Tesco Stores Ltd v Constable & others [2008] EWCA Civ 362 concerned an appeal against an order of Mr Justice Field under which Field J determined that, on a proper construction of a public liability section of a standard project insurance package, Tesco was not entitled to an indemnity in respect of sums that it was liable to pay under the terms of a deed of covenant for economic loss to a third party affected by its activities.

Tesco embarked on a construction of a Tesco superstore over a railway tunnel. In the course of the construction, part of the tunnel collapsed and the railway line beneath had to be closed for a long period of time. Chiltern Railway Company (Chiltern) brought a claim against Tesco under a Deed of Covenant for loss of passenger revenues arising from the consequences of the collapsed tunnel. Tesco reached a confidential settlement in respect of Chiltern’s claim and sought an indemnity under the public liability section of its project insurance package (and excess insurance policies) from the Defendant insurers. Chiltern’s claim for which Tesco sought an indemnity from the Defendant insurers was a claim in contract for pure economic loss. The Defendant insurers asserted that the claim for pure economic loss was not covered under the terms of the public liability cover. In reaching his decision, the High Court judge was persuaded by the Defendant insurers’ arguments on policy construction. Field J attached importance to the fact that it was a public liability insurance policy and such policies generally covered liability to the public at large for claims in tort; such policies were generally regarded as not affording cover against liability in contract for pure economic loss.

On appeal, Tesco submitted that the High Court judge had attached too much importance to the fact that it was a public liability insurance. However, the Court of Appeal declared that Field J was right to say that the fact that this was public liability insurance was important. Lord Justice Tuckey, delivering the lead appeal judgment, said that the fact that it was a public liability insurance policy was “a strong pointer to the meaning of the words used” although was not conclusive since the wording of the particular policy could extend the cover typically provided by public liability insurance. In dismissing Tesco’s appeal, the Court of Appeal noted that if Tesco had wished its public liability insurance to cover any liability owed by it under the Deed of Covenant then it could have sought the Defendant insurers’ agreement to a clause to cover that liability.

The decision provides further guidance on factors taken into account when interpreting contractual provisions. The case also highlights the need for careful drafting and the need for parties to ensure that the terms and scope of the policy reflect the cover intended.