CONTRACTOR'S "ALL RISKS" INSURANCE - FORTUITY REVISITE D

What happens if conditions on site make the works more vulnerable but the contractor does not take adequate steps to
allow for that fact? Is the contractor covered under its CAR policy if loss results? The recent case of CA Blackwell
(Contracts) Ltd P Gerling [2007] EWHC 94 (Comm) suggestsyes, but only in the absence of recklessness .

The cas e

Due to bad weather, construction of a section of the M60 in Manchester was running behind
schedule . As a result, the insured's earth moving works were pushed later into the season when
conditions were more likely to be difficult . In the event, heavy (but not exceptional) rainfall in
September and December 1999 caused damage to the Insured's earthworks and the insured claimed
under its contractor's all risks policy . The insurer, Gerling, subsequently denied liability on the basis
that the damage was inevitable and that the loss was a result of wilfud misconduct .

The judge held that :

• The policy was an all risks policy, despite there being no specific reference to "all risks" in
the insuring clause . As a result, the insured did not need to identify the precise cause of his
loss, but merely that loss or damage occurred in the policy period and that it was a result of
some accident or other fortuity .

• The damage was caused by the coming together of a number of factors (the quality of the
material, the fact that the work was being undertaken out of season and the adequacy of
the temporary drainage) culminating in heavy rainfall. This was not inevitable - it was
fortuitous .

• The insured's internal risk analysis, fixing a percentage of the price as attributable to
unforeseen ground conditions and weather risk, did not indicate that weather damage to
the works was a certainty.

• The factors were not the result of wilful misconduct and therefore did not invalidate the
claim .

• Insurers provided insufficient evidence to show that the works were in a defective
condition to allow the exclusion to apply .

The result

The case demonstrates that even where bad weather it is not exceptional, the resultant damage can
be covered by an all risks policy . There does, however, have to be some element of fortuity or
accident, which means that the damage itself is not inevitable . In addition, an element of negligence
contributing to the damage does not necessarily prevent a successful claim on an all risks policy .

A licence to continue work in any conditions ?

The conclusion above does not provide an escape route for contractors to work through in
unsuitable conditions to alleviate the pressure of a tight or sli pping programme . The judge was clear
on the estab li shed law that an insured is not entitled to claim under his CAR policy if he is reckless,
grossly negligent or knew that his conduct increased the risk of loss . In this case , the following
factors were relevant to the decision that the insured had not been reckless :

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• No evidence that the insured knew of a risk and deliberately continued regardless .

• No indication that the other professionals involved in the project sensed that the insured
was deliberately running a risk .

• The insured had no history of being rash in such matters .

• The loss adjuster's report did not suggest unreasonable risk taking .

• A clear indication from the insured of a genuine belief that but for something unexpected,
here the heavy rainfall, the incidents should not have happene d

While the insured may have been negligent, the actions did not reach the high standard required for
a fording of wilful misconduct.

Conclusion

There are significant dangers in carrying out works in unsuitable conditions and the contractor needs
to be careful to have regard to these dangers if it is to continue to rely on its cover.

Although in Blackwell the court was willing to confirm coverage where there might have been
negligence on the part of the contractor, the case does show that insurers can take a wilful conduct
point if it can be shown that the contractors' failure amounted to conscious risk taking . This was so
in Blackwell even, it seems, in the absence of a reasonable precautions clause .

Cheryl Gibson
CMS Cameron McKenna LL P

For more information please contact Cheryl Gibson at cheryl .gibson@cros-cmck .co m

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