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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> University Court University Edinburgh v. Eagle Start Insurance Company [2003] ScotCS 163 (04 June 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/163.html Cite as: [2003] ScotCS 163, 2004 SCLR 34 |
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OUTER HOUSE, COURT OF SESSION |
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CA128/02
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OPINION OF LORD DRUMMOND YOUNG in the cause THE UNIVERSITY COURT OF THE UNIVERSITY OF EDINBURGH Pursuers; against EAGLE STAR INSURANCE COMPANY LIMITED Defenders:
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Act: S. Wolffe; Dundas & Wilson, C.S.
Alt: MacAulay, Q.C.; Guild; Simpson & Marwick, W.S.
4 June 2003
[1] The Pursuers were insured by the defenders under a combined "all risks" insurance policy from 1 August 1999 until 1 August 2000. That policy, in Section A, included cover for Material Damage "All Risks". That cover was expressed in the following terms:"IN THE EVENT OF the Property Insured described in the Schedule being accidentally lost destroyed or damaged during the Period of Insurance the Insurers will pay to the Insured the value of the property at the time of its loss or destruction or the amount of the damage or at the Insurers' option reinstate or replace such property of any part of it".
The expression "Property Insured" was defined as including both buildings and contents; the definition in the policy was as follows:
"1 a) Buildings
Buildings described in the Schedule and including
i) landlords' fixtures and fittings
ii) outbuildings
iii) walls, gates and fences
iv) piping ducting cables wires and associated control gear and accessories on the premises...
v) yards car-parks roads and pavements
b) Contents
Contents therein and thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible".
The Schedule stated the amount of the cover for both buildings and contents. Item A, under the heading "Premises and Description", described certain of the buildings insured in the following terms: "All premises owned, occupied or used by the Insured anywhere in the United Kingdom other than as detailed under Premises No. B". Premises No. B related to flats and dwelling houses owned or utilised by the Insured; in those cases the premises were insured, but the contents were not. It was accepted by both parties that the cover provided by Section A included losses caused by theft. That was, however, subject to an exclusion in the following terms:
"Sections A B1 & B2 do not cover
...
3 DAMAGE caused by or consisting of or CONSEQUENTIAL LOSSES arising directly from theft or attempted theft
a) not involving
i) breaking into or out of the buildings of the premises by forcible and violent means or
ii) robbery or attempted robbery committed in the premises
...".
The dispute that has arisen between the parties is whether that exclusion applies to a theft that occurred at the James Clerk Maxwell Building on the pursuers' Kings Buildings Campus on 11 May 2000, in the circumstances described in the following paragraphs.
[2] Following the theft, the pursuers raised a commercial action against the defenders. In this action they conclude for declarator in the following terms:"For declarator that the defenders are obliged to indemnify the pursuers under [the relevant insurance policy] in respect of the loss and damage sustained by the pursuers following a theft on or about 11 May 2000 of computer equipment from the pursuers' computing service department in the James Clerk Maxwell Building, Edinburgh".
They further conclude for payment of sums that are averred to represent the value of the property stolen, less a deductible of £25,000. The defenders disputed liability, and I allowed a proof before answer on the issue of whether the defenders were liable under the policy, reserving the quantification of the pursuers' loss should liability be established. In the course of the proof I heard evidence from the employees of the pursuers who had been involved in the events surrounding the theft. I also visited the James Clerk Maxwell Building, along with the parties' representatives, and saw the premises where the theft had taken place. Those premises had been altered in certain respects since the date of the theft, but I received a full explanation of the state of the premises in May 2000. The description of the premises came from James Ingram, the pursuers' Chief Security Officer, whose evidence I accept as reliable. The evidence, including the site visit, disclosed the following facts.
