[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Aitken v Independent Insurance Co Ltd [2001] ScotCS 4 (9 January 2001) URL: http://www.bailii.org/scot/cases/ScotCS/2001/4.html Cite as: [2001] ScotCS 4

[New search] [Help]

[1] The pursuer is a former employee of Monktonhall Colliery Limited ("MCL"). On 7 July 1996, while working in the course of his employment with them, he sustained injury. MCL went into liquidation on 9 May 1997. The pursuer raised an action in this court against MCL and its liquidator, concluding for damages in respect of his injuries. By interlocutor dated 6 July 1999 he was awarded damages of £22,500 inclusive of interest to that date. That sum has not been paid, and there is no likelihood of its being paid by MCL, since it is unlikely that there will be any dividend payable to ordinary creditors in the liquidation.

[2] In these circumstances the pursuer has raised this action against the defenders, concluding for declarator that he is:

The defenders plead (plea-in-law 1) that the pursuer has no title to sue on or benefit from the policy. They also plead (plea-in-law 2) that his averments are irrelevant and lacking in specification. The case was appointed to debate on those pleas. In substance the issue between the parties is whether the contract of insurance between MCL and the defenders contained an excess clause on which the defenders are entitled to rely as a defence to the claim made against them by the pursuer.

[3] The pursuer's primary contention (as his case is now presented) is based on the Third Parties (Rights against Insurers) Act 1930 ("the 1930 Act"). It is therefore convenient to note at the outset the terms of its principal provisions. Section 1 provides inter alia as follows:

Section 2 places on the insured company and its liquidator a duty to give such information as may reasonably be required by the third party for the purpose of ascertaining whether rights have been transferred to him by the 1930 Act and for the purpose of enforcing such rights (subsection (1)); if the information given in pursuance of subsection (1) discloses reasonable ground for supposing that rights may have been transferred against any particular insurer, subjects that insurer to the same duty (subsection (2)); and extends the duty to give information to include a duty to allow inspection and copying of relevant documents (subsection (3)).

[4] It was common ground between counsel that the 1930 Act effected a statutory assignation in favour of the pursuer of such rights as MCL had against the defenders under the relevant policy. In accordance with the principle assignatus utitur iure auctoris the pursuer's rights against the defenders by virtue of the 1930 Act are co-extensive with the rights which MCL had against the defenders under the policy (Greenlees v The Port of Manchester Insurance Co Ltd 1933 S.C. 383; Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 Q.B. 363; Bradley v Eagle Star Insurance Co Ltd [1989] A.C. 957; Horne v The Prudential Assurance Co Ltd 1997 S.L.T.(Sh.Ct.) 75; and Saunders v Royal Insurance plc 1999 S.L.T. 358). The question therefore comes to be whether the pursuer's claim falls within the scope of the indemnity granted by the defenders in favour of MCL.

[5] The context in which the dispute between the parties arises is the statutory scheme for compulsory employers' liability insurance. The scheme, as it stood at the material time, was to be found in the Employers' Liability (Compulsory Insurance) Act 1969 ("the 1969 Act") and regulations made thereunder.

[6] Section 1 of the 1969 Act provides inter alia as follows:

It was common ground between the parties that the defenders were an authorised insurer within the meaning of the 1969 Act.

[7] At the material time, the regulations in force under the 1969 Act were the Employers' Liability (Compulsory Insurance) General Regulations 1971 (S.I. 1971 No. 1117), as amended by inter alia the Employers' Liability (Compulsory Insurance) General (Amendment) Regulations 1994 (S.I. 1994 No. 3301) (together referred to as "the 1971 Regulations"). The 1971 Regulations provided inter alia as follows:

Regulations 5 and 6 made provision for the issue, and the display of copies, of certificates of insurance containing specified particulars.

[8] With effect from January 1999 the 1971 Regulations were replaced by the Employers' Liability (Compulsory Insurance) Regulations 1998 (S.I. 1998 No. 2573) ("the 1998 Regulations"). Although the 1998 Regulations have no direct bearing on the present case, reference was made to their terms in the course of counsel's submissions, and it is convenient to mention here those parts of them to which such reference was made. Regulation 2(1) of the 1998 Regulations re-enacted, albeit in somewhat altered language, the substance of the prohibitions contained in regulation 2(1) of the 1971 Regulations. Regulation 2(2) of the 1998 Regulations made the following additional provision:

Regulation 2(3) re-enacted, albeit in altered language, the substance of regulation 2(2) of the 1971 Regulations.

