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
In CA Blackwell (Contractors) Ltd v Gerling Allegeneine
Verischerungs AG  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  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
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
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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