Throwing money away?
Property Insurance Aware 4
Businesses produce waste on a daily basis.
Sometimes a business will make efforts to reduce waste by recycling some of that waste.
However, can the good intentions of the business cause difficulties when its insurance policy requires the business to deal with its waste in a specific manner?
How should insurers deal with situations where their policyholder’s good intentions result in damage and a claim under their policy?
Many businesses will have insurance policies, which require them to deal with their ‘waste’, or ‘trade waste’, in a certain manner. These requirements are generally referred to as ‘waste warranties’, or ‘trade waste warranties’.
Typical wording might state:
The policyholder warrants that all trade waste must be cleared away at the end of each working day and placed in appropriate receptacles and cleared from the premises at least once a week.
This places specific requirements the business must comply with on a daily basis. The vast majority of the time, the business will ensure that these requirements are met. However, there may be occasions where businesses do not comply with the requirements of the waste warranty for any number of reasons e.g. if a proportion of the waste is to be recycled at a later date and needs interim storage, in a particular manner. Could such items fall outside of the waste warranty requirements? We consider the position regarding items awaiting recycling which would otherwise be classified as waste.
By way of example, here are two scenarios to consider:
A workshop uses a dust extractor when other equipment is in use. The dust extractor accumulates sawdust and wood shavings in large bags in the base of the unit. The bags are emptied periodically, but not necessarily on a daily or weekly basis.
To further complicate matters, the sawdust and shavings which accumulate within the dust extractor are sometimes reused by the policyholder as fuel. However, on this one occasion the sawdust and wood shavings collected within the dust extractor ignite, causing significant fire damage to the property.
The policyholder is a tyre fitter by trade, work which includes the removal and disposal of used tyres. Ordinarily, in order to comply with the waste warranty applicable to their policy, the policyholder stores the used tyres a safe distance from its premises and the tyres are then removed once a week by a third party. Some of the used tyres are disposed of by the third party, but others are capable of being re-treaded.
Unfortunately, on one occasion the policyholder leaves the used tyres out in the open, in close proximity to the premises, and does not move them to a safe distance from the premises. The tyres are subsequently set alight by a third party, causing substantial damage to the premises.
In both scenarios, the policyholders argue that the items that caught fire - i.e. the sawdust and the tyres, are neither waste nor ‘trade waste’ as it was intended that they would be recycled. Is this a viable reason for insurers to pay the claims?
The leading case authority on the issue of what constitutes ‘trade waste’ is Matthew Bennett (t/as Soho Pizzeria) v AXA Insurance PLC  EWHC 86 COMM.
Whilst not identical to the scenarios presented, it involved a similar waste warranty, which required all trade waste in a pizza restaurant to be removed every night into a separate disposal area.
Mr Justice Tomlinson considered that the clause in that case was intended to afford the insurers with some protection against the risk of fire whilst the restaurant was unoccupied (i.e during the night when it was closed).
The judge went on to consider what constituted ‘trade waste’, stating in his judgment that, “all waste generated by the trade carried on at the premises is ‘trade waste’ …waste which has been generated in the ordinary course of trading from the trade premises”.
Mr Justice Tomlinson went on to say, “The individual detritus generated by those carrying on the trade must realistically be regarded as trade waste. In this context, there is no hard and fast distinction between generic waste and trade waste. No doubt the waste is described as trade waste because this is a policy offered to traders”.
Finally, he added that the court “must strive to give the clause a sensible meaning and content”.
It must be strongly arguable that the only sensible interpretation of a waste warranty is that any refuse produced on the premises, certainly refuse produced using tools of the insured’s trade, falls within the definition of ‘trade waste’ .
So what if that ‘trade waste’ was to be recycled? Well, Mr Justice Tomlinson did not need to consider this additional aspect in Bennett. However, the fact that the waste might be recycled should not alter the views expressed by the court in Bennett. After all, some of the ‘trade waste’ in that case was no doubt capable of being recycled. The key questions are:
- What is the state of the items being disposed of? or
- What is the condition of the ‘trade waste’, at the time that the damage is caused?
In the workshop scenario, whilst the sawdust located within the dust extractor may have been recycled on a periodic basis, the sawdust is ‘trade waste’ until such time as it is recycled.
Similarly, in the tyre fitters scenario, it is apparent that the tyres may well be capable of being retreaded to a condition rendering them capable of road use. Such use would be once an appropriate recycling process has taken place, but until that re-treading has been carried out, the used tyres are clearly ‘trade waste’ as they are no longer fit for purpose.
Whilst these particular scenarios have yet to be tested in the courts, what would happen if it was found to be good law that any recyclable goods left on a property, which would be ordinarily be defined as ‘trade waste’, are subsequently not covered by a waste warranty.
This is on account of the insured’s intention to recycle them, as this would seem to take away the protection to insurers which is the purpose of the waste warranties to begin with i.e. the prevention of fire.
A fire caused by the ignition of waste is clearly much more likely to cause a significant amount of damage if the waste is stored on the business premises, as opposed to being stored a safe distance away from the premises.
It is clear that insurers need to be alert to situations such as this, and given the lack of settled case law, disputes with insureds regarding compliance with waste warranties may arise, particularly as businesses are becoming increasingly aware of the need to recycle available materials.