Ramco (UK) Ltd. & Ors v International Insurance Company of Hannover Ltd. & Anor [2003] EWHC 2360 (Comm)

Case No 2003 Folio 30[2003] EWHC 2360 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 15 Oct 2003
Before
THE HONOURABLE MR JUSTICE ANDREW SMITH
Between
RAMCO (UK) LTD and OTHERSClaimantsINTERNATIONAL INSURANCE COMPANY OF HANNOVER LTD and ANOTHERDefendants
James Goudie Q.C. and Pierre Janusz(instructed by Roythorne & Co., Solicitors) for ClaimantsNigel Tozzi Q.C. and Alexander Gunning(instructed by Barlow Lyde & Gilbert, Solicitors) for DefendantsHearing Hearing date : 15 September 2003
Approved
[1]This is a claim brought by insureds under a Combined “All Risks” Policy of insurance issued by the defendant insurers and dated 12 April 2001. The insurance covered the loss, destruction or damage to property insured as a result of fire. On about 16 May 2001 there was a fire in Skegness, Lincolnshire at industrial premises occupied by the first claimant, Ramco (UK) Limited (“Ramco”) and the second claimant, Resource Industries Limited (“RIL”). It is common ground that the fire occurred without fault on the part of any claimant.[2]Stock and other goods were destroyed or damaged in the fire. The insurers do not dispute their liability in respect of property owned by the claimants. However, some of the goods that were damaged or destroyed were bailed to the claimants, in particular goods owned by the Ministry of Defence were bailed to Ramco and goods had been entrusted to RIL by a businessman called Mr. Neville Murray. There is a dispute between the parties as to whether the insurers are liable in respect of those goods, and if so on what basis.[3]The insurance policy comprises seven sections and also general conditions, general exclusions and a schedule. The period of insurance is from 1 February 2001 to 31 January 2002. The insured include Ramco and RIL. The relevant section of the policy is section 1, which is headed “Material Damage-‘All Risks’” It provides as follows:
“IN THE EVENT OF the Property Insured described in the Schedule being accidentally lost, destroyed or damaged during the Period of Insurance the Insurers will pay to the Insured the value of the property at the time of its loss or destruction or the amount of the damage or at the Insurers’ option reinstate or replace such property or any part of it… ”
There is a definition of Property Insured:
“a) Buildings… b) Contents Contents therein and thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible including i) tenants’ improvements alterations and decorations ii) so far as not otherwise insured employees’ directors’ and visitors’ personal effects of every description … c) Stock Stock and Materials in Trade therein or thereon the property of the Insured or held by the Insured in trust for which the Insured is responsible.”
Provisions described as “Supplementary Conditions - applicable to section 1” include a “Condition of Average (Underinsurance)”, which reads as follows:
“The sum insured by each item of this Section… is declared to be separately subject to Average. Whenever a sum insured is declared to be subject to Average, if such sum shall at the commencement of any DAMAGE be less than the value of the property covered within such sum insured, the amount payable by the Insurers in respect of such DAMAGE shall be proportionately reduced”
. There is also a provision that as far as Buildings and Contents are concerned – and it will be noted that “Contents” include property held by the Insured in trust for which the Insured is responsible – the basis for calculating the amount payable be the reinstatement of the property lost destroyed or damaged.[4]On 11 April 2003 the court ordered the trial of preliminary issues, which at the invitation of the parties I have revised and limited. The issues that I determine are set out in the appendix to this judgment. They concern the insurers’ liability under the policy when goods belonging to third parties and bailed to an insured are damaged or destroyed:(i) whether the policy provides cover only if the insured has some legal liability to a third party in respect of the damage or destruction, or whether all goods bailed to the insured are covered;(ii) if the policy provides cover only if the insured has some legal liability to a third party, whether the insurers are to pay the value of goods lost or destroyed or the amount of damage, or only to indemnify the insured against his liability.[5]Undoubtedly bailees in the position of Ramco and RIL may insure goods in their possession for their full value and in the event of their loss or destruction recover their full value: see Tomlinson v Hepburn, [1966] AC 451. The courts have acknowledged since the middle of the nineteenth century the commercial convenience of bailees being able to effect such insurance regardless of whether or not they are liable, or potentially liable, in respect of the goods: Waters v Monarch Fire and Life Assurance Company, (1856) 5 E&B 870. If a bailee insures goods bailed to him and recovers from insurers more than any loss that he suffers, he is required to account to the owners of the goods (or other persons bearing the loss) for the excess. The law does not object to this, or strive to avoid this result. In Tomlinson v Hepburn (cit sup) at p.471A, Lord Reid said that if this is an exception to the contractual principle of the common law preventing jus quaesitum tertio, “I do not think that we are bound to be astute to extend it [the contractual principle] on a logical basis so as to cut down an exception, if it be an exception, which has stood unchallenged since the decision in Waters case more than a century ago”. Thus the question whether an insurance policy taken out by a bailee covers property or the bailee’s liability for it depends upon the wording of the particular contract.