In British Waterways v Royal & Sun Alliance Insurance Plc [2012] EWHC 460 (Comm), the High Court held that sums paid by the claimant, British Waterways, in relation to liability for the death of two farmers when a tractor fell into a canal was covered by the policy issued by the defendant, Royal & Sun Alliance Insurance Plc, and that the sums were not excluded as liability “arising out of” the operation of the tractor as a tool.

The claimant pleaded guilty to an offence under the Health and Safety at Work Act 1974, on the basis that the practices adopted by it had not been suitably assessed and were unsafe, and subsequently reached a settlement with the deceased farmers’ estates. The claimant then sought to recover the amount of that settlement and costs from the defendant insurers, but the insurers denied coverage.

In the court proceedings which subsequently arose, the court held that: (1) the claimant was in breach of the Provision and Use of Work Equipment Regulations 1998 and its common law duty of care for providing the tractor without any, or any adequate, supervision or instruction and was thus liable to the farmers’ estates; and (2) the policy provided cover for “legal liability incurred for damages…in respect of accidental death of or bodily injury to any person in connection with the use of the Insured Vehicle” and therefore should not exclude the driver or user of the vehicle as the insurer contended. The wording of the insurance was not to be restrictively construed and there was, on the face of it, cover under the policy for the claimant’s claim.

The court then considered the scope of the following policy exclusion: “The insurers shall not be liable for liability arising out of…the operation as a tool of the Insured Vehicle.” Mr Justice Burton conducted a review of “arising out of” in an insurance context and found a series of conflicting decisions; some considered “arising out of” to mean the “proximate cause” and others applied a wider test. Burton J found in favour of the claimant’s contended construction and held that a stricter test applied in the context of a policy exclusion. Burton J found that, applying that stricter construction to the facts of this case, the exclusion did not apply. Burton J stated “I have the inevitable feeling that a court may in fact have a different approach to concluding whether there is cover for an event from where the court is being asked to conclude that an insurer can exclude cover, even though the words the court is considering may be identical.”

This case shows that the court may interpret policy exclusions strictly and may adopt an asymmetric approach when considering whether there is cover for an event or whether an insurer can exclude cover.