[3] On the lowest floor of the James Clerk Maxwell Building is a large room known as the machine room. This contains a number of powerful computers and related equipment. A smaller room, known as the control room, leads off the machine room, and effectively forms part of it. The machine room is situated in the interior of the building, and has no external walls. In May 2000 it had five doors. Two of these were main access doors leading off adjoining corridors. Those were security doors controlled by a swipe card system. Cards to operate the doors were issued to authorised persons, and when a card was used to obtain access to one of the doors a record was made of the user. The remaining three doors were fire doors. These also led off the adjoining corridors. The fire doors were designed as exit doors only. They were secured by cooper bolts, which were fixed to the inside of the doors. A cooper bolt is a form of metal lock on the door which can be activated by pressing a pad. Such bolts are invariably fitted to the inside of the doors, and are designed to allow those inside a room to leave rapidly in the event of an emergency. They serve as locks, and prevent access from the outside. The fire doors were also fitted with electrical contacts. If the door was opened, an electrical circuit was broken, and the breaking of the circuit was recorded on the computer system in the pursuers' central security office in the Appleton Tower, near George Square. In addition, when the door was opened, an audible alarm sounded in the immediate vicinity. On the evening of 11 May 2000, the computer printouts from the pursuers' central security office disclosed that one of the fire doors, situated near the north west corner of the room, had been opened seven times between 7.08 pm and 8:01 pm. [4] On the evening of 11 May 2000 a computer operator, Stuart Freeman, had been working on his own in the machine room and control room. He left the machine room at about 6:30 pm, and returned at about 8 pm. When he returned he could hear an alarm sounding rather faintly. He investigated it, and discovered that the sound was coming from the fire door situated near the north west corner of the machine room. He discovered that he could push that door open and that the lock had been broken. He immediately reported the matter to the pursuers' security services, and a security officer and a joiner attended shortly afterwards. The accounts of the precise damage to the door given by the witnesses differed somewhat from one another; I consider that the most reliable account was generally that given by the joiner, Thomas McQueenie, who was responsible for carrying out temporary repairs to the door. He stated that the cooper bolt itself was intact, but the keeper on the door frame into which the bolt fitted had been broken off and was lying on the floor. There was damage to the door itself. An unusual feature of the door in question was that it opened into the machinery room rather than outwards, as is normal with fire doors. (On this matter I accept the evidence of Mr Ingram; Mr McQueenie's recollection was that it opened outwards, but that is clearly not correct). Consequently it was possible for someone who wanted to break into the machine room to force it open using his body weight. Mr Ingram, who had been a police officer for 30 years and had great experience of thefts from property, was clearly of opinion that the door had been forced open. Mr McQueenie's evidence was similar. In the circumstances I have no hesitation in concluding that the door was forced open by an intruder at 7.08 pm, the first time recorded on the pursuers' central security computer. [5] It was subsequently discovered that a number of items of computer equipment had been stolen from the computers situated in the machine room. These consisted principally of circuit boards, which are each approximately 14 inches square. The circuit boards had been pulled from the back of the computers. The quantification of the pursuers' loss was not the subject of the present proof, but the pursuers aver that the replacement cost of the items stolen was £197,435.26. [6] Mr Ingram provided a detailed account of the security arrangements at the entrances to the James Clerk Maxwell Building. The main entrance was open from 8 am until 10 pm, and a subsidiary entrance on the east side of the building was open from 8:30 am until 5 pm. Security staff were on duty at these entrances, but it is obvious that, in a busy university building, they were unable to check everyone who entered the building. It was accepted by the pursuers that the persons responsible for the theft from the machine room entered the outside perimeter of the building without breaking in, and that the only force used in the theft was the breaking down of the fire door of the room itself. That was incorporated into a joint minute lodged at the conclusion of the evidence, which narrated that the pursuers did not contend that the theft involved forcible and violent means to break into any access point on the physical perimeter of the James Clerk Maxwell Building. The joint minute also narrated that "a theft of certain computer items was achieved by the breaking into the North Fire Door of the Computer Suite (situated at level 1 within the James Clerk Maxwell Building of the pursuers) by