DMC Category Rating: Developed

This case note is based on an Article in the May 2006 Edition of the ‘(Re)insurance Bulletin’, published by the Insurance/Reinsurance teams at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website.

Background
Ronson International had nearly £850,000 worth of stock stored in premises that were partly derelict and partly used for commercial purposes.

On 27 May 1997, Christopher Patrick (aged 11) and a friend started a fire in the derelict part of the property. The boys had built a den out of pallets and, as they were leaving, set fire to it. Their aim was only to burn the den itself. They did not think the fire would lead to the whole property being burnt down.

The policy exclusion
Christopher Patrick's mother had a standard householder's contents policy issued by United Friendly (whose liabilities were later transferred to Royal London Mutual Insurance Society Ltd, the third party defendant in the proceedings). The policy, which covered both her and her immediate family, included an extension for "household and personal liabilities". This provided:

"All persons insured are covered for legal liabilities arising…in a personal capacity from incidents occurring in the British Isles…during the currency of the policy resulting in…
(b) accidental damage to property neither belonging to nor in the custody or control of those insured under this section…
EXCLUDING claims and liabilities arising from:
(viii) any wilful, malicious or criminal acts".

Ronson claimed that the fire destroyed their stock. There was some dispute over this, as police attending the scene had found traces of other fires at the property. For the purpose of this hearing, however, the court was only concerned with the insurance coverage issue.

The insurers argued that the exclusion applied. "Wilful" in this context simply meant deliberate and this fire had been started deliberately. But the insured said that, for the exclusion to apply, Christopher Patrick had to have consciously intended to cause the sort of damage that, in fact, occurred.

At first instance, the judge agreed with the insured. Simply construing the word as meaning a deliberate act would deprive the liability extension of much, if not all, of its value to the insured. There had to be some sort of conscious intent. On the evidence, it was not suggested that Christopher Patrick had intended to cause extensive damage to the property so the exclusion did not apply.

Judgment
The Court of Appeal noted there is no authority on the meaning of "wilful". Legal dictionaries show that the term is used in many contexts. It always means deliberate, but takes any further meaning from the words that it qualifies and the context.

In this case, the exclusion applied to incidents involving "any wilful or malicious or criminal acts". This suggested that a wilful act must be something blameworthy and, if so, it had to be more than deliberate. But it did not have to go as far as an intention to cause damage of the kind in question. To fall within the exclusion, it was enough if the insured was reckless as to the consequences of his act. If the insured was aware that he was about to do something that risked causing damage of the kind that gave rise to the claim, or did not care whether there was such a risk or not, he would be acting recklessly if he went ahead and did it.

Equating wilfulness with recklessness in this way focused upon the state of the insured's mind when he carried out the act rather than on its intended consequences. This interpretation fell somewhere between that put forward by insurers and that found by the first instance judge.