[9] By way of explanation of the origins and purpose of regulation 2(2) of the 1998 Regulations, reference was made to a Consultative Document issued by the Department of the Environment, Transport and the Regions in 1997 along with the draft Regulations. That document bears to have followed the first full review of the operation of the 1969 Act, which was announced in December 1994 and followed by the issue of a Consultation Document in April 1995. The treatment of excess clauses in the statutory scheme before the enactment of the 1998 Regulations is at the heart of the issue between the parties in the present case, and it is of interest to see what was said about such clauses in the 1997 Consultative Document. It contained the following passage:

In the course of counsel's submissions, they adopted the shorthand of referring to a clause of the sort mentioned in the first bullet point above as a "type 1 excess", and a clause of the sort mentioned in the second bullet point as a "type 2 excess". In the course of this opinion, I shall adopt the same shorthand.

[10] Reference was also made to a passage in the Regulatory Impact Assessment relative to the 1998 Regulations. It contained the following passage:

[11] There is, unfortunately, some controversy as to the identity of the documents which form the policy or contract of insurance under which MCL maintained employers' liability cover at the material time (in this case during the period from 9 June 1996 to 30 June 1997). It is, in my view, clear (and I do not understand it to be a matter of dispute between the parties) that the intention was that the policy should comprise inter alia (i) a printed set of conditions and (ii) a schedule. There is no dispute as to the relevant printed conditions (No. 6/13 of process). There is, however, dispute over whether the relevant schedule has been identified.

[12] The need for a schedule is made expressly clear on page 1 of the printed conditions, under the heading "Policy Information" (which is, however, declared not to be part of the policy). There it is stated:

On page 3 of the printed conditions there appears the following passage:

In the General Policy Definitions (on page 4) examples of the need for a schedule to complete the policy documentation are to be found in the definitions of "Insured" and "Business". Likewise in Section 1 - Employers' Liability (page 8) reference to the schedule is required in order to identify the limit of indemnity.

[13] Since the pursuer was not a party to the contract of insurance, it is not surprising that he has no direct knowledge of the terms of the contract. His knowledge that the contract of insurance existed was founded on (i) the existence of the statutory scheme for compulsory employers' liability insurance, and (ii) the certificate issued and presumably at the material time displayed in accordance with regulations 5 and 6 of the 1971 Regulations (No. 6/12 of process). Demands made of the liquidator of MCL and of the defenders (and the brokers) in terms of section 2 of the 1930 Act, and followed up by commission and diligence, have yielded two schedules in respect of the relevant year of cover. Both bear to relate to the period of insurance from 9 June 1996 to 30 June 1997, and are (subject to a variation in the way in which the premium is expressed) in substantially the same terms. The earlier of the two (No. 6/2 of process) bears to have been issued on 31 October 1996, and (against the word EXAMINED) bears a stamp, a signature and the manuscript date 26/11/96. The later version (the second sheet of No. 6/13 of process) bears to have been issued on 24 February 1997, and (against the word EXAMINED) bears a stamp, a signature and the manuscript date 07/03/97.

[14] The crucial provision of the schedule, which lies at the heart of the dispute between the parties, is in the following terms:

It is upon that provision that the defenders rely in refusing to meet the pursuer's claim. The pursuer argues, on a number of grounds, that they are not entitled to do so.

[15] The pursuer's Note of Argument (albeit not his pleadings - see the first sentence of article 3 of the condescendence) was couched in terms that suggested that his contention was to be that the contract of insurance between MCL and the defenders did not contain any schedule. Counsel for the defenders presented submissions to the effect that that was not possible. The role given to the schedule by the printed conditions was such that without a schedule there could be no contract of insurance. In the course of the debate counsel for the pursuer accepted that the printed conditions contemplated that, to be complete, the policy required to include a schedule. The pursuer's submission came to be, not that there was a complete policy despite the absence of a schedule, but rather that the pursuer could make a relevant case against the defenders without identifying the document that formed the relevant schedule, and more particularly without accepting that No. 6/2 of process (or the second sheet of No. 6/13 of process) was the relevant schedule.

[16] The pursuer's argument was that it was sufficient for him to point to (i) the requirements of the 1969 Act, (ii) the certificate of insurance for the relevant period (No. 6/12 of process) and (iii) the defenders' admission (in Answer 3) that MCL took out employers' liability insurance with them for that period. The matters which required to be determined by reference to the schedule were not in issue. It was not disputed that MCL were the insured. There was no issue as to the nature of their business. The period of insurance was matter of admission. The minimum limit of indemnity was set by statute. Prima facie therefore there was cover of which the pursuer was entitled to take advantage by virtue of the statutory assignation effected by the 1930 Act. The onus was on the defenders to demonstrate that the policy contained terms that qualified that prima facie cover in a way that afforded a defence to the pursuer's claim. They did not relevantly seek to do so, because the only schedules on which they sought to rely were dated long after the commencement of the cover, and after the pursuer's accident. The schedules issued in October 1996 and February 1997 could not be given retrospective effect; at least not without averments explaining why they should be given such effect, and there were no such averments. Alternatively, if the defenders had relevantly put the October and February schedules in issue, a proof was required before it could be held that their terms were applicable in relation to the pursuer's claim.

