The incorporation of exclusion clauses into contracts

Bexley Beaumont Senior Construction Associate Brandon Silver discusses Allianz Insurance PLC v The University of Exeter [2023] EWHC 630 (TCC) and the incorporation of exclusion clauses into contracts.

This case concerned an insurance claim submitted by the defendant, The University of Exeter, and declined by the claimant, Allianz Insurance PLC.

In 1942 a bomb was dropped by German forces in Exeter. The bomb did not explode but lay undiscovered until 26 February 2021 when it was unearthed by contractors working on a construction site. Bomb disposal experts were called in and they determined that the bomb should be exploded by way of a controlled detonation and that it could not be safely transported away.

The controlled explosion of the bomb took place the following day on 27 February 2021 and caused damage to student halls of residence adjacent to the construction site and which were owned by the defendant.

The defendant subsequently notified a claim under its policy of insurance it had with the claimant. The claimant insurer was obliged to honour the claim made by the defendant if the claim was one covered by the contract of insurance.

The issue before the Technology and Construction Court (‘TCC’) was whether the damage in respect of which the claim is made was "occasioned by war"? If it was, the claim and damage are excluded because the contract of insurance included an exclusion clause which provided that the insurer has no liability to indemnify in respect of loss occasioned by war. If, on the other hand, the damage was not occasioned by war, the claim and damage fall within the terms of the insurance cover and the claim must be met.

The TCC found in favour of the claimant insurer and held that the damage was proximately caused by the dropping of the bomb during WWII, which was an act of war, and that neither the passage of time between the dropping of the bomb and its controlled explosion, nor the intervention of the army in detonating the bomb, altered that position:

“The common sense analysis is this: the loss was caused by an explosion. The explosion was triggered by the reasonable (and indeed obviously correct) decision to detonate the bomb. That decision was necessitated by the presence of the bomb. If there had been no bomb, there would have been no explosion. The bomb provided both the explosive payload and the absolute need for the detonation. In my view, the dropping of the bomb was the obvious proximate cause of the damage.

If the bomb had exploded when it landed (and if the damaged buildings had been there) the conclusion that the bomb was the proximate cause of the damage would have been inevitable. Does the reasonable and necessary human act of detonating the bomb change that analysis? In my view it does not. It is the presence of the bomb that leads to both the need for the detonation and the inevitability of the damage. As a matter of common sense, the dropping of the bomb and its consequent presence at the site, was the proximate cause of the damage.”

This case serves a useful reminder of the effectiveness of exemption clauses in limiting or excluding a party’s liability.

However, having said that, because of the public policy concerns associated with exemption clauses, the law has established that for such a clause to be binding and operable upon the parties, the clause must:

• Be incorporated into the contract as a term;

• Pass the test of construction (i.e. the clause must be drafted clearly and unequivocally to cover the obligation or liability that it seeks to exclude or restrict); and

• Not be rendered unenforceable by the statutory provisions in the Unfair Contract Terms Act 1977 or the Consumer Rights Act 2015 (enacting the Consumer Rights Bill 2013-14).