Insurance: liability for losses caused by foot and mouth outbreak

In a recent decision which is of interest to liability insurers, the court struck out claims brought by farmers against the operators of a research facility and DEFRA following escape of the foot and mouth virus from the facility.

The first and second defendants ran a research facility at which amongst other things, investigations were undertaken into foot and mouth disease. The virus escaped from the compound and infected livestock in the region. The third defendant, DEFRA, was responsible for licensing and regulating the research site. The claimants alleged that the defendants were liable for the escape of the virus (in the case of the operators of the research facility) or for failure to regulate properly (in the case of DEFRA).

Certain of the claimants owned livestock which had been culled, either because they were infected or because it was suspected they were infected. These claims were settled. The livestock of the remaining claimants were not culled. There were however restrictions imposed on transporting livestock to other land, to market, to abattoirs etc. The remaining claimants claimed that they had suffered loss as a result of the restrictions, and sought to recover these amounts from the defendants. The defendants applied to strike the claims out.

The court upheld the defendants' application to have the claims struck out:

1. where the restrictions imposed caused the animals to pass the stage where they were in prime condition for sale (for example pigs which had become overweight), then there was a "real prospect" of the court concluding that this amounted to physical damage to those animals;

2. otherwise, the losses claimed were purely economic loss, since there was no physical damage to the livestock or the farmers' land;

3. in either case, there was no duty of care owed to the farmers to prevent the losses suffered; and

4. the remaining claims would therefore be struck out.

The decision serves to re-emphasise the fact that the courts are prepared to impose limits on the duties owed by wrongdoers especially where the loss suffered is purely economic and especially where there is a real risk of an indeterminate liability (the "floodgates would be opened" if the claim was allowed). This is reassuring for liability insurers, and their insureds. It does, however, limit the ability farmers have to claim for pure economic losses arising out of foot and mouth outbreaks caused through fault on the part of a third party.

Further reading: D.Hare & Partners (a firm) & Others v Institute for Animal Health & Others [2009] EWHC 685