UK: What Does An "All Risks" Insurance Policy Cover?

Last Updated: 22 March 2007
Article by Nicholas Gould

This was the question before Judge Mackie QC in the case of C A Blackwell (Contracts) Ltd v Gerling Allegemeine Verischerungs – AG [2007] EWHC 94 when he had to consider whether losses caused by bad weather were covered by an all risks insurance policy.

C A Blackwell (Contracts) Ltd ("Blackwell") is a contractor with expertise in earthworks involved in motorway construction. Blackwell had successfully tendered for the earthworks on parts of the M60. Blackwell was responsible for insuring adequate temporary drainage for the earthworks. Blackwell took out a policy with Gerling Allegemeine Verichergungs ("Gerling") for the years to 31 December 1998 and 1999.

Bad weather and rain affected the works on several occasions and two incidents then caused damage to the capping layer (shale) and an area of sub-formation. The loss adjustor agreed £46,000 for the first incident and £488,975.15 for the second. Although the amount of damage was agreed, Gerling denied liability under the policy.

The Schedule of the policy described it as "Contractors All Risks". This was followed by a schedule applicable to Contractors Indemnity and Employers Liability Insurance which provides for a maximum sum of £6,000,000 subject to some excesses. The relevant provisions contained a clause excluding liability for loss or damage to property in a defective condition due to a defect in design plan specification, materials or workmanship.

Blackwell argued that the wording of the policy does not amount to an all risks policy. Gerling disagreed stating that the claimed losses were inevitable and not fortuitous and were therefore not recoverable. Gerling also argued that the losses had been caused by Blackwell performing work during the winter and failing to provide appropriate or adequate drainage for the season and further that the exclusion clause applied because the works were in a defective condition as a result of the absence of effective drainage.

Issues

The question the Judge had to answer were as follows:

  1. Was the policy an all risks policy?
  2. Was the damage caused fortuitous?
  3. Was the loss caused by the wilful misconduct of Blackwell?

Decision

Judge Mackie QC held that the policy was quite clearly a contractor’s all risks policy. This meant that the insured did not need to demonstrate that there was a precise cause of loss but did have the burden of proving that some loss or damage had occurred and that the loss was covered by the policy. The loss must be fortuitous, in other words it must have happened by chance.

It was then for the insurer to prove that the loss was not fortuitous or that the loss had been caused by an item that had been excluded from the all risks policy.

In the policy in this case an exclusion covered a defective condition "due to a defect in design, plan, specification, material or workmanship …" The Judge accepted that damage was caused by heavy rainfall. Heavy rainfall was not one of the excluded risks, and was therefore potentially covered by the all risk insurance policy. The contractor had in its risk analysis considered the impact of the weather risk on the shale. However, the actual rainfall was much worse than the risk analysis provided for; and the policy covered the excessive weather encountered.

Finally the insurer’s allegation that the loss was caused by the wilful misconduct of Blackwell failed. There was no evidence to support the allegation that Blackwell knew of the risk and had deliberately run that risk without taking precautions. If the insurer had wanted to exclude cover for rainfall or negligence in respect of the use of the capping material (shale) then they should have included an appropriate exclusion to the all risks cover.

Conclusion

An "all risks" insurance policy covers any risk that is not set out as a specific exclusion to the policy. In this case the judge accepted that heavy rainfall caused the damage, and as that cause had not been excluded the insurer was liable to make a payment.

Interestingly, the contractor had considered the chance of encountering heavy rainfall in its risk analysis. The judge accepted that the contractor had, therefore, not simply run the risk of laying shale without considering the potential effects of heavy rainfall on that material. The contractor had considered the risk and taken it into account. It could not be said that the contractor had deliberately run an obvious risk. If the contractor had not properly considered the risk then they might not have been able to claim under the policy. Perhaps risk registers and risk analysis will assist those with similar policies to demonstrate that the risks they are taking on projects are managed and covered by the all risks insurance policy.

This article is the latest Fenwick Elliott Legal Briefing which is a weekly on-line feature which appears on Building magazine’s website. The Legal Briefing provides comment on recent, sometimes controversial, legal issues. For further information please visit www.fenwickelliott.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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