Legal surgery - We answer your questions

I manage claims arising under various public liability insurance policies. An insured has suffered a major oil leak from industrial premises. Damage has already been caused to other parties' properties. The insured has undertaken extensive and very expensive repairs to its premises to prevent further leaks. The insured now wants to be indemnified for those repair costs. I am happy to cover the third party claims, but I do not consider the repair costs should be met. Am I entitled to refuse to indemnify for those costs?

Robert Welfare

Associate in the property solutions team in DLA's insurance group. robert.welfare@dla.com

The starting point, of course, is the policy itself. There may be an express provision for such expenses to be covered; if so, that provision must be adhered to. Similarly, if the policy expressly excludes cover of such expenses, that too should be the end of the matter.

However, if the policy is silent on this point, the common law position should prevail. A very similar situation was considered in Yorkshire Water v Sun Alliance [1997] where the claimant sought to recover the costs incurred in stabilising a structure, the collapse of which had caused other properties to flood and threatened to flood others.

The Court of Appeal unanimously rejected the claimant's argument. Its decision recognised that the purpose of the policy in question was to indemnify the claimant in respect of its liabilities to third parties.

It was that liability rather than the event (in that case the collapsing structure, in yours the escape of oil) which was the insured peril and which triggered cover.

Even if there were a common law duty to mitigate loss in such circumstances (the appeal judges expressed various opinions on this), that did not mean expenditure was covered. That expenditure was not incurred as a result of liability to third parties.

The decision in Yorkshire Water has in fact been distinguished in the New Zealand case of Bridgman v Allied Mutual [2000] on the basis that liability to third parties would have been imminent if expensive mitigation measures had not been taken by the insured (who recovered from the insurers in that case).

However, while they may have regard to that decision, I suggest it is highly unlikely that, even in circumstances similar to Bridgman, the English courts would deviate from the decision in Yorkshire Water.

If the insured has not done so already, it is likely that it will argue that the repair costs were incurred to prevent further claims being made, and therefore benefit both itself and underwriters. While that argument has a superficial attraction, it is unlikely to assist the insured.

There was great excitement a few years when it was thought that professionals could face the prospect of claims being brought long after the ordinary limitation period had expired because of the concept of deliberate concealment. That was reined back a couple of years ago by the House of Lords. Was that the last word on the subject and is the issue fully resolved?

Eamon Mooney

Partner in the professional indemnity unit in DLA's insurance group. eamon.mooney@dla.com

The short answer is: possibly not. A fair amount of consternation was generated in professional indemnity circles when the Court of Appeal decided in 1999 to make it much easier for a claimant to bring proceedings against a professional beyond the usual six year limitation period.

The basis of the decision in Brocklesby v Armitage & Guest [1999] was an interpretation of the wording of section 32(2) of the Limitation Act.

If there were "deliberate concealment", limitation would not start to run until that concealment was discovered by the claimant. The action only had to be deliberate (that is, intentional) and concealed (whether intentional or not), according to the Court of Appeal. The prospects raised by that decision were frightening for insurers and professionals. After the reasoning was followed in another decision two years later, the House of Lords moved us back to more familiar ground in 2002 with Cave v Robinson Jarvis & Rolf. There has to be a deliberate commission of a breach of duty for the section to apply.

While Cave was the last high profile case in this area, limitation remains a common field of battle in professional indemnity matters and the courts continue to watch this area.

The question of deliberate concealment can and does remain a live area in this field of law. Cave did not deal with all of the issues, as can be seen by the Court of Appeal walking in the same area in Williams v Fanshaw Porter & Hazelhurst [2004], a claim against solicitors. Deliberate concealment doesn't have to be based on dishonesty.

The action related to a firm of solicitors' procedural failings resulting in the claimant losing the opportunity to pursue a medical negligence claim. The lower court accepted that the solicitor at the defendant firm did not communicate to the claimant that certain key steps had taken place, because the solicitor had honestly considered that he could remedy the position without prejudicing his client. The judge decided that there was no deliberate concealment and that section 32 did not apply.

