Sea lice and other perils

See DP No 147 Chapter 5, esp paras 5.5-5.9, 5.15 and 5.28-5.29 

In Green Island Organics Limited v QBE Insurance (Europe) Ltd [2011] CSOH 15 (27 January 2011) Lord Menzies interpreted the terms of an insurance contract to determine whether an infestation of sea lice in a school of Atlantic salmon came under the insurable interest of “disease”.  The pursuers argued that, in relation to aquaculture policies, both insurers and insured generally understood that insurance of farmed fish against disease covers outbreaks of sea lice.  Conversely, the defenders argued that sea lice were aquatic organisms that caused physical damage and that, as such, the risk was excluded in terms of the perils of the insurance contract.  It was argued on behalf of the defenders that fish damaged by sea lice were not diseased but merely possessed a physical disability. 

The Lord Ordinary accepted evidence led on behalf of the pursuers to the effect that the presence of large numbers of sea lice on salmon causes ulceration and destruction of the skin of salmon, leading to osmotic imbalance and the death of the fish as a result of heart failure.  He accepted that, in ordinary usage, this was a parasitic disease, with a primary causative relationship to the mortality of the insured fish. 

Examining the wording of the contract as a whole, the Lord Ordinary moreover considered that the language of the contract supported the pursuers' interpretation.  Noting that expert evidence suggested that the inclusion of disease as a result of sea lice was a common feature of industry insurance contracts, and also matched business common sense, the judge was satisfied that an ordinary aquaculture insurance underwriter would understand that mortality of fish caused by an infestation of sea lice would be regarded as a disease and therefore covered by the insurance policy.  

In deciding this case, the Lord Ordinary notably followed the approach to interpretation adopted by Lord Hope of Craighead in the recent Supreme Court decision of Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2010] UKSC 47 (see para 52, per Lord Menzies).