[17] The defenders' argument on this issue took as its starting point the proposition that to be complete the policy required to include a schedule. What the pursuer was trying to do was to "cherry-pick" those provisions of the schedule that suited his purpose, while refusing to accept the fact that it included the excess clause which did not suit his purpose. If the pursuer accepted, as he did, that a complete policy required to include a schedule, the result was either that he had to accept the schedule produced (including the excess clause), or that his pleadings were irrelevant for lack of identification of the schedule that he claimed formed part of the contract of insurance. He could not relevantly reject the schedule relied on by the defenders if he had no competing schedule to put forward. So far as the schedules produced by the defenders were concerned, (i) they were the only ones before the court, (ii) they bore to relate to the relevant period of insurance, and (iii) it was commonplace to find insurance documents issued after the date at which they were intended to have effect. There was therefore no obstacle to treating them as applicable to the whole of the period of insurance to which they bore to relate. In view of the procedure that had been followed through to identify the applicable documents, the court was bound to proceed on the basis that the documents before it were the only ones in existence. The pursuer had no relevant averments that a schedule with no excess clause existed. There was therefore nothing to go to proof. A proof was not the appropriate procedure by which to test whether some other schedule existed; the appropriate procedure for that purpose was commission and diligence, and that had already been deployed.

[18] I begin my consideration of this issue by recognising that the pursuer, because he was not a party to the contract of insurance, is at a disadvantage in seeking to identify the terms of the contract. He is not, however, without means of ascertaining those terms. By virtue of section 2 of the 1930 Act, he is entitled to demand information from MCL and its liquidator, and from the defenders, and to require them to allow him access to the relevant documents. Procedurally, he is in addition entitled to commission and diligence for recovery of the relevant documentation. That procedure has been carried through in the present case. The result has been the identification of (i) the relevant printed policy conditions (No. 6/13 of process), and (ii) the two versions of the schedule (No. 6/2 of process and the second sheet of No. 6/13). With that material, and only that material, available, the pursuer accepts the printed policy conditions as applicable, but declines to accept that the schedules are applicable. He so declines on the basis that, although they both bear to relate to the whole of the relevant period of insurance from 9 June 1996 to 30 June 1997, they are dated after the date of his accident. He argues that they therefore cannot be relevant to his claim, or, if they can, must be proved by the defenders to have been applicable at the date of his accident. It seems to me to be plain that the parties to the contract of insurance, and in particular the defenders, contemplated that the terms of the contract would be set out in a combination of documents, the principal items (for present purposes) being the printed policy booklet and a schedule. I do not consider, however, that it follows that there can have been no contract in the terms recorded in the schedule prior to the date of actual issue of the schedule. If a question had arisen before the issue of the schedule as to whether a contract of insurance was in force, a proof might well have been required, at which it would have been necessary to ascertain whether there had in fact been agreement on the matters which would have been recorded in the schedule. But that is not the question in the present case. Here it is not disputed that there was, as the 1969 Act demanded and the certificate vouched, a contract of insurance in place from 9 June 1996 affording to MCL employers' liability cover. The question is whether the contract contained the excess clause on which the defenders seek to rely. The only documents before the court, notwithstanding their dates of issue, bear to vouch that for the period of insurance in question the contract did contain that excess clause. In my view that is the basis on which the court must proceed in the absence of any relevant averment by the pursuer of either (i) the existence of another schedule not containing the excess clause, or (ii) an agreement between MCL and the defenders in respect of the period in which the pursuer's accident fell that there was to be no excess clause. It follows, in my opinion, that the pursuer cannot succeed on the basis that there was in existence a contract of employers' liability insurance with no excess clause. Nor in my opinion is there any basis in averment for allowing a proof on that issue.

[19] In the event that I held, as I have done, that I must proceed on the basis of the schedules produced, the pursuer submitted (1) that on a sound construction of the excess clause it did not exclude the first £25,000 of each claim (and the first £125,000 of the aggregate of claims) from the scope of the indemnity granted by the defenders in favour of MCL, but merely entitled the defenders, after fulfilling the indemnity by meeting the relevant claims in full, to seek to recover from MCL the amount of the excess; and (2) that the statutory scheme did not permit exclusion of the whole or part of an employee's claim from the scope of the indemnity, although it did permit the insurer to recoup an excess from the employer. In other words, the pursuer's submission was that the excess clause in the schedule was properly to be construed as a type 2 excess clause, not a type 1 excess clause, and that a type 2 excess clause was the only type permitted under the statutory scheme. The defenders' position was that the excess clause, properly construed, was a type 1 excess clause, and that there was nothing in the statutory scheme as it stood at the material time (before regulation 2(2) of the 1998 Regulations altered it) to prohibit that type of excess clause. The matters of construction of the policy and the effect of the statutory scheme are not wholly separable, but it is convenient to consider them in turn.

