Share it

In this post, Harriet Munro and Rowena Williams, members of the insurance disputes team at CMS, discuss the decision of the UK Supreme Court in the matter Burnett or Grant v International Insurance Company of Hanover Limited [2021] UKSC 12, which concerns the application of a ‘deliberate acts’ exclusion in insurance policies.

This action was brought by Mrs Fiona Grant, the widow of Mr Craig Grant. Mr Grant died on 9 August 2013 as a result of being improperly restrained by a member of the door steward security team while being removed from a bar in Aberdeen. The door steward in question was later convicted of assault but found not guilty in relation to a charge of murder. At sentencing, the trial judge commented that the steward’s actions to restrain Mr Grant were “badly executed, not badly motivated.”

While Mrs Grant initially brought claims against a variety of parties, the final claim only progressed against the door steward’s employer, Prospect Security Services Limited (Prospect) and, as that company was in liquidation, their public liability insurers under the Third Parties (Rights against Insurers) Act 2010. Mrs Grant was therefore entitled to any benefit from that policy which Prospect would have been entitled to but for their insolvency.

The policy, which was governed by English law, described the insured’s business as “Manned Guarding and Door Security Contractors”. It provided cover under eight separate sections, each of which had its own excess and limit of liability. The limit of liability in respect of public liability was £5m while the limit for wrongful arrest was £100,000.

The central issue to the action was whether Prospect’s liability for Mr Grant’s death was covered by the policy. The policy provided insurance cover for all sums Prospect were liable to pay as “compensatory damages … arising out of accidental … injury to any person.”  However, the insurers argued that, as the door steward intended to physically restrain Mr Grant, the resulting liability fell within the scope of an exclusion for “deliberate acts wilful default or neglect by the Insured any Director Partner or Employee of the Insured.” Alternatively, they argued that the injuries were sustained in the course of a wrongful arrest of Mr Grant by the door steward, capping their liability at £100,000.

Decision at first instance and appeal to the Inner House

The action was initially heard by Lord Uist in the Outer House of the Court of Session who, on 5 April 2018, found in favour of Mrs Grant. Lord Uist noted that the ‘deliberate acts’ exclusion only applied when the outcome giving rise to liability (in this case, Mr Grant’s death) was the intended objective. In this case, there was no such intention, nor had the insurers plead there was such an intention. Further, the wrongful arrest argument was irrelevant. Lord Uist’s decision was appealed by the insurers to the Inner House of the Court of Session.

Before the Inner House, the parties were agreed that the case was one of pure contractual interpretation, and the question of what meaning should be given to the relevant terms of the insurance policy. They were also agreed that the principles of interpretation set down in Yorkshire Water v Sun Alliance & London Insurance [1997] CLC 213 should apply, namely that the words of the policy must be given their ordinary meaning, reflect the intention of the parties and the commercial sense of the agreement, and be construed in context.

The insurers argued that the policy used both the terms ‘deliberate’ and ‘wilful’ because there was a distinction between the two. Deliberate actions had a lower threshold than wilful actions, and so would cover intentional actions which were reckless or in some way blameworthy, even if they did not intend the ultimate outcome which in fact occurred. In this case, the door steward’s intentional act of restraining Mr Grant caused his death and would therefore meet the threshold of being a ‘deliberate act’. Those actions were reckless as was evidenced by the door steward’s later conviction for assault. It was irrelevant that the steward did not intend to cause Mr Grant’s death by restraining him. Even if that were not the case, the insurers argued that Mr Grant’s death occurred while he was being held pending the arrival of the police. The injuries were therefore sustained in the process of a wrongful arrest, and so insurers’ liability was capped at £100,000.

Mrs Grant argued that the interpretation proposed by insurers would act to exclude any liability resulting from an action which someone intended to take, and so result in the insurance policy having limited value.

The Inner House’s unanimous decision dismissing the appeal was released on 22 February 2019. The Inner House rejected the insurers’ proposed interpretation, drawing a distinction between acts which were “done with the deliberate intention of bringing about a particular objective” and “a deliberate act…. which ‘accidentally’ causes injury or death”.

The Inner House was of the view that, when approaching the construction of such a clause, as well as the ordinary meaning of the words in the policy, account should also be taken of the factual and commercial context and general commercial common sense. The insurers’ suggested interpretation was not commercially acceptable.  The policy had to provide “some material degree of cover” in respect of personal injury to third parties when that was what it purported to do.

It was important to consider the commercial context in which the insurance policy had been put in place. Prospect, the insured under the policy, was a company providing door security and steward services. It was an agreed fact that the performance of those services may include actions involving the use of physical force towards members of the public to prevent persons entering premises or removing them from premises. A reasonable person would expect a public liability policy taken out by a company such as Prospect to provide cover for injuries caused in the carrying out of those services. However, the exclusion in the policy must have some role.

The Inner House decided that the term ‘deliberate acts’ was intended to apply to acts which involved the insured (or their employees) doing something with the deliberate intention of bringing about a particular objective, where that objective created liabilities which would be covered by the policy. The purpose of the policy was to provide insurance cover for accidental injuries and a distinction could be drawn between actions which caused accidental injuries and deliberate actions.

