Liability - Where responsibility lies

Given the recent reminder in Ramco and Resource Industries Limited v Weller Russell & Laws Insurance Brokers, it is essential that brokers ask 'are you liable legally?' of their potential policyholders when obtaining cover for bailment.

Simplifying the facts, Ramco held stock from two sources. The first, the Ministry of Defence, had a contract with Ramco where Ramco was obliged to pay for any loss of stock, whether or not they were liable, although the sum was reduced significantly where it was not at fault. The second source of stock was from a Mr Murray, who obliged Ramco to insure the stock. There was then a fire for which Ramco was not at fault. Ramco's policy wording covered "stock ... the property of the insured or held by the insured in trust for which the insured is responsible".

In a claim against underwriters, it was held that there was cover only if Ramco was liable to the owner of the stock. The MoD contract did impose a liability - albeit a severely limited one - and so there was a claim under the policy. The Murray contract did not, however, include such a provision and therefore that part of the claim failed. Ramco appealed the Murray aspect of the decision but was unsuccessful. Ramco then claimed against its brokers for the legal costs of the above actions and for the value of the Murray stock, which should have been covered by insurers.

Reference was made to two types of policy wording. In North British & Mercantile Insurance Company v Moffatt (1878), the policy afforded cover for property "... for which the insured is responsible"; the judgment interpreted the responsibility requirement to mean "legally liable".

By contrast, in Hepburn v Tomlinson (Hauliers) Limited (1966), cover was afforded to "property of the insured or held by them in trust or on commission". Such wording did not include a responsibility requirement and therefore did not require legal liability.

Ramco argued that the brokers should have provided policy cover based on the Hepburn rather than the Moffatt wording. The judge found in favour of Ramco, though it is understood that the decision is being appealed.

In the Court of Appeal decision involving the claim against underwriters, Waller LJ stated that an insured assuming an obligation to insure goods in their possession would be bound to answer in damages to the bailor if they were not insured - such a provision would therefore also meet the responsibility requirement. Waller LJ relied on the decision in Maurice v Goldsbrough Mort (1939). This would suggest that Ramco should, therefore, still have been successful against underwriters. However, on the facts there appears to have been a further issue as to whether or not Murray was the owner of the goods and whether the agreement was therefore enforceable or not.

In order to avoid such issues, it is simpler for brokers to ensure that they are clear about the arrangements that their clients have in place.

- Richard Evans, partner and head of policy coverage unit, Beachcroft.