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Environcom loses £6m claim against insurance broker

Waste electrical recycler Environcom has lost its £6 million claim for negligence against its insurance brokers after a fire destroyed its £2.1 million recycling site in Grantham in 2007.

Waste electrical recycler Environcom has lost its £6 million claim for negligence against its insurance brokers after a fire destroyed its £2.1 million recycling site in Grantham in 2007.

Environcom brought the case against Miles Smith when insurance provider Woodbrook rejected its insurance claim for the fire on 16 September 2007 on non-disclosure grounds. The recycler then turned its attentions to Miles Smith, alleging negligence. It claimed  it  was the brokers’ fault for not disclosing all the relevant details - including the use of high temperature plasma cutters - to the insurance provider, which caused  its policy to be voided.

The judgement said: “Underwriters in rejecting liability asserted that the source of ignition [for the fire on 16 September 2007] was probably a plasma gun.” Although not conclusively proven, Environcom also more recently confirmed to its new insurers for its new plant that the 2007 fire was probably caused by a plasma cutter.

The judge Mr Justice David Steel ruled in his judgement that Miles Smith had breached its duty in not explaining Environcom’s obligation of disclosure. But even if it had carried out this duty, Environcom still would not have disclosed the use of plasma guns.

He said: “I regard the documents relied upon by Miles Smith as satisfying their duty of explanation of the obligation of disclosure to be seriously inadequate for that purpose” but that “Environcom…did not regard the use of plasma cutters as intrinsically hazardous or even as enhancing the risk of claim on the policy. Environcom would still not have recognised their use as material.” He called the use of high temperature plasma cutters to recycle highly flammable pentane fridges a “potent mix”.

Additionally, a fire in the refrigerator line on 15 March 2007 was not disclosed to underwriters at Woodbrook and neither was the regular ignition of insulation from the fridges by the plasma guns. Furthermore, according to the judgement, the firm was recycling highly flammable pentane refrigerators on-site, breaching its Waste Management Licence, which was restricted to fridges  containing chlorofluorocarbons only. Furthermore, there was no indication in Environcom’s working plan or in its Environment Agency reports thuat there was any proposal or intention to recycle pentane fridges. Regarding these points Steel judged that “even if cover was obtained despite the additional disclosure…, the resulting policy was at its lowest highly vulnerable to avoidance for further non-dislclosure.”

According to evidence, plasma cutters were mentioned just twice when Woodbrook were Environcom’s insurers ; once in a telephone notification to Miles Smith of a theft of the equipment, which was not pursued; and again when they were identified as a possible source of ignition in the fire risk assessment in October 2006. But this assessment was never sent to Miles Smith.

Between October 2005 and the fire on 16 September in 2007, Environcom experienced six fires at its Grantham site, two of which were descrived as ‘small’ in the judgement. The judgement said “Environcom were scarcely proactive in their earlier responses to fires”.

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