1. Construction of the Excess Clause

[20] The defenders' submissions as to the meaning of the excess clause in the employers' liability section of the policy took as their starting point the fact that the Introduction (quoted in paragraph [12] above) provided that the various parts of the policy documents, including inter alia the printed conditions and the schedule, should be read as one document, and that any word given a specific meaning in inter alia the General Policy Definitions should have the same meaning throughout the policy. That express provision reflected and reinforced the approach which would in any event have been appropriate. In construing the reference to excess in the schedule, therefore, it was necessary to look to the definition of "Excess" in the General Policy Definitions. That definition was in the following terms:

"11)

Excess shall mean the total amount payable by the Insured or any other person entitled to indemnity in respect of any Damage to Property arising out of any one occurrence or series of occurrences arising out of any one cause before the Company shall be liable to make any payment. If any payment made by the Company shall include the amount for which the Insured or any other person entitled to indemnity is responsible such amount shall be repaid to the Company forthwith."

It was clear from the terms of the first paragraph of that definition that it referred to a type 1 excess, in which the insured was bound to meet the first tranche of the claim, and that tranche was excluded from the indemnity. The second paragraph did not point to a type 2 excess, because it provided for repayment to the insurer in the event of payment having been made by the insurer of a sum which the insurer was not obliged to pay. It was recognised that the definition could not be applied strictly according to its terms in the employers' liability section of the policy, where claims would be in respect of personal injury, not damage to property. In that situation, however, it would be wrong to suppose that the definition should have the effect of rendering the excess clause in the schedule meaningless in its application to the employers' liability section of the policy. Rather the definition should be applied with the modifications necessary to give it content in the context of employers' liability cover. Reference was made to the following passage in McGillivray on Insurance Law § 11-31:

"It sometimes happens that certain of the standard printed clauses contained in the contract cannot be reconciled with the expressed objects and subject matter of the insurance. ... The printed form of policy used may ... be inapplicable to the particular risk... A condition not in terms applicable to the risk may be applied mutatis mutandis".

The effect of adopting that approach to the construction of the present policy was that the definition made it clear that when the policy referred to excess, it meant a type 1 excess, but that in its application to the employers' liability section, the reference to damage to property had to be read as a reference to personal injury. The result was that, as a matter of construction, the excess clause left the insured with no right to indemnity in respect of the first £25,000 of any claim, up to the aggregate limit of £125,000 in the period. The pursuer, as statutory assignee of the insured by virtue of the 1930 Act, could be in no better position.

[21] The pursuer's approach to the matter of construction began with consideration of the terms of the paragraph headed "The Cover" in Section 1 of the printed conditions. It provided:

"In the event of Bodily Injury caused to an Employee within the Territorial Limits arising out of and in the course of employment by the Insured the Company will indemnify the Insured in respect of Compensation for such Bodily Injury arising out of such event."

When that paragraph said that the insurer would indemnify the insured, it meant what it said. Apart from the limit of indemnity, the obligation was not limited or partial. The party to be indemnified was the insured, and that meant that whatever the insured became liable to pay to an employee, the insurer became liable to indemnify. The indemnity was expressed as being in respect of "Compensation", and that term was defined in the General Policy Definitions as meaning:

"all sums which the insured shall be legally liable to pay as compensation other than punitive exemplary or aggravated damages or any additional damages resulting from the multiplication of compensatory damages".

Apart from the exclusion of various forms of damages going beyond compensatory damages, the phrase "all sums" was unqualified. A type 1 excess clause would be inconsistent with the generality of the obligation to indemnify in respect of all sums of compensation. In contrast, in Sections 2 and 3 of the policy (Public Liability and Product Liability respectively) the Section Exceptions made specific provision for the excess as an exception to the indemnity. Section 2 contained the following provision:

	"Section Exceptions The Company shall not provide indemnity against liability ...
	5)	for the Excess specified in the Schedule to this Policy other than in respect of Damage to premises (including their fixtures and fittings) leased or rented by the Insured."

Section 3 contains a similar provision (see Section Exception 7 added by paragraph 2 of the Memorandum forming the third sheet of No. 6/13 of process). Where one type of excess clause (type 2) was consistent with the express terms of the policy as to the extent of the indemnity granted and the other (type 1) was not, the particular excess clause should be construed as being of the former type, not the latter. The General Policy Definition of "Excess" did not help the defenders. In its terms it applied only to damage to property. A prima facie inapplicable clause could only be applied mutatis mutandis where that was consistent with the other provisions of the policy. Using the General Policy Definition of "Excess", expanded to cover bodily injury, to characterise the Section 1 excess as a type 1 excess was not consistent with the primary provisions of Section 1. Under Section 2 (Public Liability) and Section 3 (Product Liability) cover was given in respect of bodily injury, but the excess in those sections could not apply to such claims. It would, however, be bizarre to read the definition of excess as covering bodily injury claims in Section 1, while applying the General Policy Definition according to its actual terms in Sections 2 and 3. The proper result was to conclude that the General Policy Definition of "Excess" could have no application at all in Section 1. It was therefore not legitimate to rely on that definition for the purpose of characterising the Section 1 excess as a type 1 excess.