[6]Although the questions that I have to decide are questions of construction of the policy, the crucial wording of the definition of stock reflects language used in insurance policies since the nineteenth century. Counsel have helpfully taken me through a number of authorities to which I shall refer before considering the policy itself.[7]I have already mentioned the earliest of these, Waters’ case. The claimants were flour merchants, warehousemen and wharfingers, whose warehouse was destroyed by an accidental fire, together with goods in it of which they were bailees. They had taken out two policies of insurance covering, under one, “goods in trust or on commission therein” and, under the other, “property of the assured or held by them in trust or on commission”. The court held that: i) As a matter of interpretation, the policies covered goods of third parties of which the claimants were bailees. Lord Campbell CJ said (at p.880), “What is meant in those policies by the words ‘goods in trust’? I think that means goods with which the assured were entrusted; not goods held in trust in the strict technical sense, so that there was only an equitable obligation on the assured enforceable by a subpoena in Chancery, but goods with which they were entrusted in the ordinary sense of the word”. ii) The policies covered not just the claimants’ “personal interest” in the goods but all damage and loss, and they were valid policies. Crompton J said (at p.882), “The parties meant to insure those goods with which the plaintiffs were entrusted, and in every part of which they had an interest, both in respect of their lien and in respect of their responsibility to their bailors”. It was drawn to my attention that he used the term “responsibility”, a word which came to be used in later policies and which is found in the definition of “Stock” in this case. However, it is not apparent whether Crompton J had in mind legal liability to a third party or some wider meaning.[8]In London and North Western Railway Co v Glyn, (1859) 1 E&E 652 the court considered a policy taken out by common carriers which covered “goods their own and in trust as carriers” in their warehouse. It was held that the policy covered “the interest of the owners of such goods, as well as the more limited interest of the plaintiffs”. Erle J said (at p.663), “In future, if insurance companies wish, in granting such policies as the present, to limit their responsibility to the responsibility of the carrier, upon proceedings taken against him in invitum, they must employ precise words to that effect”. Erle J was clearly using “responsibility” to refer to the liability of the insurers”, and he is surely to be understood to be using the word similarly when he referred to the responsibility of the carrier. Hill J said (at p.665), “My brother Erle has most truly said that insurance Companies must insert in policies express words to that effect, if they wish to limit their liability in the manner here contended for”.[9]I next refer to the decision of the Court of Common Pleas in The North British and Mercantile Insurance Co v Moffatt, (1871) LR 7 CP 25. This case concerned two policies covering “merchandise…the assured’s own, in trust or on commission for which they are responsible” in specified warehouses and other places. The issue was whether the policies covered certain chests of tea owned by third parties that were destroyed in a fire. The plaintiff insurers sought to recover sums which the defendant insureds had agreed to repay if they were not entitled to them under the policies. The court said that if the policies had been similar to those considered in the Waters and London and North Western Railway cases, then “we should have thought the cases were authorities in favour of the defendants’ view [that the chests of tea were covered] notwithstanding that they had no interest even amounting to a lien upon the goods in question; but it will be observed the wording in the present policy is essentially different, for whilst in the cases referred to the insurance extended to ‘goods in trust or on commission’ generally, in the present case it is expressly limited to ‘goods in trust or on commission, for which they (the assured) are responsible’” (at p.31). The judgment continued: “In London and North Western Ry Co v Glyn, Erle and Hill, JJ., had thrown out that if insurance companies wished to limit their responsibility to the responsibility of the assured, they must employ express words to that effect. It seems to us that the present plaintiffs have done so in this policy, and have expressly limited their liability to such goods as were held in trust by the assured, and for which they are responsible. It follows that the goods in question for which the assured were not responsible were not covered by the policy, and consequently that the plaintiffs are not entitled to the judgment of the Court”.[10]Mr Nigel Tozzi QC, who appeared for the defendants, relied upon this authority in submitting that words limiting the insurers’ liability to goods for which the insured is responsible connote that there is cover only if the insured is legally liable to a third party in respect of the goods. Mr James Goudie Q.C., who represented the claimants, disputed this. He pointed out that, the insured in Moffatt’s case being merchants who had purchased goods and resold them before the fire destroyed them, the goods themselves were never in the physical custody of the insured but remained with the wharfingers. Accordingly, he submitted, they were not bailed to the insured, and so it is unsurprising that the policy did not cover them.