That was overturned by the Court of Appeal. A professional could hold an honest but wrong view that a problem is not his fault and can be sorted out. At best, that is an explanation as to why the professional has deliberately concealed relevant facts. That may result in the professional seeking to sort out the problem prior to telling the client. That, said the Court of Appeal, fell within the definition of deliberate concealment and limitation only started to tick when the client found out.

The House of Lords decision in Cave rightly provides great comfort to insurers and professionals. The wide sweeping effect of Brocklesby has been halted.

Can the Court of Appeal decision in Doherty and others v Rugby Joinery (UK) Ltd be used as a precedent to suggest that an employer's date of knowledge in the woodworking industry is 1991/1992?

Tracey Hulme

Associate in the disease unit in DLA's insurance group. tracey.hulme@dla.com

The then Lady Justice Hale specifically stated in her judgment that "this case does not hold that the date of knowledge of the risk of vibration white finger (VWF) in the woodworking industry is as late as 1991/1992". So the short answer is no.

However, the case does provide effective guidance as to the factors the court is likely to find persuasive and when an argument for a later date of knowledge may succeed.

The case related to the appeals of eight women who had had their claims dismissed in Sheffield County Court in 2003.

Each appellant complained that they had developed VWF as a result of using hand-held vibratory tools such as screwdrivers, electric drills and nail guns and, after 1983, an orbital sander, while employed by the defendant between 1970 and 1999. The vibration magnitudes of most of the tools were relatively low but the orbital sander produced a level which was much higher than expected.

The grounds for the appeal were as follows:

- That the judge fell into error in concluding that the duty to assess and monitor the vibration arose as late as 1991/1992

- (On behalf of four appellants only) that even if the judge was right to find that duty to assess and monitor arose only in 1991/1992, the judge fell into error in concluding that the four appellants had not suffered damage in consequence of the respondent's admitted failure to act at and after that time.

The court found in favour of the respondent in relation to the first ground of appeal, thus confirming that the respondent's date of knowledge was 1991/1992. The Court of Appeal found in favour of the four appellants who had suffered exposure to vibration and a deterioration in their symptoms after 1991/1992 and remitted their claims to the judge for assessment of damages.

Lord Justice Auld stated that the court must look at each case on its own facts. While there are commonly held views to the general date of knowledge in relation to a particular industry, the relevant date in each case will vary according to:

- The nature of the industry

- The type of work under consideration

- The tools used by the claimant

- The nature and pattern of the claimant's use of the tools

- The extent to which having regard to the test for negligence in Stokes v GKN (Bolts & Nuts) Ltd [1968], the employer should, in the circumstances, have been put on notice that harm might result to the claimant if the employer did not take steps to prevent it.

In this case, it was agreed between the parties that the respondent did not have actual knowledge that any of the vibratory tools used by the claimants carried a risk of VWF.

It is a commonly held view that an employer's date of knowledge arises around 1976 as a result of the publication of the draft for development (DD43: 1975). It was therefore the appellants' contention that the respondent had a constructive knowledge from 1976 and that it should have assessed the harm from the tools and monitored its employees for symptoms.

The main reasons the Court of Appeal appeared to have upheld the judgment of the trial judge that the duties to assess and monitor did not arise until 1991/1992 are as follows:

- Neither the DD43 nor the British Standard Guide for the Measurement and Evaluation of Human Exposure to Vibration Transmitted to the Hand specifically refers to sanders as a possible risk of VWF

- When VWF became a prescribed disease in 1985 for the purpose of section 76 of the Social Security Act 1975, the only reference to sanders was in relation to rotary tools sanding metal. The appellants were sanding wood

- The first reference to sanders which was not limited to the application to metal was in Professor Griffin's book, Handbook of Human Vibration, 1990. This was followed up in 1994 by the Health and Safety Commission Guidance Note HS(G) 88 called Hand Arm Vibration which referred to the risk from orbital sanders;

- Even after the 1987 British Standard was published the respondent would have been told that orbital sanders were not generally regarded as producing a vibration hazard and the hazard was not associated with the woodworking indusry. Nobody contemplated that the DD43 applied to that industry.

Once the duty had been triggered the Court of Appeal indicated that anyone found to be exhibiting symptoms should have been removed from the work and that it was not sufficient to merely limit their exposure.

