Gas network operator’s £3 million action against insurers of quarry that forced pipeline diversion allowed a proof

About this case:

• Citation:
  [2024] CSOH 15
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Richardson

The pursuer’s action against QBE UK Ltd and another four defenders was raised in terms of the Third Parties (Rights Against Insurers) Act 2010, after decree by default was obtained against their insured in 2017 following that company’s liquidation. It was the defenders’ position that the decree by default did not establish Skene’s liability to the pursuer.

The case was heard by Lord Richardson. D Thomson KC and A McKinlay, advocate, appeared for the pursuer, Howie KC for the first defender and Paterson KC for the third to fifth defenders, comprising members of QBE Corporate Ltd.

No consideration of merits

The case concerned part of a high-pressure pipeline that ran between Glenmavis and Letham Moss which ran adjacent to a quarry, Cowdenhill, operated by D Skene Plant Hire Ltd until its liquidation and dissolution in 2017 and 2020 respectively. Following an aerial inspection of the pipeline in 2011, the pursuer became aware of a landslip at the quarry that it alleged occurred as a result of Skene carrying out operations beyond those that they were permitted to do in terms of the certification issued by Falkirk Council.

It was contended by the pursuer that, as a result of these operations, the pipeline was inadequately supported due to the proximity of the face of the quarry. Some of the land over which the pursuer held servitude rights had been destroyed or damaged. As a result, the pursuer averred it was required to divert the relevant section of pipeline away from the quarry, as the collapse of the quarry face was likely in the medium term and would rupture the pipeline if it were still in place.

Decree in the sum of £3 million was granted against Skene in November 2017, following its liquidation, after it failed to appear at a by order hearing of the court. In terms of the insurance policies they held with Skene, the first defender’s liability was limited to 21% of any losses for which Skene was to be indemnified, with the third through fifth defenders liable for the balance of losses in the years 2009/10, 2010/11, and 2011/12 respectively.

Counsel for the first defender submitted that the grant of the decree by default had involved no consideration of the underlying merits of the dispute, and thus did not “establish” liability per section 1(4) of the 2010 Act. As a secondary position if the pursuer’s construction of section 1(4) was correct, it was contended that an insurer could still challenge the establishment of liability.

For the pursuer it was submitted that section 1 of the Act did not produce an unfair result, and that the defender’s arguments failed to take into account the innovations in the law it introduced, including on how the liability of an insured was to be established.

Misconceived position

In his decision on the first issue, Lord Richardson said of the 2010 Act: “At the outset, I consider that it is important to note that section 1 of the 2010 Act clearly represents an innovation upon the pre-existing position under the 1930 Act. The background to the 2010 Act was a recognition of the need to reform the pre-existing law.”

He continued: “Against that background, the first question is whether the decree dated 17 November 2017 falls within subsection (4) as is contended for by the pursuer. I am satisfied that it does so. Both elements of subsection (4) are satisfied. The terms of the decree set up both the existence of Skene’s liability and its amount - £3 million. There is also no question that it is a decree and falls within the scope of paragraph (b).”

Evaluating the defenders’ arguments, Lord Richardson said: “I consider that the defenders’ position is misconceived precisely because it fails to take account of the fact that section 1(4) of the 2010 Act establishes a mechanism whereby the liability of an insured to an injured party is established for the purposes of the Act. Construing section 1(4) as the defenders do, one is left wondering what is the purpose of the provision.”

He added: “On the defenders’ construction, the provision would seem simply to impose an additional hurdle in the way of an injured person: requiring an intermediate establishment of liability on the part of the insured which could then be challenged again by the insurer.”

Turning to whether this liability fell within the scope of Skene’s insurance policy, Lord Richardson concluded: “The pursuer avers, among other things, that the pipeline was damaged. The pursuer goes on to aver that Skene’s liability was in respect of ‘Damage’ as defined in the policy. On this basis, I agree with the pursuer that it has averred a case, which if proved, cannot be said to be bound to fail.”

In the circumstances, Lord Richardson therefore put the case out by order to be addressed on the extent of averments that fell to be excluded from probation.