forcible and violent means on the evening of 11 May 2000". Thus the defenders accept that the entry through the relevant fire door was achieved by breaking into the door by forcible and violent means. I should add that this concession was amply justified by the evidence led; the conclusion was irresistible. [7] As I have already indicated, the issue in this case is the applicability of the exclusion for theft "not involving... breaking into or out of the buildings of the premises by forcible and violent means or... robbery or attempted robbery committed in the premises". It is clear that no robbery or attempted robbery was involved, and thus it is the first part of the exclusion that is relevant. As indicated in the last paragraph, it was accepted by the defenders that the theft involved the use of forcible and violent means. Consequently the critical question is whether the theft involved "breaking into ... the buildings of the premises". In my opinion it did, for the following reasons. [8] The principles applicable to the construction of a policy such as the present are well established; they are the same principles as are applicable to commercial documents in general. First, the fundamental principle is that the words used by the parties are to be construed according to their ordinary meaning in the context of the contract as a whole: see Wickman Machine Tool Sales Limited v L Schuler AG, [1974] AC 235, at 251D-F, per Lord Reid. The context in which words are used is of critical importance; indeed, generally speaking words only make sense in context, and when words are used in a contract the immediate context is the totality of that contract. Secondly, in construing an expression used in a contract or other commercial document, it is also essential to have regard to the commercial purpose of that contract or document: see MacGillivray, Insurance Law, 10th edition, paragraph 11-7. That may involve looking at the whole commercial circumstances in which the contract is designed to operate. Thirdly, expressions used in a commercial document should be construed in accordance with sound commercial principles and good business sense: ibid. It is sometimes said that words in a contract should be construed in such a way as to avoid an unfair or unreasonable result: ibid at paragraph 11-9. If, however, the contract is interpreted according to the foregoing principles, and due regard is had to the document as a whole and its underlying commercial purpose, it is most unlikely that the result will be unfair or unreasonable. It is only if words are given some supposed "literal" meaning, divorced from their context, that the result is liable to be unfair. [9] Counsel for the defenders submitted that the purpose of the exclusion for certain types of theft was to ensure that cover for theft was only available when the external security of the building had been overcome by force and violence. Overcoming the external security of the building meant that someone must have passed from the outside to the inside of the building by overcoming the security of the premises. He submitted that that was the natural and ordinary meaning of the language used, in particular the expression "breaking into... the buildings". Moreover, it made good commercial sense that an insurer should not accept the risk that the building was not secure externally. Consequently the policy only covered a theft that was effected by breaking through the external perimeter of a building by forcible and violent means. In the present case, the thieves had merely a broken into a room within a building through an internal door, and that was not sufficient. [10] In my opinion the exclusion should not be construed as requiring a breach of the external security of a building. Instead, it is sufficient if there is forcible and violent entry to a part of a building, and for that purpose it is immaterial that the entry is effected through an internal door. I reach that conclusion for three reasons. These relate respectively to the terms of the exclusion itself, the commercial context in which the policy operated, and the terms of the policy taken as a whole. In the first place, the wording of the exclusion in question does not support the defenders' construction. It contains no express reference to the external security of any building, or to the external perimeter of any building. The words "breaking into... the buildings" are not sufficient in my view to imply any such limitation. The expression "break into" is appropriate to denote any overcoming of the security of a building at any point. I do not think that the word "into" carries the implication that the must be entry from outside to inside. Even when used with the expression "the buildings", it cannot be said that the expression "break into" means that the forcible entry must be on the external perimeter. Where, for example, a thief enters the concourse of an office block by simply walking past security, but then enters an individual office by breaking down a door, it could scarcely be contended that there was no "breaking into" the building. Indeed, such an example illustrates the artificiality of any distinction between the external perimeter of a building and the various internal security barriers. [11] In the second place, the commercial context of