[11]I am unable to accept Mr Goudie’s argument. It seems to me that the Court in Moffatt regarded the chests of tea as bailed to the defendants, who retained at the time of the fire warrants issued to the wharfingers which acknowledged specified chests of tea were deliverable to the person named in them, or to his assignee by indorsement. Presumably the Court considered that even though the defendants were not in physical possession of the chests, they were in constructive possession of them, and they had sufficient interest in them to be bailees. In any case, it is apparent from the passages of the judgment which I have set out that the reasoning of the court was that the chests were not covered because, although the defendants held them in their trust, they were not responsible for them. The fact that the goods were bailed to them was not sufficient to make them responsible within the meaning of the policy.[12]There is nothing in the judgment, however, that suggests to me that the court decided whether the insurance was property insurance covering bailed goods for which the defendants had some liability, or was liability insurance covering only the defendants’ liability for the goods. In Tomlinson v Hepburn (cit sup at p.475A-C), Lord Pearce said this:
“It would have been easy, had the parties so intended, to insert express words showing that the policy was confined to the legal liability of the assured, or indeed, to use any of the language which is usually associated with legal liability policies. Erle J. observed in London & North Western Ry v Glyn: ‘In future, if insurance companies …’. In that case the policy was upon goods ‘in trust’: in the present case the insurance was by hauliers upon ‘the property of Imperial Tobacco Co’ and this was clearly a case for using the ‘precise words’ suggested by Erle J (as was done for example, in North British & Mercantile Insurance Co v Moffatt) if any such limitation was intended”
. In subsequent editions of MacGillivray on Insurance Law it has been said of Moffatt that, “By limiting the cover to goods for which the assured was responsible, the insurers had indicated that they did not intend to cover the proprietary interests of other persons in the goods assured”: see MacGillivray and Parkinson on Insurance Law (6th Ed., (1975) at para. 162 and MacGillivray on Insurance Law (10th Ed., 2003) at para. 1-182.[13]In so far as Lord Pearce suggested by the words in parenthesis that the policies considered in Moffatt were liability policies in the sense that the indemnity provided by the insurance was confined to indemnifying the insured against liability, I respectfully conclude that his observation went beyond the judgment in the case. This view is not expressed in the other speeches in the House of Lords in Tomlinson v Hepburn, nor indeed in the judgments of Roskill J at [1964] 1 Lloyd’s Law Reports 416 or the Court of Appeal at [1966] 1 QB 2. Roskill J said (loc cit at p.427) that in Moffatt, “it was held that under that form of wording the underwriter was not responsible for the loss unless the assured was in law responsible to his bailor”.[14]Mr Tozzi also relied upon an observation of Sir George Jessel MR in North British and Mercantile Insurance Company v London, Liverpool & Globe Insurance Company, (1876) 5 Ch D 569, 35 LT 231, 45 LJ Ch (NS) 548. This was another case concerning wharfingers’ policies of insurance against fire loss and damage. They covered “grain and seed, flour and oil-cake…, the assured’s own, in trust, or on commission, for which they are responsible”. The policies had conditions of average that provided that if “at the time of any loss or damage by fire happening to any property hereby insured”, there was other insurance “covering the same property”, then the wharfingers’ insurers should not be liable to pay or contribute more than their rateable proportion of the loss or damage. A fire destroyed a quantity of grain at the wharfingers’ premises, some of which belonged to merchants who had effected insurance under policies that included conditions similar to those of the wharfingers’ policies. The question before the court was which insurers should bear the loss. Jessel MR decided that the wharfingers’ insurers should bear it all on the simple basis that, regardless of the wording of the policies, the wharfingers were responsible for the loss, and the merchants’ insurers had subrogated rights against them.[15]However, Jessel MR went on to express his opinion about the meaning of the wharfingers’ policies. He said that term “property” in the conditions of average referred to an interest in a chattel and not the actual chattel, and so the wharfingers’ policies and the merchants’ policies did not cover the same property. He considered that the wharfingers were insured in respect of the goods “against liability”, explaining in parenthesis (at p.578): “for they have only insured them for goods held in trust, for which they are responsible, and it is therefore an insurance in terms against liability”. (I have cited this passage from the Law Times. In the Law Report and the Law Journal the judgment reads “…goods held in trust, or for which they are responsible…”, but this would be an inaccurate citation from the policies. If Jessel MR did include “or”, it was surely a slip of the tongue.)