Introduction

In the recent case of Burnett or Grant v International Insurance Company of Hanover Limited [2021] UKSC 12, the UK Supreme Court (the “Supreme Court”) dismissed an appeal of an insurance company attempting to rely on an exclusion clause in a public liability insurance policy for “deliberate acts”. In rejecting the insurer’s attempt to avoid liability under the policy to provide indemnity to the insured company for a death resulting from a customer’s altercation with its employee, the Court clarified the interpretation of the exclusion clause, and held that an injury recklessly caused by the “deliberate act” of an employee does not fall within such an exclusion.

Background

On 9 August 2013, Craig Grant, the Respondent’s husband (“Mr Grant”), who was at the time intoxicated as a result of alcohol and cocaine, was ejected from a bar by door stewards. During the subsequent altercation, one of the door stewards employed by Prospect Security Ltd (“Prospect”) applied a neck hold to Mr Grant. Mr Grant was later pronounced dead at the scene, with the cause of his death being mechanical asphyxia due to the application of the neck hold.

The door steward was then charged with murder, but as the jury did not accept that he had asphyxiated or caused the death of Mr Grant, he was only convicted of assault.

The Respondent initially commenced proceedings to claim damages against several parties, but subsequent to the liquidation of Prospect, the claim was only pursued against the appellant insurer (the “Insurer”) as Prospect was insured by it under a policy covering public liability. The Respondent claimed that the Insurer would be liable to indemnify Prospect in respect of its vicarious liability for the wrongful acts of the door steward who was the employee of Prospect and that the right to be indemnified was transferred to and vested in her under the Third Party (Rights and Insurers) Act 2010.

The Insurer sought to have the claim dismissed on the basis that it was not liable to indemnify under the policy. Under clause 14 of the policy, an exclusion is present which provides that “liability arising out of deliberate acts, wilful neglect or default” of an employee is excluded from the policy’s coverage. The Insurer argued that “deliberate acts” mean acts that are intended to cause injury or acts that are carried out recklessly as to whether they will cause injury. Hence, it was the Insurer’s case that the door steward’s acts causing Mr Grant’s death constitutes a “deliberate act”, and for that reason, falls within the exclusion. Alternatively, the Insurer asserted that, in the event that the Insurer is obliged to indemnify, the liability would be confined to £100,000 only as the door steward’s acts constitute a “wrongful arrest”, which is defined as “any unlawful restraint by one person” including “assault and battery”.

Procedural history

At first instance, the Court of Session held that the clause 14 exclusion applies only when the outcome giving rise to the liability, namely death, is the intended objective. In this case, it was agreed by the parties that the door steward had no such intention to cause Mr Grant’s death. Hence, the exclusion does not apply and the Insurer is under the obligation to indemnify Prospect in respect of its employee’s liability to the Respondent. The Insurer appealed.

At the First Division of the Inner House (the Scottish appeal court), in upholding the decision of the Court of Session, a similar interpretation of the clause 14 exclusion was adopted, requiring the presence of intent of a deliberate act. The Inner House further noted that acts accidentally causing injury or death, whether so negligently, or even recklessly, which goes beyond a reasonable level of force do not nevertheless warrant the application of the clause 14 exclusion so long as the specific type of harm or injury is not intended by the employee.

In summary, both lower courts concluded that there had been no deliberate act for the purpose of the exclusion, and that the wrongful arrest extension was also inapplicable.

The Insurer  then appealed to the Supreme Court, and the issues on appeal were the same as those in the lower courts: (1) whether the Insurer could rely on the clause 14 exclusion on the basis that Mr Grant’s death was brought about by a “deliberate act” of the door steward; and (2) whether Mr Grant’s death was brought about by a “wrongful arrest” of the door steward under the terms of the policy and thereby limiting the Insurer’s liability to £100,000.

First issue

In considering the approach to constructing the insurance policy, the Court applied the principles in Wood v Capita Insurance Services Ltd [2017] UKSC 24, namely, by asking “what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.” Further, when deciding what amounts to “accidental”, it should be viewed from the perspective of the assured, rather than the one causing the accident. Hence, the phrase “deliberate acts” in effect covers acts which involve the insured doing something with the deliberate intention of bringing about certain objective that creates liabilities for losses covered by the insurance policy. It does not cover a deliberate act which were accidental from the perspective of the employer.

Further, on a commercial sense, the policy is intended to insure Prospect’s business of “Manned Guarding and Door Security Contractors”, a business in which use of a degree of force in the discharge of duties and the vicarious liability that follows is expected. It is therefore highly unlikely that the parties, when entering into the policy, intended the use of force by a door steward to be basis of exclusion of liability under the policy.

Having considered the argument of the parties, the Court accepted the Insurer’s argument that “deliberate acts” in the policy, in the context of the presence case, means acts which are intended to cause injury. However, the Insurer has failed to establish that such exclusion applies on the facts. The lower courts did not find any intention to injure on the part of the door steward. In fact, the act was not even “badly motivated”. As the Supreme Court’s responsibility is not to find facts, the Insurer simply could not establish its case in this respect.

As to whether recklessness suffices for the purposes of the exclusion, the Court was of the view that the natural meaning of “deliberate” acts connotes “consciously performing an act intending its consequences”. It involves a different state of mind to recklessness. The Insurer also failed to show any case in which “deliberate” has been held to include recklessness. Further, if the clause 14 exclusion indeed excludes reckless acts causing injury, it would lead to a very wide and commercially unlikely exclusion, given the nature of Prospect’s business.

Second issue

In relation to “wrongful arrest”, the Supreme Court found that as the clause 14 exclusion does not apply, the insurer has no defence to the claim and there is no need to rule on the “wrongful arrest” exclusion. That said, the Supreme Court agreed with the findings of the First Division, whereby the First Division was of the view that such exclusion does not apply to the present case. Wrongful arrest is a claim for damages to compensate for an interference with, and loss of a person’s liberty and any consequent affront to the person’s dignity. The present case simply falls out of such category.

The essence of wrongful arrest is primarily the tort of false imprisonment. Even if a wrongful arrest may involve a degree of physical force, liability does not depend on the infliction of personal injury, or even bodily contact. Although the interpretation of “wrongful arrest” in the policy includes “assault and battery”, the First Division considered such references being subsidiary or incidental wrongs which may be committed in the course of a wrongful arrest, rather than forming the basis of such.

Takeaways

Going forward, we may expect the Hong Kong courts to follow this decision when interpreting what amounts to “deliberate acts” in the context of insurance policy. Both insurance companies and the insured should be mindful of this decision and the effect it could have on their existing and future insurance policies.