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Monday, February 2, 2015

Commercial General Liability ~ the bulldog case !!

Bull-baiting was a blood sport involving the baiting of bulls.  There are many varieties of dogs.  The Bulldog is a medium-sized breed of dog.   It  is a muscular, heavy dog with a wrinkled face and a distinctive pushed-in nose.  There are generally thick folds of skin on a Bulldog's brow; round, black, wide-set eyes; a short muzzle with characteristic folds called a knot above the nose; hanging skin under the neck; drooping lips and pointed teeth, and occasionally an underbite.
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Understand that the tag "bull" was applied because of the dog's use in the sport of bull baiting. This entailed the setting of dogs (after placing wagers on each dog) onto a tethered bull. The dog that grabbed the bull by the nose and pinned it to the ground would be the victor. It was common for a bull to maim or kill several dogs at such an event, either by goring, tossing, or trampling. Over the centuries, dogs used for bull-baiting developed the stocky bodies and massive heads and jaws that typify the breed as well as a ferocious and savage temperament. Bull-baiting, along with bear-baiting, reached the peak of its popularity in England in the early 1800s until they were both made illegal by the Cruelty to Animals Act 1835.  Read that despite slow maturation, bulldogs' lives are relatively short. At five to six years of age they are starting to show signs of aging.

A couple of years ago, there was an interesting case in British Columbia – on a product – which scared the Insurers providing CGL (Commercial General liability) that they may end up compensating for unusable products too. 

Here, the reference to bulldog is not to the breed, but to a product – in fact a bag.  The case refers to a plastic bag manufacturer, Bulldog Bag Ltd, which provided more than 1 million printed plastic bags to  a specified customer who  used Bulldog's bags for its soil and manure business. Often we encounter a debate in Marine Cargo insurance on whether the bags [or the packing] is covered and whether damage to external packing would render the commodity inside damaged …..

As could happen the Manure producer, found that in some of the bags, the manufacturer’s label printed faded and ran off, making the labels illegible.  The bags could not be used and replacements were sought.  Bulldog did provide for replacements and the Mfr. transferred the contents from the defective bags to new bags preparing them for sale.  They claimed the value from the bag manufacturer who inturn claimed it on their Insurers.  Bulldog’s claim was for the content transfer cost plus the  value of soil and manure contained in the defective bags that were lost or destroyed in the process. Bulldog did not claim for the cost of replacing the defective bags.

The CGL policy held by Bulldog offered  coverage for property damage due to an "accident" or "occurrence". The policy defined 'property damage' as "physical injury to or physical destruction of tangible property, including loss of use thereof, or loss of use of tangible property that has not been physically injured or destroyed".  The Insurers contended that only physical injury or damage to tangible property was to the bags themselves, which were Bulldog's own property and work product. The  other costs incurred were attributable to pure economic loss, which Insurance did not cover.

At trial level, the court ruled that Bulldog's policy covered only the value of the lost or destroyed soil and manure contained in the defective bags. This left Bulldog having to take care of  a huge loss by themselves.  In between, in another case involving a building contractor, the Supreme Court of Canada ruled that the  claim for physical damage for the construction defects to its housing developments was covered by its commercial general liability policy. This changed the interpretation of CGL in bulldog case. 

The court of appeal held that the work product exclusion did not apply. The court distinguished between a claim for loss of use and a loss flowing from a loss of use (eg, the transfer and recovery costs of the manure and soil resulting from the loss of use of the bags). Because the claim was not for "loss of use" of Bulldog's bags, but rather for the cost of salvaging and transferring the manure and soil, those costs were determined not to be excluded from coverage under the policy.

With regards – S. Sampathkumar

29th Jan 2015.

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