The case of John Reilly v National Insurance & Guarantee Corporation Limited [2008] EWHC 722 (Comm) considered whether the failure of a fire extinguishing system was covered under the insured’s public and product liability policy. Mr Reilly was a fire protection engineer who installed three fire extinguishing systems for Print Design & Graphic Limited (PDG). One of these systems failed to extinguish a fire and consequently PDG suffered loss. It was agreed between the parties that the system failure had been caused by a fault within the main CO2 system. PDG brought proceedings against Mr Reilly which were ultimately settled. Part of the resulting settlement agreement was that PDG would bring proceedings against Mr Reilly’s insurers in his name. In the context of those proceedings, Mr Justice Burton was asked to decide by way of preliminary issue whether the claim in question was excluded from the policy.
Mr Reilly’s insurers, National Insurance & Guarantee Corporation Limited (NIG), had provided Mr Reilly with a public and product liability policy. The policy contained the following exclusion, “This section does not indemnify the Insured in respect of any claim arising out of:… (ii) the failure of any fire or intruder alarm switch gear control panel or machinery to perform its intended function.” Mr Justice Burton considered two issues: (1) whether there had been a failure of machinery; and (2) whether the system was a fire alarm.
Mr Justice Burton reviewed the case law regarding the meaning of the word “machinery“. He eventually turned, as previous judges had, to the Oxford English Dictionary, which defined machinery as “an apparatus, an appliance; a devise for applying mechanical power and having a number of interconnected parts, each with a definite function…” Using this definition and the guidance gleaned from case law, Mr Justice Burton held that the fire extinguishing system was machinery for the purposes of the insurance policy. He then considered whether the fire extinguishing system was also a fire alarm and concluded that it was. However, he then considered, as a result of the nature of Mr Reilly’s business, the commercial purpose of Mr Reilly having such insurance cover. The judge found that the policy covered the malfunctioning of the system which caused damage. For example, the policy would provide cover if the fire system caused a fire itself or malfunctioned in some way causing personal injury. However, the policy would not provide cover where the system failed to perform its intended function (i.e. by failing to extinguish a fire). Consequently, the claim in question was excluded from the policy.
The decision provides a useful summary on the case law surrounding the meaning of “machinery” in an insurance contract. It also provides a stark warning to insureds to ensure that they understand the nature of the cover they are obtaining and its application to their business.
Mr Reilly’s insurers, National Insurance & Guarantee Corporation Limited (NIG), had provided Mr Reilly with a public and product liability policy. The policy contained the following exclusion, “This section does not indemnify the Insured in respect of any claim arising out of:… (ii) the failure of any fire or intruder alarm switch gear control panel or machinery to perform its intended function.” Mr Justice Burton considered two issues: (1) whether there had been a failure of machinery; and (2) whether the system was a fire alarm.
Mr Justice Burton reviewed the case law regarding the meaning of the word “machinery“. He eventually turned, as previous judges had, to the Oxford English Dictionary, which defined machinery as “an apparatus, an appliance; a devise for applying mechanical power and having a number of interconnected parts, each with a definite function…” Using this definition and the guidance gleaned from case law, Mr Justice Burton held that the fire extinguishing system was machinery for the purposes of the insurance policy. He then considered whether the fire extinguishing system was also a fire alarm and concluded that it was. However, he then considered, as a result of the nature of Mr Reilly’s business, the commercial purpose of Mr Reilly having such insurance cover. The judge found that the policy covered the malfunctioning of the system which caused damage. For example, the policy would provide cover if the fire system caused a fire itself or malfunctioned in some way causing personal injury. However, the policy would not provide cover where the system failed to perform its intended function (i.e. by failing to extinguish a fire). Consequently, the claim in question was excluded from the policy.
The decision provides a useful summary on the case law surrounding the meaning of “machinery” in an insurance contract. It also provides a stark warning to insureds to ensure that they understand the nature of the cover they are obtaining and its application to their business.
