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European Group Ltd & Ors v Chartis Insurance UK
Ltd [2012]1Commercial Court, 11 May 2012
The Claimants in this case were insurers under an Erection All
Risks (EAR) policy, issued in connection with a project for the
installation of economiser blocks to a UK waste recycling plant.
The Defendants were the marine project cargo insurers in relation
to the same equipment, which had been produced by a manufacturer in
Romania and was required to be brought to the site by road to
Constanta and from there by ship to Southampton.
Both policies also covered delay in start up caused by damage to
the property covered by the respective policy. Each policy also
incorporated a "50/50 clause", providing that, in the
event it was not possible to ascertain whether the damage occurred
before or after the arrival of the equipment at the facility, the
two policies would each contribute 50% to the adjusted claim.
After the economisers had been on site for between four and six
months, fatigue crack damage was discovered in weld joints where
vertical tubes in the economisers were welded to tubular headers.
It was common ground that the fatigue cracking was caused by
resonant vibration occurring between the time the blocks left the
factory in Romania and the discovery of the cracks on site. The EAR
insurers settled the claim in full, but without prejudice to their
position that the damage in fact occurred during transit and so was
covered by the marine project cargo policy alone. Accordingly, they
sought to recover the appropriate indemnity amount from the
insurers under the cargo policy, having taken an assignment of the
insureds rights.
The cargo policy was on the Institute Cargo Clauses (A), which
exclude liability for loss or damage caused by inherent vice.
However, the normal ICC(A) exclusion in respect of insufficiency of
packing was amended, such that it applied only to packing
deficiencies known to the assured.
The marine insurers contended that the damage had been caused by
wind excitation after the arrival and installation of the blocks.
Alternatively, they argued that, if the damage occurred during
transit, its proximate cause was inherent vice, on account of
stresses introduced in the welding procedure during manufacture, or
because of defects in the welds themselves.
After hearing the parties' expert evidence, the court was
satisfied that resonant vibration by wind buffeting could
effectively be ruled out as a cause of the loss. As a mechanism to
explain the damage, it was held to be "not a realistic
possibility".
As to the 50/50 clause in the two policies, it was held that
this would be applicable only if there was such uncertainty that it
was not possible to reach any conclusion as to when the damage
occurred. Having eliminated the possibility of wind excitation,
therefore, the court went on to consider the alternative
hypothesis, namely vibration during transit. If this alternative
was, in fact, "more likely than not" then the
50/50 clause would not apply. On that question, the court accepted
the Claimants' evidence that the overland leg in Romania was
sufficiently rough to have caused the necessary vibration, and that
enough of the packing was missing or ineffective to account for the
damage. Accordingly, damage during the road transport in Romania
was a realistic and credible possibility, perhaps exacerbated by
further damage during the road journey in England. It was much more
the likely of the two alternative explanations.
As to inherent vice, the court was satisfied that the condition
of the economiser blocks when they left the factory was such that
they could reasonably be expected to survive the transportation, if
properly packed. There was nothing in the inherent condition or
design of the economisers which could be described as a proximate
cause of the loss. On the evidence, therefore, the damage arose
through an external fortuity during transit, translating into an
insured loss under the marine project cargo policy, from which the
EAR insurers were entitled to seek reimbursement in full.
Result: Judgment for EAR insurers.
Footnotes
1. [2012] EWHC 1245 (Comm)
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