The following case analysed the fundamental difference between an “all risks” policy and a policy insuring specified risks; and considered the requirement of English law that, in all risks policies, the loss must be fortuitous. Was damage caused by heavy rainfall fortuitous?

CA Blackwell (Contracts) Ltd v Gerling Allegemeine Verischerungs - AG [2007] EWHC 94 (Comm)

The sub-contractor had specialist expertise in earthworks involved in motorway construction and was engaged by Balfour Beatty to carry out the earthworks aspects of a section of the M60. The contract price included a sum of 16.5 per cent of the contract price towards unforeseen ground conditions and weather risk. During 1998 bad weather affected the works on several occasions, causing delay. Two incidents caused significant damage to the earthworks: the first occurred in September/October and the second in December 1999.

The judge found that the damage which occurred on both occasions resulted from heavy (but not exceptional) rainfall, following (amongst other things):

  • the earthworks being undertaken out of season because the programme was behind schedule;
  • Balfour Beatty’s decision to use a different capping material - shale - which degraded as its moisture content decreased; and
  • possibly, the sub-contractor’s negligence in failing to take sufficient temporary drainage measures (though negligence had not been established).

The sub-contractor’s insurance

The sub-contractor was insured under a policy which was described as a “contractors all risks” policy. It indemnified the sub-contractor against:

“all Damage ... of whatsoever nature sustained ... to ... a) the Works ...”

Were the insurers liable under the policy?

The legal requirement of fortuity

The judge used, as a starting point, a passage (stated to be from Emden IV, 189 [685 to 690]) which drew a distinction between:

  • a policy which insured specified risks - where it was the duty of the insured to prove that his loss was caused by an insured risk, failing which he would not be able to recover; and
  • an all risks policy - which, in contrast:
    • removed the need for the insured to demonstrate the precise cause of his loss (even though the policy did not literally cover all risks and would normally contain exceptions);
    • placed on the insured the burden of proving that the loss or damage was, prima facie, the result of an accident or other fortuity; and
    • required the insurer to prove either that the loss was not fortuitous or that the loss was caused by an excepted peril.

In short (in the judge’s words) - the requirement of fortuity derived from the nature of the risk insured, rather than the precise wording used in the policy.

Was damage caused by heavy rainfall fortuitous? The arguments

The sub-contractor argued that damage caused by heavy rainfall was fortuitous. There had to be something in the nature of an accident to bring the policy into play; and this was the occurrence of the different factors which interacted and caused the damage, none of which were inevitable.

The insurers argued:

  • first, that the damage was sufficiently certain for it to be priced: the contractor had included a sum of 16.5 per cent of the contract price which was attributable to unforeseen ground conditions and bad weather.
  • secondly, the sub-contractor knew from previous years’ rainfall that similar amounts of rain would occur in 1999. Meteorological evidence would have led the sub-contractor to conclude that the damage to the earthworks was certain.

Was damage caused by heavy rainfall fortuitous? The judge’s view

The judge rejected the insurers’ approach to fortuity as “too restricted”; accepting the sub-contractor’s argument that there was nothing inevitable about the different factors which interacted and culminated in the heavy rainfall. It followed that the damage to the earthworks was fortuitous.