[16]The Court of Appeal upheld the judgment of Jessel MR. James LJ agreed with Jessel MR that it was “almost a work of supererogation” to interpret the policies, but said (at p.582), “Upon the whole, I am of opinion that the meaning of the contract is what the Master of the Rolls said it is, if it is necessary to express an opinion upon it, and that the [conditions of average] must mean this, that there is to be a legal limit to the liability of the respective offices in these cases where the respective offices are legally liable to contribute to the same loss in respect of the same fire. If there was not equal liability, if there was not a thing to which they are entitled to contribute - and in my opinion there was not in this case – then the [conditions of average do] not apply.”[17]Mellish LJ considered the two questions that arose were, first, whether, leaving aside the conditions of average, the merchants’ insurers were entitled as against the wharfingers or their insurers only to a contribution or whether, being subrogated to the merchants’ rights, they were entitled to a full indemnity; and, secondly, whether the conditions of average affected the position. It is his view on the first question that matters here. He observed (at p.583) that contribution between insurers “only applies where it is an insurance by the same person having the same rights, and does not apply where different person[s] insure in respect of different rights”. He went on to say (at p.584) that the wharfingers were not insurers, or tantamount to insurers, of the goods: “Now this is really a case of bailment of goods upon particular terms. If there were no special terms at all, but the goods were simply bailed on terms that they were to be taken reasonable care of, and the bailee insured the goods for the purpose of protecting himself against any liability he might sustain, and then they were lost by fire by the carelessness of the bailee”, the liability for negligence would be clear. It made no difference that on the facts of the case the wharfinger had undertaken a bailment on terms of absolute liability. The bailment did not thereby become a contract of insurance.[18]Baggallay LJ also agreed with Jessel MR, saying that the conditions of average applied only where there was “a double insurance” (at p.588).[19]Although Mr Tozzi relied upon what was said by Jessel MR, I have also considered the judgments in the Court of Appeal because Roche J referred to them in Engel v Lancashire & General Assurance Co Ltd., (1925) 21 Ll L R 327. Engel’s case came before the court by way of a special case, and was an appeal by the insurers from the decision of an umpire in favour of the insured, Mr Engel. The insurance was against risks including burglary and theft, and the subject matter of the insurance was Mr Engel’s stock-in-trade as a manufacturing furrier. The policy covered his own property on his business premises, and also goods that were held in trust or on commission for which he was responsible. The claim arose from a theft from Mr Engel’s premises of goods, including goods that he did not own but were in his possession. The arbitrator found that the theft occurred without any negligence on the part of Mr Engel, and that he was therefore not liable to pay damages to the owners of the goods. One question before the court was whether in these circumstances the goods not owned by Mr Engel were covered by the insurance, the insurers contending that, although the goods were held in trust by him, they were not goods for which he was responsible. Roche J stated the issue as follows: “If ‘responsible’ means liable in case the goods were lost by the perils covered by the policy, then the [insurance] company is correct in its contention. If on the other hand the word ‘responsible’ is a word which extends rather than limits the words ‘in trust’, then [Mr Engel] is correct in his contention … The contention of [Mr Engel] may be summarised by saying that the word ‘responsible’ means and refers to the general responsibility of a bailee of goods and does not refer to or is limited by his liability in the event of loss”.[20]Roche J described this question as “a difficult point and a very nice point”. He decided it in the insurers’ favour. He considered the cases of Waters, Glyn and Moffatt, and said that in Moffatt the court clearly regarded the words “for which the assured is responsible” as words of limitation. Roche J then referred to North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co, and, having cited a passage from the judgment of Jessel MR, including the remark in parenthesis that I have set out, he said this:
“It is impossible to read the words in parenthesis without concluding that the Master of the Rolls took exactly the same view of the scope and effect of the words ‘for which they are responsible’ as was taken by the Judges who decided the case of the North British Insurance Co v Moffatt. I have no doubt … that the case of [Moffatt] was cited to the Court of Appeal. To my mind the general scope of the judgments, and in particular the judgment of Mellish LJ, indicates that the same view of the words ‘for which they are responsible’ was held by the Lord Justices. Quite true it is not a decision, but having regard to the fact that the case of [Moffatt] was cited I think that the expression of view which I gather from this judgment is really a matter to which I should have regard. Really it comes to this, that the real basis of my decision is the actual decision in [Moffatt].”
