Interpretation of wilful act in an exclusion clause - 12/04/2006

THE DECISION

The Court of Appeal held that for the purposes of a clause excluding claims and liabilities arising from ´any wilful, malicious or criminal acts´, when considering the interpretation of ´wilful act,´ the term ´wilful´ was to be equated to ´reckless´.

In doing so the Court of Appeal over-ruled the judge´s findings at first instance that it was necessary to show that there was an intention that the act would result in the damage which occurred.

It is therefore not necessary to show that the damage suffered, which gave rise to a liability against the policyholder, was intended to be caused by the policyholder.

This case was handled on behalf of the Insurers by Jonathan Lowe, Partner and Head of Commercial Litigation at Keoghs.

WHAT DOES THIS MEAN FOR INSURERS?

This decision provides first-time guidance by the Court of Appeal in relation to the interpretation of ´wilful act´ in exclusions of this nature.

The decision will provide insurers with an opportunity, in light of the guidance, to argue the application of such an exclusion clause. This would be in circumstances where it is shown that the person

seeking indemnity was aware that his act could cause the damage complained of.

Insurers may consider it appropriate to review the wording of exclusion clauses so that there is some reliance upon ´wilful´ rather than ´deliberate´.

FACTS OF THE CASE

An 11 year old boy and his friend started a fire close to a mill complex. His evidence was that there was no intention to damage property. The fire spread to an adjacent complex where the ultimate claimant (R) lost stored contents valued at £800,000.

The boy´s mother had a household policy under which he sought an indemnity in the liability claim brought by R against him. The policy provided cover to him as a member of his mother´s family.

The policy excluded cover for legal liability for ´claims and liabilities arising from any wilful, malicious or criminal acts.´ R sued the boy, and due to the refusal of the insurance company to provide an indemnity the boy issued Part 20 proceedings against the insurers seeking an indemnity.

THE FIRST INSTANCE DECISION

At the trial of the Part 20 proceedings, Judge Seymour QC found that ´wilful acts´ required that ´the person alleged to have acted wilfully intended to produce the consequences in fact produced by his conscious act.’

Therefore the Judge found that in order for the exclusion clause to apply, the damage caused had to be intended.

THE APPEAL

The case went on appeal before Lord Justice Tuckey, Lord Justice Thomas and Lady Justice Hallett.

The Court of Appeal disagreed with the judge at first instance but also rejected the appellant´s argument that the wilful act exclusion applied in circumstances where damage arose merely from an act that was wilful as opposed to accidental.

Insurers argued that the act of setting the fire - although damage was not intended - was a wilful act for the purpose of the exclusion. It was important to consider the nature of the act and the state of mind of the actor.

Delivering the leading judgment, Lord Justice Tuckey found that if the meaning of wilful act in a policy of this nature simply meant those that are deliberate, most of the cover would be taken away and he equated wilful with reckless for these purposes.

Therefore in order for the exclusion clause to apply, it would be enough to show the person seeking indemnity was reckless as to the consequences of his act.

COMMENT

In the light of the guidance now provided by the Court of Appeal, insurers should find that it will be possible to argue reliance upon wilful act exclusions in their policies in the appropriate cases.

There was previously a general lack of authority dealing with the interpretation of clauses of this nature and insurers may consider it prudent to reconsider the drafting of their policies to take advantage of the clarification now provided.

If you require any further assistance or information,please contact:Jonathan Lowe jlowe@keoghs.co.uk

Disclaimer of Liability: Nothing in this document constitutes legal advice. You should always consult a suitably qualified lawyer about any specific legal matter. Keoghs assume no responsibility for information in this document and disclaims all liability relating to such information.