UK: Construction Insurance: Definition Of “Flood” And Burst Pipe

Last Updated: 11 October 2007
Article by Harriet Munro and Stephen Tester

In The Board of Trustees of the Tate Gallery-v-Duffy Construction Limited the High Court considered:

  • The definition of “flood” and “burst pipe” in the JCT 1980 standard form of building contract

  • The circumstances where a co-insurance defence will prevent insurers from bringing a subrogated recovery action.

Background

As part of the Tate Gallery Centenary Development Project, Tate appointed Duffy to carry out certain hard landscaping works. Duffy provided a temporary water supply to the site by fitting a coupling and valve to an existing water main. A polymer pipe led from this to the rest of the works. The coupling failed shortly after the valve was installed (whilst the site was shut down over the Easter holidays) and around £5million of water damage was caused to the gallery.

Insurers indemnified Tate in respect of the losses incurred and then sought to recover from Duffy by means of a subrogated claim.

Key Provisions Of The Policy

The policy that was taken out by Tate included cover for all trade contractors and so Duffy was a co-insured. The position was complicated by the fact that Duffy’s cover in respect of damage to the works was restricted to cover for “Specified Perils” defined by reference to the JCT 1980 standard form as “fire, lightning, explosion, storm, tempest, flood, bursting or overflowing of water tanks, apparatus or pipes…”

It was a condition precedent to cover that the co-insureds must take all reasonable precautions to prevent loss or damage.

Trial Of Preliminary Issues

Tate argued that what had occurred was not a “flood” or “bursting…of…apparatus or pipes” within the meaning of the policy. If Tate could prove that the damage was not caused by a “Specified Peril”, Duffy would not be a co-insured in respect of the loss incurred. Insurers would then be entitled to recover from Duffy, assuming they could prove their liability for breach of contract or breach duty of care in tort.

Duffy argued that it had a defence to the claim on the basis that both it and Tate were co-insured under the policy. Tate’s response was that Duffy’s failure to install necessary lateral support to the coupling amounted to breach of contract, negligence and recklessness. Insurers could therefore avoid cover on the basis that Duffy had failed to comply with the condition precedent requiring co-insureds to take reasonable precautions to prevent loss or damage.

Decision

  1. Specified Perils

In determining whether or not the escape of water had been caused by a Specified Peril Jackson J first considered whether what had occurred was a flood. It was necessary to consider:

“(a) whether the source of water was natural; (b) whether the source of water was external or internal; (c) the quantity of water; (d) the manner of its arrival; (e) the area and character of property upon which the water was deposited; (f) whether the arrival of that water was an abnormal event” and that “Ultimately, it is a question of degree whether any given accumulation of water constitutes a flood.”

Taking these considerations into account there had, on the facts, been a flood.

On whether there had been bursting of apparatus or pipes it was necessary to review:

“(a) whether the incident occurred because of internal pressure rather than external intervention; (b)whether the integrity of the pipe or apparatus was broken; (c)whether the incident was sudden and violent.”

It was held that there could still be a “burst” where the component parts themselves were not damaged and could be re-assembled. What happened did constitute a burst because there had been a build up of internal pressure and the composite unit that constituted the pipe had been broken.

  1. Co-Insurance Defence

Jackson J considered the principles laid down in earlier cases and concluded that:

  • It was an implied term of the policy that one party could not sue another in respect of loss or damage for which they were both co-insured. An insurer would not therefore be entitled to exercise rights of subrogation in these circumstances.
  • The implied term did not extend to a situation where the defendant’s breach of policy meant that insurers were entitled to avoid cover. If insurers could demonstrate that Duffy was in breach of the condition precedent to take reasonable precautions to prevent loss or damage, insurers would not be prevented from bringing a subrogated claim against them.

Commentary

The case provides a helpful definition of what constitutes the Specified Perils “flood” and “burst pipe”.

It also summarises and re-states the law on the circumstances in which a co-insurance defence will prevent insurers from successfully bringing a subrogated recovery claim. In particular, it confirms that the defence is not available to an insured whose actions have deprived him of the right to seek indemnity under the policy in respect of the matters claimed against him.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 09/10/207.

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