[21]On the facts of Engel’s case, and in view of the questions raised in the special case, it was unnecessary for Roche J to focus upon the distinction between property insurance that responds in the event of liability and liability insurance in the sense of an indemnity limited to the extent of the insured’s liability; and so whether the observation of Jessel MR went further than the decision in Moffatt. As I have already said, the judges in Moffatt decided that the policy only covered goods if the insured were legally liable for their loss or damage, but did not decide that the insurance only covered the insured’s liability for the goods. They did not, as it seems to me, conclude that the insurance was “against liability”; that it was liability rather than property insurance.[22]I also have some difficulty in finding as much support for the observation of Jessel MR in the judgments of the Court of Appeal as Roche J indicates. Certainly James LJ agreed with Jessel MR’s interpretation of the policy, albeit that he emphasised that this opinion was expressed by way of an obiter dictum. However, Roche J referred specifically to the judgment of Mellish LJ. Counsel were unable to identify the passage in that judgment which Roche J might have had in mind. Mr. Tozzi suggested tentatively that it might be the case of a bailee who accepted goods on the basis that he would take reasonable care of them and insured against any liability he might sustain. However, as I read the judgment, Mellish LJ was there putting forward a hypothetical example, rather than referring to the case before the Court.[23]I can deal with the next authority briefly. It is Maurice v Goldsbrough Mort and Company Ltd, [1939] AC 452, a decision of the Privy Council. The respondent wool brokers insured “merchandise the assureds’ own property or held by them in trust or on commission for which they may be liable in the event of loss or damage by fire”, the policies providing that a claim should not include “profit of any kind”. After fire had destroyed some wool which belonged to wool growers and had been consigned to the brokers for sale, the question arose whether in accounting to the growers for the proceeds of the policies, the brokers were entitled to deduct their profit or only the amount of their lien for services rendered and expenses paid in connection with the fire. It was held that they were entitled to deduct only the amount of their lien. In delivering the opinion of the Privy Council, Lord Wright observed that the policy insured the wool, a matter that was not in dispute. There was no suggestion that the wording of the policy meant that, in the case of merchandise not owned by the brokers, the policy insured their liability in respect of the wool, rather than the wool itself.[24]I have already referred to the decision of the House of Lords in Tomlinson v Hepburn (loc cit). The claimants, Tomlinson, were road hauliers, who claimed on an insurance policy on “Tobacco &/or Manufactured Goods &/or Machinery, the Property of Imperial Tobacco …” after lorries carrying cigarettes and advertising material belonging to Imperial Tobacco were stolen. The House of Lords held that Tomlinson were entitled as bailees to insure the goods of Imperial Tobacco to their full value, and could retain as much of the insurance monies as would cover their own interest in them, accounting to Imperial Tobacco for the rest. They also held that, on its true construction, Tomlinson’s policy was a goods policy and not a liability policy. At first instance Roskill J, whose judgment was upheld in the appellate courts, said (at [1964] 1 Ll L R 416, 427) that he considered it clear that “under this form of policy, which does not contain the words suggested by Mr Justice Erle in Glyn’s case … and adopted by the insurance company in Moffatt’s case … the assured can recover even though they are not legally liable as bailees to the owner of the goods for the loss”. From this, and from what he said of Moffatt’s case which I have cited at paragraph 13 above, it is apparent that Roskill J regarded the reference in the policy in Moffatt to the bailees being “responsible” for goods as connoting legal liability.[25]Roskill J, the Court of Appeal and the House of Lords all interpreted the policy as providing property insurance rather than liability insurance. They did so, of course, by reference to the terms of the particular policy. To some extent the considerations which carried weight with them apply in this case. It suffices to refer to what Lord Pearce said (at [1964] AC 451 at p.474F-G):
“…in the present case the following type-written portions indicate with reasonable clarity that this particular policy was intended by the parties to be a policy of insurance on the property in the goods. The goods are described as ‘the property of the Imperial Tobacco Co.’. The conditions stated are: ‘All risks of loss or damage however arising.’ They exclude war and civil war. They are not ‘subject to average’ and exclude ‘deterioration through delay and loss of market etc.”
