By Patrick Mead, Partner

A question which often arises in relation to Contract Works/Material Damage policies, is whether the physical loss or damage to the contract works could be said to be "unforeseen".

In CA Blackwell (Contractors) Ltd v Gerling Allegeneine Verischerungs AG [2008] 1 All ER (Comm) 885, a good deal of evidence was given at trial as to how the contractor had protected (in that case) its earthworks from water damage during the course of the works.

Although it had been contended by one of the parties in that case that "disaster was inevitable with work continuing [through a period of predicted wet weather]", the Court found that "proactive" measures taken by the insured to seek to protect the works from water damage, were such that there was no suggestion that the policy would not otherwise respond (other than with respect to any loss that was excluded due to the defective workmanship exclusion).

Attention is also drawn to comments in L'Union Des Assurances De Paris IARD v Sun Alliance Insurance Ltd CA40232/94, in which the New South Wales Court of Appeal noted that "unforeseen" does not mean "unforeseeable" either as a matter of language or law. The Court of Appeal concluded that the former is subjective and speaks of the mind of the insured. The latter is objective and speaks of the object of perception or thought. In that case, the court observed that before the event, nobody at the insured, knew that the damage which resulted from [in that case contamination] would occur. Therefore it was "unforeseen".

Similarly, in a case at first instance of Rickard Constructions v Rickard Hails Moretti [2004] NSW SC1041 the insurer submitted that as there were design defects, and that the failure was a result of those defects, it could not be said that the damage was either sudden or unforeseen. Alternatively, the insurer submitted, that the failure could not be characterised as unforeseen, because the insured, (or a reasonable and competent civil engineering contractor in its place) should have known or understood or foreseen that the failure was a likely consequence of the practices [which the Court had identified as amounting to defective workmanship].

The Court of Appeal concluded [at 209]:

"I do not think that this is what 'unforeseen' means in the context of the policy. To construe that word [unforeseen] as [the insurer] submits would be, in effect, to limit the insuring clause in the same way that [the insurer] says its obligations are limited by [another unrelated clause] of the exclusions ... if foreseeability of loss is an essential element of liability in negligence, then [the insurer's] construction of the word "unforeseen" would mean that the Policy could never indemnify [the insured] for the negligent performance of its obligations as a civil engineering contractor".

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