The Supreme Court has dismissed an appeal by Zurich Insurance Company and American Guarantee and Liability Insurance Company over insurance cover for losses at an integrated-circuit manufacturing plant in Raheen Industrial Estate, Co Limerick.
The appeal challenged a High Court order declaring the insurers jointly and severally liable under two policies to indemnify the insured companies for losses arising from a maintenance error in August 1999. The policies were described in the proceedings as the “local” and “global” policies. The Supreme Court’s judgment, delivered by Mr Justice Geoghegan on 16 March 2005, upheld the High Court’s interpretation of the exclusions relied on by the insurers.
The manufacturing operation had closed for its scheduled summer maintenance over the August Bank Holiday weekend. During that work, an employee fitted an incorrect filter to a machine. Hydrochloric acid contaminated with carbon particles was then deposited on raw silicon wafers. Many wafers had to be scrapped, and manufacturing was interrupted for about 10 days. The companies notified the insurers of the claim on 17 August 1999.
The insurers argued that exclusions for processing or manufacturing errors, faulty workmanship and contamination or pollution removed cover. The Supreme Court agreed with the High Court that the operative error occurred during maintenance, when manufacturing was shut down. The resulting damage during later processing was a consequence of that single error, rather than a separate processing or manufacturing error. The court also held that maintenance was a distinct activity, even though it was necessary for manufacturing.
On faulty workmanship, the court upheld the conclusion that the exclusion did not cover the maintenance error in the context of these policies. It said the High Court was entitled to consider the parties’ circumstances, including the availability of standard policy clauses specifically addressing maintenance that had not been included.
The court also upheld the interpretation of the contamination and pollution exclusions. It considered them directed at environmental damage, rather than the incident involving acid used within the ordinary manufacturing operation. The judgment considered the global policy under Massachusetts law as well as the local policy under Irish law, and found no material difference in the relevant general principles.
Because the court found that the exclusions did not apply, it did not decide the insurers’ arguments about the policies’ “ensuing loss” provisions. It dismissed the appeal, leaving the High Court declaration of joint and several liability in place. The judgment did not set out a quantified award in the passages supplied.