the present policy is strongly against the defenders' contention. The policy is an "all risks" policy covering university buildings and, in certain cases, their contents. The pursuers' claim arises under section A of the policy, headed "Material Damage 'All Risks'". The terms of the cover and the definition of the property insured are quoted in paragraph [1] above. The definition of the property insured refers to the buildings described in the Schedule and the contents of such buildings. The Schedule refers to "All premises owned, occupied or used by the Insured", and states that the contents of those premises will be covered except to the extent that the premises in question are flats or dwelling houses. In these circumstances it is clear that all of the buildings owned, occupied or used by the pursuers for the purposes of teaching, research, administration and storage are covered by the policy, together with their contents. It is obvious that buildings of that nature will be used by large numbers of both students and staff. Inevitably it will be easy for unauthorised persons to obtain access. Consequently it is inherently likely that many thefts, if not the majority, will not involve breaking into or out of the external perimeter of the buildings, but will involve the thief's obtaining entry to the building by walking past security and then breaking into a secure internal area. This point can be looked at in another way: any valuable property within university buildings used for teaching and research is likely to be secured as much by measures taken internally as by those taken on the outside of the building. The security measures put in place around the machine room in the James Clerk Maxwell Building are an example of such internal measures. These included secure doors and alarms. It would be extraordinary if forcing open the door of a room protected by security measures of that nature did not constitute "breaking into... the buildings", merely because the precautions were internal rather than external. In these circumstances the defenders' construction of the exclusion for theft not involving breaking into or out of the buildings of the premises seems contrary to the commercial objects of the policy in question. [12] In the third place, the terms of the policy considered as a whole make it clear that the word "buildings", as used in the policy, must refer to parts of buildings as well as to entire buildings. First, the property insured is defined as "Buildings", in the plural; it does not refer to discrete structures, but rather to the pursuers' buildings collectively. That in itself tends to indicate that the policy attaches no special significance to the perimeter of any individual building. Secondly, Section A of the policy covers damage to the property insured as well as theft. In the case of buildings, it is obvious that that must cover damage to a part of a building, as it would make no commercial sense to restrict such cover to the destruction of an entire building. That indicates that Section A, the provision relied on by the pursuers, applies equally to whole buildings and parts of buildings, and that the word "buildings" should be construed accordingly for the purposes of that Section. Thirdly, this point is emphasised by a supplementary condition applicable to Section A dealing with reinstatement. That supplementary condition provides that the sum payable by the defenders in respect of "Buildings and Contents" is to be "the reinstatement of the property lost destroyed or damaged". "Reinstatement" is defined as meaning, inter alia, the repair or restoration of property damaged. Thus damage to part of a building must be covered, and the word "Buildings" must refer to parts of buildings. Fourthly, the policy also covers business interruption. In this case, the contingency on which a sum may be payable by the defenders is that "any building or other property" used by the pursuers is accidentally lost, destroyed or damaged. It is obvious that damage to part of a building must be sufficient to satisfy this contingency; once again it would make no commercial sense to restrict the cover to cases where an entire building was destroyed. Fifthly, Section A of the policy covers damage by theft to the buildings of the premises. The relevant clause is as follows:"The insurance by this Section includes damage to the buildings of the premises (including damage to glass...)... which directly results from theft or attempted theft".
That provision clearly covers damage to part of a building, such as would occur if a window were broken or door forced in to obtain entry. Thus in this case the expression "the buildings of the premises" must refer to parts of a building as well as an entire building. That expression, however, is exactly the same as that used in the exclusion relating to theft that is relied on by the defenders. It must be presumed that the expression has the same meaning in both provisions. All of the foregoing features are in my opinion strong indications that the exclusion founded on by the defenders was intended to apply to any theft that involve breaking into or out of part of a building. If that is so, there can be no justification for restricting the exclusion to cases involving breaking into or out of the external perimeter of a building.
