article
Counting your losses
5 March 2008
C A Blackwell (Contractors) Ltd v Gerling Allegemeine
Verischerungs-AG
A court case has provided a useful reminder as to the issues
faced by contractors when seeking to recover against an ‘all risks'
insurance policy. One of the findings was that the eventual loss
must be accidental, even if other events leading to that outcome
were not. Michael Sadler and Nik Carle from Browne Jacobson's
Financial and Professional Risks team examine the implications for
contractors in arranging appropriate insurance cover.
“Blackwell - a civil engineering contractor - won the tender to
carry out earthworks, installation of the foundations and temporary
drainage for the M60 motorway. As part of its risk analysis it
included an additional 16.5% of the sub-contract price towards
unforeseen ground conditions and weather. Blackwell had taken out
an insurance policy with Gerling for the years to 31 December 1998
and 1999.
“As part of the foundations to the motorway, Blackwell laid the
'formation level', which was achieved by spreading imported capping
material supplied and selected by the main contractor, Balfour
Beatty. The main contractor selected shale for this purpose, a
material that is generally known in the construction industry to
breakdown and turn to slurry when wet.
“The works started in 1998, but due to bad weather the spring
earth-moving season in 1999 started late. As a result, bulk
earthworks were still being completed late in 1999 and two
instances of heavy rain, the first in early October and the second
in early December caused £534,975 of damage. The temporary drainage
that Blackwell had put in place had proved insufficient.
“Blackwell made a claim for this loss under its insurance policy
but Gerling denied liability raising the following main arguments
that had to be decided by the court:
Was the policy an 'all risks' policy?
Although the policy was entitled "Contractors all risks" the
operative wording of the policy covered "…all Damage … of
whatsoever nature" rather than 'all risks…'. Blackwell argued that
this was not an all risks policy, but instead a policy insuring
specified risks. This is important because depending on the
outcome, the following issue arose,
Was the loss fortuitous?
If the court found that it was in fact an 'all-risks policy'
then as a matter of law the loss has to be 'fortuitous' – i.e.
accidental. Gerling claimed that rainfall was not fortuitous and
that Blackwell had assessed this in its tender. Gerling claimed
that the damage was therefore certain and was not covered under the
policy. Obviously Blackwell was keen to avoid having to argue this
point.
Was the loss caused by Blackwell's wilful misconduct?
It is common ground that a contractor is not entitled to
recover a loss under its all-risks policy which it has brought
about by wilful misconduct. Gerling argued that by providing
inadequate temporary drainage during the winter months, Blackwell
was not entitled to an indemnity.
The Contractor lost its argument that its insurance policy was
not an 'all risks' policy. Therefore ‘fortuity’ was required by the
policy, but what does this mean in practice?
Judge Mackie, who ruled on the case, found that a combination of
factors had contributed to the loss including: the quality of the
capping material which was approved by others; the earthworks being
undertaken out of season because the programme was behind schedule;
heavy rainfall; and the temporary drainage systems used.
As a result he concluded that:
"There was and could be nothing inevitable about incidents
caused by what, on the evidence of Gerling's own expert, is the
coming together of different factors culminating in heavy (but not
exceptional) falls of rain… It follows that the damage caused by
the incidents was fortuitous."
The Court went on to conclude that Blackwell was not guilty of
wilful misconduct for there was no evidence that Blackwell knew of
a risk and had deliberately ran that risk without taking
precautions.
Contractors may therefore wish to consider their all-risks
policy coverage and the types of loss that might not be covered,
i.e. are you assessing risk by the use of risk analysis and running
that risk? Without other intervening factors, it might be open to
insurers to argue that the loss was not fortuitous and therefore
not covered under the all-risks policy. That might also be the
outcome if contractors are found to have been reckless or grossly
negligent in causing the loss.
Clearly, in the light of this case, contractors should now
engage their insurers or solicitors to review the wording of their
policies. This is not a complicated process, but they do need to
think about specific risks that they are taking on and ensure that
they have cover for specific activities.”
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