A recent case has confirmed that 50/50 clauses in policies covering the same risk, will be applicable if:
- there is such uncertainty that it is not possible to reach any conclusion as to when the relevant damage occurred; or
- one theory as to causation of the loss is so improbable that even if the other theory is ruled out, it cannot as a matter of common sense be described as more likely than not.
In European Group Limited & Others v Chartis Insurance UK
Ltd [2012] EWHC 1245 (QB), the developer of a new waste recycling
plant and its contractors were insured for damage to plant and
materials under two insurance policies. The first policy was
provided by the Claimant, and covered damage to plant and materials
on site. The second policy was provided by the Defendant, and
covered damage to plant and materials while they were in
transit.
The new recycling facility required the installation of economizer
blocks containing lengths of tubes. These were manufactured in
Romania and delivered by road and sea to the site. After the units
had been on site for 4 to 6 months, cracking was discovered in the
tubes. The parties agreed that the cracking was caused by fatigue
stress. However, the Claimant argued that the fatigue stress and
cracking was caused by the condition of the roads during transit;
while the Defendant argued that it was caused by wind exposure
suffered on site. Both polices contained 50/50 clauses, providing
that if it was not possible to ascertain whether the cause of
damage occurred before or after arrival at the site, the insurers
would each contribute 50% of the properly adjusted claim.
The Judge concluded that it was not a realistic possibility that
the fatigue stress and cracking was caused by wind exposure.
However, although he found the wind theory improbable, that did not
automatically mean that the road vibration theory was the probable
cause. The balance of probabilities test had to be applied to the
road vibration theory, to properly determine whether it was more
likely than not to have caused the damage. If it was not possible
to conclude that this alternative theory was more likely than not,
either because of a lack of evidence or because this theory itself
was improbable, then the 50/50 clause would apply.
The Judge in fact found that the road vibration theory was more
likely than not to have caused the damage, and therefore the 50/50
clause was not applicable in this case.
The Defendant's second defence of inherent vice also failed.
The Defendant argued that, if damage was caused in transit, there
was an additional proximate cause, as various parts of the unit
were defective before transit. The Defendant's policy excluded
liability for damaged caused by inherent vice. The Defendant
therefore sought to rely on the principle that where a loss has two
proximate causes, one of which is covered under the policy and one
of which is excluded, the exclusion takes effect to exempt the
insurer from liability. However the judge did not consider that the
units contained an inherent vice. Further, as a matter of law, an
inherent vice cannot be an additional proximate cause, where it is
established that another proximate cause is an accident or event
which occurs during the period of cover.
Case: European Group Limited & Others v Chartis Insurance UK
Ltd [2012] EWHC 1245 (QB)
Co-contributor: Eleanor Doherty
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 08/06/2012.