I am a claims handler dealing with a claim against an insured which arises out of the actions of an agency worker, working on the insured's site, who was supplied by an employment agency with which the insured contracted. The employment agency argue that it simply facilitated the arrangement and its contract with the worker makes it clear that the worker was not its employee. Will the insured be liable?

Mark Burke

Head of DLA's insurance group in London. mark.burke@dla.com

The starting point is the concept of vicarious liability. The employer will be liable for the tortious acts of an employee which occur in the course of that employment. An employer is not liable (generally) for the negligence of an independent contractor.

The task of determining who is an employee is left entirely to judicial discretion. The courts have had to consider when a person not employed by another, will be treated as under that other's control so as to make it, and not any original employer, liable for the worker's torts.

A transfer would be more readily inferred when an employee is lent or supplied without equipment, but less readily inferred when an employee is lent or supplied with valuable equipment. In general terms, the less skilled the worker, the more likely he is under the control of the "end user".

The categorisation given by any contract is relevant when deciding if an individual is an employee, but is not decisive and the test is ultimately based upon the factual relationship between the parties. The courts now adopt what has been referred to as a 'cluster concept' where weight is given to numerous factors incapable of being exhaustively listed and none of which is alone decisive. This approach is a development of the classic 'control' test first adopted by the courts in the 19th century - Yewens v Noakes [1880].

However, with a growing sophistication in the division of labour and the emergence of workers employed because of their highly skilled autonomy, that test ceased to catch many workers who were arguably employees. The courts' broader approach was exemplified by the decision in Cassidy v Ministry of Health [1951] where a surgeon was held to be an employee despite the lack of any real control over how he worked.

More recent decisions have returned the control test to a central, but not exclusive, position in the battery of diagnostic determinants. In Lane v Shire Roofing Co [1995] the Court of Appeal said that in the context of safety at work, there was a real public interest in recognising the employer/employee relationship where it exists. Although the court should ask itself whether the worker was subject to control or, in the case of a skilled worker, whose business it was, these questions should be addressed in the context of who was responsible for overall safety of the work, which was a question of law.

In Lane the court recognised that the control test was not decisive, for instance in the case of skilled employees, with discretion to decide how their work should be done. In such cases the question is broadened to whose business was it: was the workman carrying on his own business, or was he carrying on the business of his employers? The less skilled the worker, the more likely he is to be under the control of the end user but the reverse is of course true.

In Mersey Docks & Harbour Board v Coggins & Griffiths (Liverpool) LTD [1947] Lord Porter considered this point - "to ask who is entitled to tell the employee the way in which he is to do the work upon which he is engaged. If someone other than his general employer is authorised to do this he will, as a rule, be the person liable for the employee's negligence. But it is not enough that the task to be performed should be under his control, he must also control the method of performing it".

I must stress though (as the court did) that all of questions must be asked in the context of who is responsible for the overall safety of the men doing the work in question.

Lane dealt with the obligations of employer to employee rather than liability to a third party or another employee. But the position of the appellant in Lane is in some ways similar to the situation you describe. He was an independent, skilled contractor who had agreed to carry out roofing work at a private address, the contract having been agreed through the respondent's roofing company. The court posed the question in Lane "whose business was it?" and said that could only be answered by saying that it was the respondent's (Shire roofing) business and not the appellant's (Lane).

In conclusion therefore I think it is unlikely that the court will be willing to consider the worker to be an independent contractor if he was not carrying on his own business and was not separately insured. For the policy reasons set out in Lane the court will be keen to find that either of the two insured, corporate entities - your insured or the agency - were employers and therefore vicariously liable. In my view, your insured is far more likely than not to be held to be the employer if it exercised control and had overall responsibility for health and safety on the site and much more unlikely to make the agency liable where it exercised no control over health & safety or the way that the work was carried out.

Get your questions answered

DLA Partner Alan Jacobs coordinates the legal surgery. You can send your queries to Alan by emailing alan.jacobs@dla.com. If you would like more information or wish to discuss the queries answered in this issue, please either use the above email or contact the lawyer concerned.