All these things are apt for a policy on the property in the goods and inapt for a policy on the legal liability of the assured.”[26]Finally, I refer to Petrofina (UK) Ltd v Magnaload Ltd, [1984] QB 127, a decision of Lloyd J upon which Mr Goudie relied. The case concerned the meaning and effect of section 1 of a contractors all risks insurance policy that was taken out by the main contractors for the construction of an extension at an oil refinery. The insurers agreed to indemnify the main contractors, sub-contractors, the company who had a lease of the refinery and the freeholders and managers of the refinery. Damage occurred to work in progress in the course of lifting operations for which the defendants had supplied the lifting equipment. The insurers, having paid a claim made by the lessees of the refinery, brought against the defendants a subrogated claim for negligence. The defendants denied that the insurers had rights of subrogation against them because they were insured under the same policy in respect of the same property.[27]Section 1 of the policy provided that, “The insurers will indemnify the insured against loss of or damage to the insured property whilst at the contract site from any cause not hereinafter excluded occurring during the period of insurance”. The insured property was defined as: “Item No. 1. The works and temporary works erected … in performance of the insured contract and the materials … for use in connection therewith belonging to the insured or for which they are responsible brought on to the contract site for the purpose of the said contract… Item No 2. Constructional plant comprising plant and equipment … if and in so far as not otherwise insured belonging to the insured and for which they are responsible brought on to the contract site for the purpose of the insured contract”.[28]Lloyd J decided that the defendants were insureds under the policy. More importantly for present purposes, he also decided that the policy was not a liability insurance but an insurance on property comprising the works and temporary works on the site, and that all the insureds were insured for loss and damage in respect of the whole of that property. He rejected the insurers’ submission that section 1 of the policy was “a composite insurance”, that is to say an insurance of property so far as it related to property belonging to an insured and a liability insurance so far as it related to other property comprised in the contract works. Lloyd J referred to Tomlinson v Hepburn, and said that he could find no relevant distinction between the language of the policy that he was considering and that considered in Tomlinson. Referring to the remarks of Jessel MR in the North British and Mercantile Insurance Co case, he said (at p.135) that “that dictum (for it was not more) cannot now stand against the decision of the House of Lords in [Tomlinson].”[29]Mr. Tozzi criticised this observation about Jessel MR’s dictum as “unexplained”, and submitted that it does not withstand scrutiny. However, I would suppose that Lloyd J had in mind the unwillingness expressed by the House of Lords to interpret what is on its face insurance of goods as liability cover in order to avoid “over-recovery” by an insured with a limited interest in insured property. Lloyd J might have made the same point about what was said by James LJ in the North British and Mercantile Insurance Co case.[30]It was also necessary for Lloyd J to consider whether the law permits the defendants to recover from insurers the full value of the property insured even though they were not bailees of it. This involved consideration as to the reason that the courts have since Waters’ case permitted bailees to recover the full value of goods. Lloyd J said that one reason for the law accepting that a bailee might effect such insurance is “that, as bailee, he was ‘responsible’ for the goods. Responsibility is here used in a different sense from legal liability. A bailee might by contract exclude his legal liability for loss of or damage to the goods in particular circumstances, e.g. by fire. But he would still be ‘responsible’ for the goods in a more general sense, sufficient, at any rate, to entitle him to insure the full value.”[31]Again Mr Tozzi criticised Lloyd J’s judgment. First, he said that it is unclear what “more general sense” Lloyd J gave to the term “responsibility”. I was not entirely convinced by this criticism. Lloyd J might well have had in mind that a bailee is answerable for goods in that he is under a duty to deliver them up, albeit if he has taken reasonable care of them, he would prima facie have a defence to a claim based on a failure to do so. However, I acknowledge that the authorities do not explicitly refer to responsibility of this kind. More cogently, however, Mr Tozzi pointed out that it seems neither Moffatt nor Engel was cited to Lloyd J. Nor apparently, I add, was the judgment of Roskill J in Tomlinson v Hepburn. These decisions were relevant to, and inconsistent with, this part of the judgment of Lloyd J.[32]These being the authorities, I return to the interpretation of the particular policy issued by the defendant insurers. It is convenient first to consider whether the insureds were “responsible” for goods bailed to them only if they incurred legal liability in respect of them.