[22] Further support for the pursuer's approach to the construction of the Section 1 excess was drawn from another provision in the printed policy conditions. The General Policy Conditions provide:

	"10)	Claims (Discharge of Liability)
		The Company may at any time at its sole discretion
		a)	under Section 1 pay to the Insured the Limit of Indemnity (less any sum or sums already paid in respect or in lieu of Compensation and less other costs and expenses already paid or incurred prior to such payment) or any lesser sum for which the claim or claims against the Insured can be settled and the Company shall not be under any further liability in respect of such claim or claims".

The reference to payment of the limit of indemnity, rather than the limit of indemnity less the excess, reinforced, it was submitted, the soundness of construing the excess as a type 2 excess.

[23] It was further submitted on the pursuer's behalf that, if the construction of the provisions of the policy relating to the Section 1 excess was otherwise in doubt, the policy should be construed contra proferentem, since the defenders were the proferens of the policy, and on their approach the excess clause would have the effect of partially excluding or taking away the indemnity granted by the principal provisions of the policy (Smith v UMB Chrysler (Scotland) Ltd 1978 S.C.(H.L.) 1; Mars Pension Trustees Limited v County Properties and Developments Limited 1999 S.C. 267). Very clear words would be required to set up a type 1 excess in face of the principal provisions of the Section. The alternative construction of the excess clause as a type 2 excess would not have the effect of taking away part of the indemnity granted, and that construction was therefore to be preferred in dubio. Reliance was also placed on the preference for a construction which did not yield an unreasonable result (McGillivray, § 11.9). In the context of a statutory scheme for compulsory employers' liability insurance, it was unreasonable that the excess clause should be construed as having the effect that, until the aggregate excess had been exhausted, claimant employees would not be entitled to the benefit (or, if the individual's claim was for more than £25,000, the full benefit) of the protection that compulsory insurance was designed to confer, while those coming later, after the aggregate excess had been exhausted, would have the benefit of full protection. In anticipation of this line of argument, junior counsel for the defenders had made reference to Cox v Bankside Members Agency Limited [1995] 2 Lloyd's Rep 437 per Sir Thomas Bingham MR at 459, but I do not find that case of assistance in the present context.

2. The Effect of the Statutory Scheme

[24] The pursuer's submission was that, however the policy was to be construed, the statutory scheme for compulsory employers' liability insurance only permitted a type 2 excess clause; a type 1 excess was contrary to the requirements of the scheme. Except to the extent otherwise provided for in the 1969 Act, section 1(1) (see paragraph [6] above) was unqualified in its terms. It applied to "every employer" carrying on business in Great Britain. It required them to insure and maintain insurance under approved policies with authorised insurers. The cover required to be "against liability for bodily injury or disease sustained by his employees". The definition of employee in section 2 was not qualified in any way that was relevant in the present case. The only relevant restriction on the scope of the required insurance was to be found in the limit of the amount of cover required, as permitted by section 1(2) and laid down in regulation 3 of the 1971 Regulations. Regulation 3 required the amount of cover to be £2 million in respect of claims arising out of any one occurrence. If the defenders' construction of the excess clause was correct, certain employees, namely those affected by the excess clause, would be deprived of the protection that the legislation was designed to afford them. That would be inconsistent both with the general terms of section 1(1) and with the requirement of regulation 3 as to the level of cover. It was accepted that there was no express prohibition of excess clauses. Moreover, there was no control on the level of excess permitted. It followed, if the defenders' submissions were correct, and type 1 excess clauses were permissible, that there was scope for substantial erosion of the intended statutory protection. That was added reason for concluding that the only type of excess clause which would be consistent with the requirements of the statute would be a type 2 excess clause.

[25] The defenders' submission was that the legislative scheme as it stood at the material time did not prohibit type 1 excess clauses. What it required was cover (i) under an approved policy (ii) with an authorised insurer (iii) to the amount required by regulation 3. Here the policy was admittedly with an authorised insurer, and the limit of indemnity complied with regulation 3. The issue was whether the policy was an approved policy. An approved policy was one that contained no conditions or exceptions prohibited by regulations (section 1(3)(a)). The terms of the subsection recognised that a policy might legitimately be subject to conditions and exceptions, provided they were not prohibited ones. The relevant regulation was regulation 2 of the 1971 Regulations. It contained no prohibition of excess clauses. The existence of an excess clause qualifying the cover afforded under the policy therefore did not prevent the policy from being an approved one. The pursuer's contention amounted to an illegitimate attempt to enlarge the class of prohibited conditions beyond what was actually contained in regulation 2. Regulation 3 was not concerned with what conditions and exceptions were permissible. The subsequent legislative history made it clear that the 1971 Regulations did not prohibit type 1 excess clauses. It was instructive that, following a review of the operation of the 1969 Act, amendment of the regulations to prohibit type 1 excess clauses was seen to be necessary. It was also of significance that the amendment took the form of the addition of a new paragraph (2) to regulation 2, rather than a clarification of the wording of regulation 3. That reinforced the submission that the simple question in the present case was whether type 1 excess clauses were prohibited at the material time, and that the negative answer was to be found by examining regulation 2.

