejected Millennium’s explanation. The available photographs and CCTV stills showed no evidence of the material they referred to, and the presence of burn marks (on which Millennium placed huge emphasis) was inconclusive.
- The Storage Condition
The Judge approached the issue of whether there had been a breach by dealing with the following questions:
- Was there combustible waste?
- Was it in a storage area?
- Was it within 6 metres?
The parties disagreed as to the meaning of “combustible” in the Policy, notwithstanding that their experts agreed that it had the scientific meaning of “anything that burns when ignited.”
Wheeldon’s expert argued that a lay person would not consider all materials which fell within the scientific meaning to be combustible. By contrast, Millennium’s expert said that the entire process involved combustible materials, and that none of the separation processes would have been totally effective at excluding combustible materials.
The Judge, deploying a reasoning that will be welcome to all policyholders, said that, if Millennium had intended “combustible” to mean anything other than what would be understood by a layperson, it should have made that clear in the Policy.
As to the meaning of “storage”, Millennium said that this meant that “such materials had to be placed (or kept) 6 metres from fixed plant or machinery …” Wheeldon rejected that interpretation, asserting that “storage” meant something deliberate i.e. it was an area in which things were intentionally placed.
The Judge preferred Wheeldon’s construction, finding that “storage” imported a degree of permanence, and a deliberate decision to designate an area to place and keep material.
On the evidence available, the Judge found there was no combustible waste, in any storage area, within six metres of any fixed plant or machinery. Accordingly, there was no breach of the condition.
- The Combustible Materials Warranty
Wheeldon argued that there was no breach. They said that a visual inspection was always undertaken, and that their employees were required to carry out the necessary cleaning each day.
By contrast, Millennium asserted that the photographs revealed the presence of non-combustible material, and said there was no evidence that those materials had been removed.
Although evidence of a system was, without more, insufficient, the Judge accepted Wheeldon’s evidence that not only was there a safe system in place, but crucially that it had been adhered to. There was therefore no breach of warranty.
- The Maintenance Condition
This requirement, a condition precedent, required Wheeldon to maintain all machinery in efficient working order in accordance with the manufacturer’s specifications and guidelines, and keep formal records of all such maintenance.
The Judge found that the failure of the bearing did not, without more, conclusively mean that there was a breach of the Maintenance Condition. In any event, there was no evidence of any breach.
As to the requirement to keep formal records, Wheeldon said that their system of daily and weekly checklists was adequate. Millennium disagreed, and said that (what they described as) “brief manuscript” notes in a diary were insufficient to constitute formal records.
The Judge agreed with Wheeldon, and said that, if Millennium required records to be kept in a particular format, they ought to have prescribed that format in the Policy. As they had failed to do so, there could be no breach.
- The Housekeeping Condition
This was also a condition precedent, which required Wheeldon to have procedures in place to ensure a good level of housekeeping at all times, to keep clean all areas of the site to minimise fire risk, to record in a log formal contemporaneous records of Cleaning and Housekeeping in a log book covering areas cleaned.
Wheeldon said that they had a good system of housekeeping in place, which was structured around daily and weekly checklists that covered all the machines, and which focussed on the risks of fire. Millennium disagreed, asserting that there was no evidence of procedures being undertaken at the end of the day to clean up combustible materials.
Once again, the Judge found that there was no breach. The CCTV footage showed that there was regular and effective cleaning, and the Judge found that daily and weekly records were sufficient. As above, if Millennium had a different requirement in mind, they should have spelt that out in the Policy.
As Millennium had failed to make out their case on any of the Grounds, judgment was given for Wheeldon.
This decision in Wheeldon is a welcome one for policyholders, and illustrates that an insurer will be unable to rely on a breach of condition or warranty, if the actions required by the policyholder are unclear or lacking particularity.
Alex Rosenfield is an associate at Fenchurch Law