The UK Supreme Court Rules Against Insurer on Meaning of “Deliberate Act” Exclusion

The issue of whether a liability arises out of a “deliberate act” can frequently be fertile ground for insurance coverage disputes. A deliberate act of an insured cannot be the basis for an insurance claim as, fundamentally, insurance is a contingency, and so deliberate acts are often expressly excluded in insurance policies. In welcome news for policyholders, the UK’s top court unanimously took a narrow approach to interpreting a “deliberate act” exclusion in a Public Liability insurance policy in Burnett or Grant v. International Insurance Company of Hanover Ltd.[1]

This judgment confirmed that under the public liability policy in question, a “deliberate act” meant “acts which are intended to cause injury” but importantly did not include “recklessness as to the cause of injury”. The judgment will be useful guidance for all such policies. This alert explores the UK Supreme Court’s judicial findings.

The Facts

The facts arise out of the untimely death of Craig Grant in August 2013 following an assault by Jonas Marcius, a door steward employed by Prospect Security Ltd, at the Tonik Bar in Aberdeen, Scotland. During a fracas following the ejection of Mr Grant from the bar, Mr Grant died as a result of a neck hold applied by Mr Marcius. Prospect Security Ltd went into liquidation after the event, and so Mr Grant’s widow brought the civil claim directly against Prospect Security Ltd’s Public Liability (“PL”) insurer, International Insurance Company of Hanover Ltd (“Hanover”), under the Third Parties (Rights against Insurers) Act 2010 (the “2010 Act”).

The Policy

The PL Policy covered Prospect Security Ltd’s vicarious liability for wrongful acts of their employees. The right to be indemnified transferred to Ms Burnett under the 2010 Act. Specifically, the PL Policy, governed by English law, covered “accidental…injury [including death] to any person”. The PL Policy excluded “[l]iability arising out of deliberate acts wilful default or neglect by the… employee”.

The Legal Issue

The key legal question to be decided was whether Mr Grant’s death was brought about by a “deliberate act” of Mr Marcius within the terms of the exclusion, with the effect that Hanover’s liability to indemnify Ms Burnett was excluded under the PL Policy. The insurer’s case was that “deliberate act” meant acts which are intended to cause injury, or acts which are carried out recklessly as to whether they will cause injury. Ms Burnett’s case was that it meant acts which are intended to cause the specific injury which results in death (in this case) or at least serious injury, but this does not include reckless acts.

For context, the Supreme Court highlighted the Court of Appeal case of Hawley v Luminar Leisure Ltd, involving similar facts, which held that whether the injury was “accidental” was to be considered from the perspective of the insured (the employer) rather than the doorman.[2]  Leaving aside an express “deliberate acts” exclusion, it followed, the Supreme Court held, that the policy in this case would cover deliberate acts by an employee which were accidental from the perspective of his or her employer.

The Judgment

The Supreme Court held that “deliberate acts” in the context of the exclusion in the PL Policy “means acts which are intended to cause injury”, rather than acts which are intended to cause the specific injury that results (in this case death) as there was nothing in the policy wording differentiating  between injuries of differing seriousness nor any reference to proportionality which pointed to the latter. The Supreme Court sided with the insurer on this point.

Importantly, however, the Supreme Court rejected the insurer’s claim that “deliberate acts” went beyond an intention to cause injury and also included recklessness as to whether injury would be caused. Hanover’s case was that “deliberate”, which qualifies “acts”, and “wilful neglect or default” (also mentioned in the policy) which qualifies omissions, should be interpreted as synonymous. In support of its case, Hanover pointed to case law to show that “wilfulness” may include recklessness, although it did not point to cases where “deliberate” was held to include recklessness. This was rejected by the Supreme Court on a number of fronts. The starting point, the Supreme Court held, is that the natural meaning of “deliberate act” was “consciously performing an act intending its consequences”, which is a different state of mind from recklessness.  It follows that a “deliberate act” means carrying out an act intending to cause injury. If “deliberate” was intended to include recklessness, the Supreme Court expected it to be made clear in the PL Policy as recklessness can be defined in various different ways.

Moreover, “wilful” cannot be synonymous with “deliberate” because, whilst it always includes “deliberate acts”, it is capable of having a wider meaning based on the words which it qualifies and the context.  In this case the exclusion provided for “wilful neglect or default”. A “neglect or default” is more likely to refer to a breach of duty rather than merely omissions and an “act” is not a counterpart to a breach of duty.

Lastly, the Supreme Court held that to interpret the exclusion as including reckless acts causing injury (which would result in no cover for reckless acts of employees) would “seriously circumscribe the cover provided”. The Supreme Court, agreeing with the three appeal court judges in the Scottish First Division and drawing on Hawley, emphasised that, as the PL Policy covers a business of “Manned Guarding and Door Security Contractors”, it was within contemplation of the parties that door stewards will use a degree of force in carrying out their duties and that vicarious liability for their tortious acts is inherently likely to arise. An exemption for reckless acts “would lead to a very wide and commercially unlikely exclusion, given the nature of the business”.

Policyholders should note the significant weight placed by the Supreme Court on the criminal court’s findings, which convicted Mr Marcious for assault (not murder or attempted murder).  In referring to the sentencing remarks, the Supreme Court held that “[n]ot only is there no express or implied finding of intention to injure, but Lady Wolffe’s conclusion that what was done was not “badly motivated” is inconsistent with there being such an intention”. Indeed, the Supreme Court held that even if “deliberate acts” included recklessness, there was no finding of recklessness in the sentencing remarks but pointed out that “it was not for the Supreme Court to find facts”.

The Supreme Court also refused the insurer's alternative submission that Mr Grant's death was a result of a "wrongful arrest," which would have limited its liability to £100,000 under the PL Policy. This was on the basis that the losses claimed did not relate to wrongful arrest and the factual basis for such a claim was not made out.

Commentary

The decision illustrates the approach to interpretation of “deliberate acts” exclusions in insurance policies, particularly public liability policies or policies covering “injury”, and the reliance placed on the facts and remarks of the sentencing judge. Note that the Supreme Court highlighted, by referring to the Australian case (Clayton v Mutual Community General Insurance Pty Ltd)[3] involving collateral damage to a house as a result of a suicide by deliberately igniting petrol fumes in a vehicle parked in the carport which was part of the premises that, in respect of a home insurance policy, the intent is damage to insured premises, rather than the deliberate act which gave rise to that damage or damage to any other property.