In this case, the relevant act which formed the basis of the claim was the injury and death of Mr Grant. There had been a factual finding in the criminal case that the door steward had not intended to injure Mr Grant. The intention of the door steward had been to restrain Mr Grant, but the proximate and immediate cause of his injury was the fact that the restraint was carried out in a negligent manner. That could be contrasted with a situation where a door steward had made a deliberate decision to use excessive force to cause injury. This case did not meet that threshold so as to be considered a ‘deliberate act’ and the exclusion did not therefore apply.

The Inner House also held that the wrongful arrest limitation did not apply. The concept of ‘wrongful arrest’ was a term supported by a considerable body of case law and referred specifically to a claim for unjustified interference with liberty. The clause was therefore intended to deal with that specific legal liability, which was distinct from the risk of liability for accidental injury.

Referral to Supreme Court

The insurers appealed to the Supreme Court. The appeal was heard on 8 February 2021 before Lord Reed, Lord Briggs, Lord Hamblen, Lord Leggatt and Lord Burrows. The Supreme Court’s decision, dismissing the appeal, was issued on 23 April 2021.

The court’s analysis begins by referring to the principles of construction set out by Lord Hodge in Wood v Capita Insurance Services Ltd [2017] UKSC 24, noting that the process of construction will involve considering the words used in their “documentary, factual and commercial context.”

The court began by noting that the correct perspective from which to view whether an injury was ‘accidental’ was the perspective of the insured employer rather than the perspective of the door steward employee.

With reference to context, the court referred to the fact that the policy was provided in respect of “Manned Guarding and Door Security Contractors”. There was a clear risk with such a business that door stewards would use a degree of force in carrying out their duties and that vicarious liability for their tortious acts might result. That type of liability was “inherently likely” to arise as the services would often involve “deliberate physical acts of one kind or another.”

The critical issue between the parties was what the scope of the term ‘deliberate acts’ was. This focused on the question of whether recklessness could amount to a ‘deliberate’ act under the policy.

The court began its discussion of this issue by discussing what it was that required to be ‘deliberate’. The court noted that it was common ground that it was not the act which ultimately gave rise to the injury that had to be ‘deliberate’. The most natural interpretation of the clause was that it was the act of causing the injury that had to be ‘deliberate’. In relation to the specific injury caused, the court further noted that the terms of the policy did not support an interpretation that sought to draw distinctions between different kinds of injury or degrees of seriousness of injury intended. In any event, an interpretation that focused on the specific type or degree of injury intended would lead to unsatisfactory and arbitrary results and would be unlikely to reflect the parties’ intentions. In conclusion, the court was of the view that the relevant intention therefore was intention to injure.

Mrs Grant argued that only acts that were intended to cause the outcome that in fact resulted (here, death, or at least serious injury) should fall within the scope of the term. That did not include reckless acts. To find otherwise would deprive the policy of any meaningful and effective content.

The insurers argued that both (a) acts which were intended to cause injury and (b) those which were carried out recklessly as to whether they would cause injury, should fall within the term ‘deliberate acts’. The insurers were unable to point the court to any previous authority where recklessness had been accepted as amounting to ‘deliberate’ conduct. However, it was argued that the relevant clause of the policy, which referred to both ‘deliberate’ and ‘wilful’ conduct, should be interpreted so as to treat the words ‘deliberate’ and ‘wilful’ as synonymous. Reference was made to case law in which recklessness had been accepted as amounting to ‘wilful’ conduct, for example, the case of CP (a child) v Royal London Mutual Insurance Co Ltd [2006] 1 CLC 576,  which concerned a fire started by an 11 year old boy which had caused extensive damage to a building.

The court rejected the insurers’ argument. The natural meaning of ‘deliberate’ suggested the conscious performance of an act intending its consequences. It involved a different state of mind to recklessness. By contrast, while the natural meaning of ‘wilful’ could include ‘deliberate’ conduct, it was capable of a wider meaning, particularly in relation to, e.g. breach of duty. If the parties had intended ‘deliberate’ to include recklessness, one would expect that to have been made clear in the policy.

The court was also of the view, as the lower courts had been, that the insurers’ interpretation would seriously circumscribe the cover provided. This would amount to a “commercially unlikely” exclusion given the nature of the business of the insured.

The insurers also sought to argue that, aside from recklessness, there was clear evidence of intention to injure on the part of the door steward. In this regard, they pointed to the nature of the assault of which the door steward had been convicted. He had used a dangerous neck hold which had not been taught to him as an acceptable method of restraint during his training. That hold had been applied for a considerable period and with considerable force. The court also rejected this argument. There was no finding of intent to injure in the lower courts and the conviction for assault had only established an intent to perform the act of assault (the neck hold). Further, the sentencing judge’s remark that the door steward’s actions were “badly executed, not badly motivated” was inconsistent with there being any such intention.

Finally, in relation to the second issue, this did not require to be determined given the result reached on the first issue. However, the Supreme Court confirmed that it agreed with the reasoning and conclusions of the Inner House. The losses claimed did not relate to wrongful arrest and the factual basis for any such claim had not been made out.

Comment

This latest decision is a helpful clarification of the meaning of deliberate conduct, and how that may differ from wilful conduct, when considering the proper interpretation of an insurance policy. While the exact outcome for coverage in this case turned on very fact specific circumstances, it is helpful in showing the weight which the courts will give to the perceived commercial purpose of a policy of insurance in considering its interpretation. Insurers should be aware that ambiguities in their policy wordings are vulnerable to being interpreted differently depending on the context of the insured’s business. Similar loss events may therefore produce very different results depending on the commercial context in which the insured operates.