Third-party goods disputed in war of words

A fire at the premises of Ramco (UK) had damaged goods owned by Ramco as well as goods owned by third parties that Ramco had been looking after (i.e. Ramco was acting as a bailee). The cause of the fire was not due to any fault on Ramco's part. Following the fire, Ramco claimed under a combined 'all risks' insurance policy issued by the International Insurance Company of Hannover.

The insurers did not dispute liability for the goods owned by Ramco, but argued that they were not liable for the third-party goods. They submitted that the words "for which the insured is responsible" restricted cover to those goods that had been damaged in a way that imposed a legal liability on Ramco. Since Ramco was not to blame for the fire, the insurers argued that Ramco had no liability for the damage to the third-party goods.

Ramco submitted that "is responsible" should not be interpreted as meaning "is liable" because this was too restrictive. The Court of Appeal agreed that it would not be a natural interpretation of the policy wording but, having reviewed cases stretching back to the 19th century, it preferred to rely on precedent and concluded that the words "for which the insured is responsible" did restrict insurers' liability for damage to third-party goods to those circumstances where the insured was liable for the damage.

The court pointed out that a bailee - or, more realistically, its insurance broker - could choose either to insure third-party goods for their full value, regardless of the bailee's liability to the owner of the goods, or to insure itself only if it was liable to the owner of the goods.

The actual words used in a policy to achieve either result were a matter of form. If a form of words that had been in use for 80 years and described one sort of insurance rather than the other, it was inappropriate for the court to decide now that the selected form of words did not achieve their intended purpose, unless the form of words was unsatisfactory in practice, which it was not.

Brokers must ensure that they always check precisely what their clients are seeking to insure.