[26] As I have already said, I do not consider that the question of the proper construction of the policy and the question of the effect of the statutory scheme are wholly separable. I find it convenient to consider first whether the statutory provisions, as they stood at the material time, permitted the inclusion in an employers' liability policy of a type 1 excess clause.

[27] The approach adopted in the 1969 Act to defining the requirements of the statutory scheme is first to set out the broad requirement that employers maintain employers' liability insurance (section 1(1)), then to provide for a ceiling to the amount of cover that is to be maintained (section 1(2) and regulation 3), and then, through the definition of "approved policy", to prohibit certain conditions and exceptions (section 1(3)(a) and regulation 2(1)). If attention is focused solely on the question whether the policy in the present case is an approved policy, i.e. whether it contains any condition or exception prohibited by the regulations, the answer is clearly that it contains no such condition or exception and is therefore an approved policy. That is because the 1971 Regulations contained no prohibition on excess clauses, and in particular, no prohibition on type 1 excess clauses.

[28] But that is not the end of the matter. A policy may be an approved policy, but still be in terms which do not effect the insurance that section 1(1) requires the employer to effect. Section 1(1) requires the employer to effect insurance against liability for bodily injury sustained by his employees. That must, in my view, mean any bodily injury sustained by any of his employees. If, therefore, there is an employee who has sustained bodily injury and whose claim is not covered by the insurance effected, there has been a failure to effect the required insurance. The effect of a type 1 excess clause is that an employee whose claim falls wholly within the excess is not covered by insurance - the insurer is not obliged to indemnify the employer, and (in a question between the employer and the insurer) the employer alone is responsible for meeting the employee's claim. Similarly, an employee whose claim falls partly within the excess is to that extent not covered by insurance. Moreover, a policy providing for a limit of indemnity of £2 million in respect of any one occurrence, but at the same time imposing a type 1 excess, can be said not to meet the requirement of regulation 3 that the amount of insurance be £2 million for any one occurrence; rather the amount of insurance effected is £2 million less the amount of the excess. If that analysis is correct, the inclusion of a type 1 excess clause in an employers' liability policy is inconsistent with compliance with the requirement of section 1(1) of the 1969 Act.

[29] Before adopting that analysis, however, it is appropriate to test it against the amendment to the law effected by the 1998 Regulations. They may be regarded either as closing a loop-hole in the law or as re-enacting the substance of the existing law in clearer form. The form of the amendment suggests that it was regarded as closing a loop-hole, i.e. prohibiting something that had not thitherto been prohibited. That at least seems to me to be the natural inference from the fact that the new provision is expressed as an additional prohibition in regulation 2(2). If the object of the amendment was merely to make clear that type 1 excesses had always been inconsistent with the scheme of compulsory employers' liability insurance, adding an express prohibition of such clauses was perhaps not the most logically coherent way of doing so. On the other hand, it was perhaps the simplest and least complicated way of making it clear that such clauses were not to be permitted. Although reference was made in the course of the debate to what was said in the 1997 Consultative Document and in the Regulatory Impact Assessment, these documents do not seem to me to shed any very clear light on whether the amendment was thought to make a substantive change in the law. On the pursuer's behalf, emphasis was placed on the words "make it clear that" in paragraph 4.14 of the Consultative Document as indicating that what was intended was merely clarification, not substantive change. The same point can be made by reference to paragraph 16 of the Regulatory Impact Assessment, which speaks of "the clarification provided by these Regulations". On the other hand, the previous paragraph refers to the aim being to "ensure that any excesses ... do not affect the employees (sic) right to be fully compensated by the insurer", and that might be taken as an indication that, without the amendment, that could not be ensured. It seems to me that these documents proceed on the basis that the intent of the Act was that every employee (as defined) should have the protection of compulsory employers' liability insurance (see the Regulatory Impact Assessment, paragraph 16); that market practice was not to include type 1 excess clauses in policies effecting compulsory employers' liability insurance; but that it had been realised that the absence of express prohibition might leave it arguable that such excess clauses were permissible; and that accordingly the express prohibition should be enacted. That seems to me to shed no clear light on whether or not under the 1971 Regulations a policy containing a type 1 excess clause complied with the statutory requirements.

