Despite their description, ‘all risks’ policies can nevertheless give rise to disputes as to the meaning and intention of the cover. The Commercial Court has recently considered the question of the extent of cover under a ‘Contractors All Risks’ Policy, in the case of CA Blackwell (Contracts) Limited v Gerling Allegemeine Versicherungs-AG .
Blackwell were earthwork subcontractors to Balfour Beatty and were contracted to provide the necessary earthworks to nine kilometres of the M60 around Manchester. Part of this work involved the formation of a “capping” layer. During the course of the contract, the composition of this layer was changed to shale. This material is susceptible to deterioration if its moisture level increases. The contract works ran late as a result of wet weather and damage occurred to the capping layer in two incidents, causing losses agreed by adjusters at £46k and £490k.
Insurers resisted the claims under the policy on a number of bases. First, they argued that the losses were inevitable and did not have the necessary element of fortuity about them to constitute claims under the policy. Insurers referred to a bad weather allowance amounting to 16% of the contract sum to illustrate the fact that the parties had clearly anticipated the likelihood of this loss. Second, they argued that the losses were caused by Blackwell’s wilful misconduct in continuing earthworks late into the year without ensuring that the shale was adequately protected from the water damage by installing adequate temporary drainage to take away excess water. Insurers also sought to rely on a defective work provision which excluded:
“loss of or Damage to and the costs necessary to replace, repair or rectify:
a) Property insured which is in a defective condition due to a defect in design plan specification materials or workmanship of such Property Insured or any part thereof
b) Property insured lost or damaged to enable the replacement repair or rectification of the Property insured excluded by (a) above.
Exclusion (a) above shall not apply to other Property insured free of the defective condition but is damaged in consequence thereof.”
Mr Justice Mackie QC found in favour of the contractors. He held that the losses claimed featured a sufficient degree of fortuity. The losses occurred as a result of a number of factors - heavy rainfall, earthworks being undertaken out of season and the adequacy of temporary drainage - which occurred concurrently. Whilst the damage to the roadbed had been caused by rainfall, either because it was of an unexpected amount, or because insufficient precautions had been taken by Blackwell to remove excess water, the damage was still covered by the policy.
As to the allegations about Blackwell’s alleged wilful misconduct, insurers referred to the case of CP v Royal London Mutual Insurance , in which Turkey LJ described a wilful act as being one where:
“the insured is aware that what he is about to do risks damage of the kind which gives rise to the claim or does not care whether there is such a risk or not, he will act recklessly if he goes ahead and does it …”.Insurers argued that the inadequacy of the temporary drainage, the change in capping material to shale and the extended working into the winter of 1999/2000 all pointed to wilful misconduct.
The Court disagreed and found that the arguments raised by insurers did not amount to recklessness. On the evidence, there was no evidence of the deliberate risk taking referred to in the CP case.
Finally, in relation to the defective workmanship exclusion, insurers argued that the defective condition arose as a result of the absence of effective temporary drainage. Blackwell argued that the drainage was separate from the damage to capping and subformation. The works themselves, which were the subject of the claim, were “free of the defective condition and damaged in consequence thereof.” The Court found that the temporary drainage itself did not constitute “Property insured.“ under the terms of the policy, whereas the subject matter of the claim, the replacement and repair to capping and damaged subformation, did.
In short, the Court concluded that, notwithstanding the potentially strong grounds for resisting the claims by insurers at the outset, the Contractors All Risks policy covered the two claims. The decision is an interesting example of the Court’s approach to the interpretation of an all risks policy where damage from ostensible operating risks was nevertheless covered.