[13] I am accordingly of opinion that the material exclusion only requires that a thief should have been compelled to use force to overcome the security of some part of a university building. That construction is, I think, fully compatible with the commercial purpose of the exclusion. That purpose is clearly to exclude cases of theft by persons who have legitimate access to the property stolen. That would exclude thefts by staff or students who were legitimately in the room containing the property. There is no obvious reason, however, for excluding cases where the thief has required to break down an internal security door to obtain access to that room. In the overall context of the present policy, including its obvious commercial purpose, I can see no justification for distinguishing such a case from a case where there has been a break-in on the perimeter of a building. In the present case it seems likely that the theft was carried out by persons connected in some way with the University; it is difficult to believe that an outsider could have had the necessary knowledge about the location of the computer components that were stolen. That makes no difference, however. The purpose of the exclusion is not to prevent recovery for thefts carried out by an employee of the pursuers or a student at Edinburgh University; had that been intended it could easily have been stated expressly. What was intended was to exclude thefts by persons who had legitimate access to the room containing the property stolen. [14] I have reached a decision in this case on the construction of the insurance policy in its commercial context. In doing so, I have not found it necessary to have regard to the burden of proof. I should note, however, that there is English authority that, where an insurer founds on an exception in a policy of insurance to exclude liability in respect of a loss, the onus is on the insurer to establish that that exception applies to the facts of the case: Bond Air Services Limited v Hill, [1955] 2 QB 417 at 426-427. In my opinion that approach to the burden of proof is correct, and indeed counsel for the defenders conceded as much. Had it been necessary for me to do so, I would have held that the defenders had failed to discharge the onus of establishing that the exclusion in question applied to the pursuers' loss. [15] I do not consider that there is any significant ambiguity in the exclusion relied on by the defenders. Had I thought that there was, however, I would have held that the exception fell to be construed contra proferentem. The relevant legal principles are stated in Gloag on Contract at 400-402; they have been applied to insurance policies in a substantial number of cases, including Life Association of Scotland v Foster, 1873, 11 M 351, and Sangster's Trustees v General Accident Corporation, 1896, 24 R 56. In the present case the relevant exclusion was clearly inserted in the contract by the defenders for their own protection. In those circumstances any ambiguity must be resolved against the defenders. Counsel for the defenders accepted that this approach was correct. Consequently, if there had been any significant doubt as to whether the exclusion applied to theft effected by overcoming internal security measures, the doubt would have to be resolved in favour of the pursuers. [16] In conclusion, I must comment on certain authorities that were referred to by counsel. The general point that is established by these cases is that each policy must be construed according to its own terms and in its own commercial context. For that reason it is unlikely that prior decisions will ever be directly relevant in this area of law, unless the policy involved is the same and the commercial context is the same. They may, however, provide helpful guidance as to the general principles that should be followed in construing insurance policies. The first of the cases referred to is Re George and the Goldsmiths and General Burglary Insurance Association, [1899] 1 QB 595. The policy in that case covered loss of property "by theft following upon actual forcible and violent entry upon the premises wherein the same is... situated". The premises insured were a shop. At the material time its front door was shut but unlocked, and a thief obtained entry by turning the door handle and then breaking open a locked showcase, from which he took certain property. It was held that the theft was not covered by the policy. Turning the door handle could not be considered a "forcible and violent entry", according to the ordinary meaning of those words. The more interesting argument was that theft by breaking into the showcase fell within the terms of the policy. The court held that, in the context of the particular policy, the expression "the premises" meant the shop insured. Thus the expression "entry upon the premises", in the words of Lord Russell CJ (at 605), "must mean entrance from the outside into the shop or premises connected therewith"; AL Smith LJ expressed a similar view at 609. Counsel for the defenders relied upon this case to support the proposition that it made commercial sense to restrict cover for theft to cases where the thief has entered the premises from outside. In appropriate circumstances I have no doubt that that is so. Re George involved a shop, apparently a fairly small one, as the owner lived on the premises. In such a case the insurer might well be willing to provide cover against theft by breaking in but not against theft by shoplifting, and the owner of the shop might well be willing to accept such