[30] I therefore revert to the task of construing the statutory scheme as it stood before the enactment of the 1998 Regulations. It seems to me that both parties' approaches to its construction are arguable. Having regard to the purpose of the Act, however, and the fact that the existence of a type 1 excess clause makes it inevitable from the outset (as distinct from being a matter of subsequent circumstance, as it is in the case of the prohibitions contained in regulation 2(1)(a) to (d)) that some employees will, in whole or in part, be without the protection of insurance cover, I am of opinion that the pursuer was well founded in arguing that a policy which contained that type of excess clause failed to meet in full the requirements of the statutory scheme.

[31] By itself, the fact that a policy containing a type 1 excess clause would fail to comply with the legislation would not help the individual employee in respect of whom the excess clause fell to be applied. But in my view, there is provision in the policy in the present case which deals with such non-compliance in such a way as to protect the employee. That provision is General Policy Condition 6), which provides as follows:

The first effect of that provision in the policy was, in my opinion, to extend the indemnity granted by the insurers beyond that otherwise contractually provided for, so as to meet any shortfall that would, but for that clause, have existed between the contractual indemnity and the indemnity required by the statutory scheme. The insured (and the employee as statutory assignee under the 1930 Act in the event of the insured's insolvency) was thus placed in the position of being entitled to indemnity in all circumstances in which employers' liability cover was statutorily compulsory. The second effect of the provisions was in my view to confer on the insurer a right to recover from the insured any sum, paid by virtue of the clause, which would not otherwise have been payable. In other words, it was in part a clause of the sort contemplated in regulation 2(2) of the 1971 Regulations. In the context of a type 1 excess clause, its effect was to convert it into a type 2 excess clause.

[32] I am therefore of opinion (1) that a policy containing a type 1 excess clause did not fully comply with the requirements of the statutory scheme, even as it stood before the 1998 amendment, but (2) that, if the policy did contain a type 1 excess clause, General Policy Condition 6) would operate to oblige the insurers to grant indemnity, subject to a right to reclaim payment of the excess from the insured. It remains to be considered whether, on a sound construction of the policy, it did contain a type 1 excess clause.

[33] The only reference to an excess clause applicable to Section 1 of the policy (Employers' Liability) is in the schedule. The reference is brief:

By itself, that says nothing about whether the excess is to be of type 1 or type 2. When the policy is read as a whole, however, I am of opinion that considerable help can be obtained by contrasting Section 1 with Sections 2 and 3. In Section 1, the cover is expressed in terms of indemnity in respect of compensation for bodily injury to an employee. The only qualifications of that cover relate to the limit of indemnity and an exception in respect of claims covered by compulsory Road Traffic Act insurance. In contrast, in Sections 2 and 3, both of which also provide for indemnity in respect of certain claims for compensation for bodily injury, there is a clearly expressed exception providing that there will be no indemnity for the excess. The presence of that provision in Section 2 and 3 makes it clear that in those sections the excess clause is a type 1 clause, excluding indemnity. The absence of a corresponding provision in Section 1 in my opinion points strongly to the intention that in that section the excess be a type 2 excess, not affecting the scope of the indemnity, but entitling the insurer to seek reimbursement of the excess from the insured. I find further support for that conclusion from the fact that, as I have held, the statutory scheme, even as it existed at the material time, contemplated that the compulsory cover would not include a type 1 excess, but might include a type 2 excess. I do not, however, place any weight on the terms of General Policy Condition 10) in this context (c.f. the submission recorded in paragraph [22] above). The oddity of the result brought about by the defenders' construction, namely that the earliest claimants are least well protected, is however to my mind a further consideration which supports the pursuer's construction.

[34] The submission advanced on behalf of the defenders, founding on the General Policy Definition of "Excess", and seeking to read it mutatis mutandis in relation to Section 1, does not in my view constitute a secure foundation for a conclusion that the Section 1 excess is a type 1 excess. I accept that the definition is of a type 1 excess. In the context of Sections 2 and 3, given the terms of Section Exceptions 5) and 7) respectively, that fits very well. But the definition is applicable only to damage to property. In the context of Sections 2 and 3, therefore, it appears to operate to the effect of confining the excess clause in those sections to property claims. While I accept in principle that there is room for reading prima facie inapplicable printed clauses in insurance policies mutatis mutandis, it would, in my view, be inappropriate in this case to deploy that approach to read General Policy Definition 11) as if, for the purposes of Section 1, it referred to claims in respect of bodily injury, then to draw from the definition, so adapted, the conclusion that the Section 1 excess clause is of type 1. That would involve either inferring a difference in scope between the excess clause in Section 1 and those in Sections 2 and 3, in that the former would apply to bodily injury claims while the latter (despite the fact that Sections 2 and 3 provide cover for inter alia bodily injury claims) would be confined to property claims, or alternatively broadening the definition to cover bodily injury claims in all three sections. I see no basis for taking the latter course, and the former produces the very odd result that there is a type 1 excess applicable to bodily injury claims in Section 1 but not to such claims in sections 2 and 3. In any event, I do not consider that the possibility of construing the definition mutatis mutandis in relation to Section 1 is sufficient to overcome the effect of the absence from Section 1 of a section exception excluding indemnity in respect of the excess.

