Damage caused by the storm Bodil between 5 and 6 December 2013 led to the developer of a municipality (anonymised) to file a damage report with insurance company (also anonymised) with which it had taken out an "all-risk" insurance policy. Determining whether water and moisture damages to building facades should be considered a primary damage (cf clause 141.31) or a secondary damage (cf clause 141.32), both standard clauses in such policies, became a crucial point of consideration in the Arbitration Court's decision.
The following exception was stated in the insurance policy:
141.30 Loss or damage due to inadequate work performed, including inadequate bracing or covering. 141.31 The exceptions mentioned in clause 141.30 only applies to the part of the contract that is damaged as a direct result of the defective work. The exception mentioned in clause 141.30 does not apply to other parts of the project, which afterwards is damaged as a result of the first damage.
The municipality's main contractor (anonymised) went bankrupt on 19 November 2013, leading to a review of the construction work, which had come to a standstill as a result. The review found that there was insufficient coverage and protection against water intrusion.
The insurance company refuted the claim because the storm could not be considered an "unforeseen event" from the perspective of insurance law and considered that the water and moisture damages were a primary damage due to the lack of, or inadequate coverage of, the construction, which according to cf clause 141.31 is exempt under the insurance conditions. In particular, the coverage defects as a result of the premature closure of construction work were not remedied before the storm struck. The insurance company also stated that the municipality's claim had been submitted two months after the storm, which was too late for the nature of the damage to be established from the evidence supplied by the municipality.
The municipality maintained that the water damages to the ground floor facades caused by the storm should be repaired, as they were an inevitable consequence of the storm, and not due to defective of lack of coverage, and were therefore to be viewed as secondary damages. The municipality also maintained that the claim was not submitted too late as the extent of the damages was not immediately evident.
The Arbitration Court ruled that the storm in question was an insurance event which met the criteria of "unforeseen events" under clause 121 of the insurance conditions, which excluded the main contractor's bankruptcy and its consequences.
After an overall assessment, the Arbitration Court found that the storm was not the main cause of the water and moisture damages, but that the damages as a result of the storm were mainly due to the lack of, or inadequate, coverage. In its assessment, the Arbitration Court emphasised the fact that the problems with lack of coverage had not been resolved when the storm occurred, as construction had stopped due to the main contractor's bankruptcy.
The Arbitration Court stated:
The part of the damages that would have occurred as a result of the storm 'Bodil', even if the coverage of the construction had been in order, is a direct consequence of the insurance event and therefore covered by the insurance coverage. The municipality is therefore not cut off from compensation for this part of the damage, even though the lack of coverage of the construction meant that 'Bodil' caused significantly greater water and moisture damage than would have occurred if the coverage had been in order. Thus, only the additional damage due to the missing or defective coverage is exempt from insurance cover in accordance with clause 141.30 of the insurance conditions.
The Arbitration Court made an estimate of the damages and the repair costs, as it was not possible to separate the costs that were a direct consequence of the water and moisture damages from the others. In the estimate made by the Arbitration Court, emphasis was placed on the fact that the municipality risks weakening the possibilities of proof - the claim was filed more than two months after the storm - and that it had not provided sufficient evidence of the information for the total expense of repairs.
The Arbitration Court therefore ruled that the municipality was only entitled to compensation for the costs of repairing the part of the water and moisture damages that had occurred due to the storm and not coverage defects, and estimated the claim at 700,000 kroner (£80,000). In addition, the Arbitration Court ruled that the municipality was only entitled to interest of the claim from the time of the proceedings, cf section 3 of the Interest Act.
Since the municipality was only upheld for less than 10% of the total claim, the insurance company was awarded the legal costs.
The Arbitration Court stated with this ruling that extreme weather conditions, such as a storm similar to Bodil, cannot result in disregarding factors such as missing or inadequate coverage in a tort law dispute.
In the present case, the storm was, according to the Arbitration Court, not the main cause of the damages, just as it was established that the minor part of the damages caused by the storm was mainly due to defective coverage or lack thereof, which was considered a primary damage.
Thus, there was no insurance cover the "additional damages" that Bodil caused as a result of the missing or defective cover. The municipality was only entitled to the part of the water and moisture damages that would have occurred in any case as a result of the storm, even if there had been suitable coverage.
For further information on this topic please contact Elizabeth Nissen at WSCO Advokatpartnerselskab by telephone (+45 3525 3800) or email ([email protected]). The WSCO Advokatpartnerselskab website can be accessed at www.wsco.dk.