cover if the shop is fairly small and he is therefore able to supervise it effectively. University premises are different, however; in a building such as the James Clerk Maxwell Building it would be quite impossible to supervise everyone who enters, and it is accordingly unlikely that the insured would agree to cover restricted only to breaking into the external perimeter of the building. [17] Counsel for the pursuers referred to Re an Arbitration between Calf and the Sun Insurance Office, [1920] 2 KB 366. In that case the policy covered "theft following upon an actual forcible and violent entry of the said premises". The "premises" were described in the policy as a "shop". The building in which the shop was situated consisted of a shop and associated fitting room and trimming room on the lower floors and residential property, partly occupied by the insured, on the upper floors. The thief entered the building in the normal way without any force or violence and concealed himself in a coal cellar in the basement. At night, after the shop and associated property had been locked up, he left the coal cellar, broke into the trimming room by using an instrument to slide back the lock, and took a quantity of goods. Thereafter he broke into the shop itself by breaking down the door and took more goods. Bankes LJ (at 377-378) held that the premises referred to in the policy were the business premises only, namely the shop, the fitting room and the trimming room. Consequently, because the thief had made a forcible entry into the shop, the insurer was liable. Atkin LJ (at 379-382) concurred. He held, however, that even if the "premises" covered by the policy were not confined to the commercial part of the building, there was still an actual forcible and violent entry because a locked door leading to part of the premises had been broken down. In so holding, Atkin LJ made reference to the purpose of the policy, namely to meet the case of burglary and housebreaking, and pointed out that even breaking into one room in a property was enough for those offences. The wording of the present policy is obviously different from that considered in Calf's case. Nevertheless, Atkin LJ's approach clearly supports the view that, in construing an insurance policy, the underlying commercial purpose of the policy in question should be taken into account. Counsel for the pursuer also sought to derive support from Atkin LJ's reference to the criminal law. She cited passages from Gordon on Criminal Law, at paragraphs 15.01, 15.06 and 15.15-15.16, and submitted that the theft that occurred in the present case involved either housebreaking or breaking into lockfast premises as those offences are defined in Scots law. I agree that the theft did involve one, or probably both, of those offences. Nevertheless, I am doubtful whether the precise definition of an offence should govern the construction of an insurance policy. It is more accurate to say that the policy considerations that extend the offences in question to breaking into a single room in a building are broadly similar to the commercial considerations that I have referred to in paragraph [11] above. [18] I was also referred to John A Pike (Butchers) Limited v Independent Insurance Company Limited, [1998] Ll L R 410. The policy in that case referred to "theft... involving entry to or exit from the Premises by forcible and violent means". The facts of the case were somewhat unusual; thieves forced open gates on each side of the premises, and were thus able to gain access to the main building through a door which was unlocked or to which they had a key. Inside the building they forced internal doors which led ultimately to a cold store from which they stole some meat. It was held that the theft fell within the policy. The main ground was that the expression "the Premises" meant the whole of the property occupied by the insured, including the yard. Consequently, when the gates of the yard were forced, that was entry to the Premises. In arriving at this interpretation, the court had express regard to commercial considerations. It was also prepared if necessary to use the contra proferentem rule. The court also adopted a secondary argument. This involved treating the expression "the Premises" as meaning "the premises or any part thereof". Thus forcing the internal doors fell within the terms of the policy, as that gave entry to part of the premises. That decision does, I think, provide some support for the decision that I have reached in the present case. Nevertheless, it turns largely on its own peculiar facts, and is thus of somewhat limited assistance. [19] For the foregoing reasons, I am of opinion that the defenders are liable to the pursuers under the policy of insurance, and that the exclusion for theft not involving breaking into or out of the buildings of the premises does not apply in the circumstances of the present case. I will accordingly sustain the pursuers' first plea in law, which is to have the effect that the pursuers have suffered loss of property in circumstances in which the defenders are obliged to indemnify them. I will likewise repel the defenders' second to the in law, which is to the effect that the pursuers are not entitled to indemnity, and will also repel their first plea in law, a plea to relevancy, to the extent that it relates to liability. I will accordingly pronounce decree in terms of the first conclusion of the summons, whose terms are set out in paragraph [2]. Thereafter I will put the case out By Order to enable further procedure to be discussed.