[35] If it had been necessary to do so, I would have been prepared to construe the policy contra proferentem, but in the event I do not find it necessary to resort to that approach. My conclusion on the construction of the policy is that the excess provision in Section 1 was a type 2 excess, namely one which did not exclude the amount of the excess from the indemnity granted by the insurers, but gave them a right to seek to recoup it from the insured. The result is that the risk of MCL's insolvency in effect fell on the defenders. The pursuer's claim falls within the scope of the indemnity granted by the defenders in favour of MCL, and he, as the statutory assignee of MCL by virtue of the 1930 Act, is entitled to look to the defenders to satisfy the decree which was granted in his favour in the action at his instance against MCL. Since I have construed the policy in that way, it is unnecessary for the pursuer to rely on the alternative line of argument based on the construction of the statutory scheme and the effect of General Policy Condition 6) (see paragraph [32] above).

[36] In view of the conclusion which I have reached in paragraph [35] above, an alternative argument advanced on the pursuer's behalf on the basis of Section Extension 2) of Section 1 of the policy does not require to be addressed. It is, however, appropriate that I should record briefly the submissions made on the point and the view which I would have taken of them.

[37] Section Extension 2) was in inter alia the following terms:

[38] On the pursuer's behalf it was argued that, if he failed otherwise, he was entitled to succeed under that provision, which conferred on him a ius quaesitum tertio. The requirements of the clause were satisfied:- (i) the pursuer, an employee, had obtained a judgement for damages; (ii) it was in respect of bodily injury sustained by him arising out of and in the course of his employment with MCL in the insured business; (iii) it was against a "company ... operating from ... premises within the Territorial Limits", namely MCL; (iv) it was obtained in a "court situate in the Territorial Limits", namely this court; (v) it remained unsatisfied more than six months after its date; and (vi) the liquidator of MCL had requested the defenders to pay the pursuer. The only factor that was open to argument was requirement (iii), but there was no reason to read the reference to "any company" restrictively so as to exclude the insured. That would involve reading into the clause words that were not there. The requirement of assignation under proviso 2) operated in support of recovery of the excess by the insurers from the insured.

[39] On the defenders' behalf it was accepted that the clause conferred a ius quaesitum tertio on the employee. It was argued, however, that the clause was intended to render the insurer liable in certain circumstances to satisfy judgements against third parties, and had no application to judgements against the insured. In relation to judgements against the insured, the clause was otiose. Had it been intended that it cover the case of a judgement against the insured, the language of paragraph b) would have been different: it would have referred to "the Insured or any other company or individual ...". The terms of proviso b) reinforced that conclusion. It was inconsistent with the relationship of insurer and insured that the insurer should become the assignee of the claimant against the insured.

[40] In my opinion the clause, properly construed, has no application in relation to judgements against the insured. The purpose of the clause, it seems to me is to afford additional cover protecting the employee against non-payment of claims in connection with injury suffered in the course of his employment where the party against whom the judgement has been obtained is someone other than the employer. While the generality of the phrase "any company or individual" is habile to include the insured, I am of opinion that when the clause is read as a whole in the context of the policy, it is clear that it was not intended actually to include the insured. The point is, however, in the event academic.

[41] For the reasons which I have discussed I conclude that the pursuer is entitled to look to the defenders for satisfaction of the decree which he obtained against MCL. The basis on which I hold that he is so entitled is that, on a sound construction of the policy, the Section 1 excess was a type 2 excess which did not fall outwith the scope of the indemnity granted by the defenders in favour of MCL. That being so, on the winding-up of MCL, their right to enforce the indemnity against the defenders was transferred to and vested in the pursuer by virtue of section 1 of the 1930 Act. Had I construed the excess clause as a type 1 excess, I would still have found for the pursuer, on the basis that the requirements of the 1969 Act were not fully satisfied by a policy containing a type 1 excess clause, and that in those circumstances the pursuer was entitled to have his claim satisfied by the defenders by virtue of General Policy Condition 6). Had I been against the pursuer on both of those arguments, I would not, however, have found for him on the basis of the Unsatisfied Court Judgements clause.

[42] In the course of the debate it was suggested that if I found for the pursuer the case should be put out By Order for discussion of the appropriate form of decree. I accepted that in the circumstances that was the appropriate course to follow, and I shall accordingly, without pronouncing a substantive interlocutor at this stage, put the case out By Order for that purpose.