Ramco (UK) v. IIC of Hannover
Note: this decision has been upheld by the Court of Appeal in a judgment delivered on 27 May 2004. For a note of the Court of Appeal judgment, click here
When goods are insured by a party holding those goods as a bailee, it is sometimes difficult to establish exactly what is being insured - the full value of the goods, or the bailee's own interest (his potential liability to a third party and any accrued storage charges). There is a presumption that the bailee will insure both, but, if the bailee insures goods in his trust "for which he is responsible", this case confirmed that he is only insuring against his liability to third parties. If he has no such liability, there is nothing to recover from insurers.
DMC Rating Category: Confirmed
This case note is based on an Article in the November 2003 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers,DLA. DLA is an International Contributor to this website
The insurers did not dispute liability in respect of property owned by the insured. But some of the goods damaged or destroyed were bailed to them. Were insurers liable in respect of those goods and, if so, on what basis?
The material damage section of the policy provided:
Property included stock, which was defined as "Stock and Materials in Trade therein or thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible".
Although bailed goods remain the property of the owner, it has long been established that a bailee may insure goods in his possession for their full value (Tomlinson v Hepburn  AC 451). If the goods are destroyed or damaged, the bailee will be able to recover under the policy, regardless of whether he is liable or potentially liable to the owner, but he will have to account to the owner for the proceeds over and above his own loss.
The question whether such a policy covers the value of the goods themselves, or only the bailee's liability in respect of the goods, is a question of construction. Over the years, standard phrases have been accepted by the court as having certain meanings. Where the policy states it covers goods held "in trust", this has been taken to mean that the policy covers the full value of the goods (Waters v Monarch Fire and Life Assurance Company (1856) 5 E&B 870). But if the policy covers goods "in trust for which [the insured] is responsible", the insurance only covers the bailee's liability in respect of the goods and not the goods themselves (The North British and Mercantile Insurance Co v Moffatt (1871) LR 7 CP 25).
But if the insured did have a liability to a third party and so could recover under the policy in respect of bailed goods, would the policy cover the full value of the goods or only the insured's liability for them? In other words, would the policy respond as a property policy or as a liability policy?
The judge found that it would respond as a property policy. Under the policy, insurers had to pay the value of the property in the event of its destruction, or for the amount of the damage. "Damage" in this context clearly meant damage to property, not liability to pay damages. Insurers had an option to reinstate or replace property and there was an average clause in cases of under-insurance. None of these provisions was appropriate for a liability insurance, and there was nothing in the policy to suggest it was some sort of hybrid that provided property cover in respect of property belonging to the insured but liability cover in respect of property for which the insured was responsible.
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