[33]In my judgment, the word “responsible” does connote legal liability. The words “for which the Insured is responsible” are, it seems to me, naturally interpreted as limiting the insurers’ liability, and unless they are interpreted as referring to legal liability, the words do not do so and they add nothing, or certainly they add nothing of business significance, to the requirement that third party’s goods be “held by the Insured in trust”. The notion of “responsibility” was so interpreted in Moffatt, in Engel and by Roskill J in Tomlinson. Notwithstanding what was said by Lloyd J, it seems to me that I should be slow to re-interpret what has become a common expression in insurance contracts of this kind.[34]Does the policy provide property insurance or liability insurance in respect of such goods? As a matter of interpretation of the words of the policy in their ordinary and natural meaning, it seems to me that it provides property insurance, and I should not conclude that it provides liability insurance unless driven to do so by authority. I consider this the policy’s ordinary and natural meaning for the following reasons: i) The insurers’ obligation under section 1 of the policy to pay the value of the property at the time of its loss or destruction or the amount of damage is not apt for liability insurance. Mr Tozzi suggested that the measure of the amount of damage would be appropriate because it could be understood to refer to the damages for which the insured might be liable. I am not convinced by this response. First, it remains the case that, read as a whole, the insurers’ payment obligation is naturally understood as directed only to property insurance. Secondly, in this context “damage” is naturally read as a reference to the damage to Property Insured and not to damages payable by the insured. Thirdly, the option given to the insurers to reinstate or replace property rather than pay damages is not appropriate for liability insurance. I add that in the case of contents held in trust for which the Insured is responsible, reinstatement is not simply an option available for the insurers but provides the measure of the amount payable. This indicates that as far as contents cover is concerned, the policy provides property insurance; and it could hardly be argued that the reference to property “for which the Insured is responsible” connotes liability insurance in respect of stock but not in respect of contents. ii) The defendants accept, as I understand it, that the policy provides property insurance for stock owned by the insured. They argue that the cover is “hybrid”, or a “composite insurance” as it was put by the insurers in the Petrofina case. However, there is nothing in the policy that indicates such complexities in the nature of the cover provided in section 1 of the policy. I find it particularly difficult to contemplate that such hybrid insurance was introduced into the policy not directly through the statement of the insurers’ obligation, but through the definitions of “Contents” and “Stock”. iii) As in Tomlinson the condition of average has no application to liability insurance. iv) The policy contains no provisions applicable to section 1 that are indicative that it includes liability cover or provisions such as are commonly found in insurance contracts that provide liability cover.[35]Should the authorities deter me from concluding that section 1 provides property cover in respect of Property Insured “held by the Insured in trust for which the Insured is responsible”, as well as for the property of the Insured? The authorities upon which Mr Tozzi particularly relied in this context were the judgment of Jessel MR in the North British and Mercantile Insurance Co case and Tomlinson v Hepburn.[36]I acknowledge that the judgment of Jessel MR does assist the defendants’ argument, and what he said was endorsed in the Court of Appeal, in particular by James LJ, and in Engel. However, it seems to me that its authority is the less for the two reasons that Lloyd J identified in Petrofina; that Jessel MR’s observation was obiter dictum and, perhaps more importantly, that after Tomlinson v Hepburn the courts will not be astute to interpret contracts of this kind as providing liability insurance.[37]I find nothing in Tomlinson v Hepburn which might support the insurers’ argument other than Lord Pearce’s comment upon Moffatt. Even if Lord Pearce intended to express the opinion that the particular policies in Moffatt were liability policies in so far as they provided cover in respect of goods for which the insured were responsible, I decline to infer from this parenthetical remark that he considered that this is necessarily the connotation of words limiting cover to goods for which an insured is responsible.[38]There is nothing in the authorities that persuades me that section 1 of the policy provides liability cover, rather than property cover, in respect of stock held by the Insured in trust for which the Insured is responsible.[39]Therefore, subject to any submissions about the precise wording of the order that I should make, I answer the two preliminary issues as follows: i) Section 1 of the insurance policy responds to claims in respect of stock and materials in trade on the Claimants’ premises only where the Claimants are liable to a third party in respect of loss of or damage to such stock and materials in trade. ii) The insurance policy responds to the full value of the stock and materials in trade in the event of their loss or destruction or to the amount of the damage to the stock or materials in trade (subject to any right of the Insurers instead to reinstate or replace them).