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CIVIL engineering
requires an ability to anticipate and deal with risk. This is most
obvious in earth-moving works, susceptible to ground conditions
different to those expected and to the effects of adverse weather.
An earth-moving contractor will usually include a contingency in
his price for ground and weather risks and take out all risk insurance.
Disputes over earth-moving jobs can be complicated and involve
extensive evidence, as illustrated by CA Blackwell v Gerling
Allegemeine Verischerungs AG (2007).
Balfour Beatty won the contract to design and build the final
link in the M60 outer ring road around Manchester from Medlock to
Irk. The works involved cut-and-fill of 2 million cu m of excavation
and 1.8 million cu m of deposition. Blackwell won the tender to
carry out the earthworks under a subcontract to Balfour Beatty.
The subcontract was for a lump sum and included bulk earthworks;
trimming and rolling the formation; laying the capping material;
laying imported stone piled raft and stabilising the capping
material. Blackwell had carried out a risk analysis and included a
sum of 16.5 per cent of the subcontract price for unforeseen ground
conditions and weather.
Blackwell was also responsible for ensuring there was adequate
drainage for the earthworks.
Work started on April 30, 1998 and was due to finish on June 25,
2000. Blackwell took out all risk insurance with Gerling covering 1998 and 1999.
Bad weather delayed earth moving on several occasions, resulting
in capping work being carried out in October and December 1999. Had
it not been for the earlier delays, the capping work would have been
carried out earlier in the year when conditions were easier.
There was bad weather in October and December 1999.
The situation was exacerbated by the decision to use shale as the
capping material.
In August 1999 Balfour Beatty had obtained permission from the
Highway Authority to use shale, despite its propensity to degrade
and turn to slurry in wet conditions, which meant it would then need
replacing.
The situation was made worse by the temporary drainage system
adopted by Blackwell. The system involved shaping the earthworks
longitudinally and laterally day to day to shed water to collection
points prior to discharge into adjacent streams. Pumps and mobile
tankers were also used. This method proved inadequate to deal with
the problems in October and December 1999.
To recover the cost of the damage to the roadworks due to rain,
Blackwell claimed on its all risk policy for losses of £46,000 and
£488,975 for October and December 1999 respectively.
Under a policy that insures a specified risk, the insurer has to
prove that his loss was caused by the insured risk. Under an all
risk policy, the insured does not have to prove the precise cause of
his loss, although in practice there will be exceptions to this.
But the insured must prove that the loss occurred during the
period covered by the policy and that it appeared on first
impression to be the result of an accident or other fortuity . It is
for the insurer to prove that the loss was not fortuitous . So the
issue was what did fortuity mean?
Gerling s case was that all risk insurance is against risks of loss and not causes of
loss.
The damage that occurred was inevitable, given the knowledge and
expectations of Blackwell and the likelihood of rainfall causing
damage during the policy period. Gerling stated that the damage that
occurred was sufficiently certain to be priced in the risk analysis.
It asserted the Blackwell knew from meteorological evidence that
damage was certain. In addition, the drainage system used was
defective.
Judge Mackie QC, who heard the case, decided that there was
nothing inevitable about the incidents caused by the coming together
of different factors culminating in the heavy rain. It was their
interaction that led to the loss. The quality of the shale capping
material was proposed and approved by others. The earthworks were
undertaken out of season because the programme was behind schedule.
If there was a lack of adequate temporary drainage, that was a
function of the day-to-day work carried out by Blackwell and varied
with the conditions found on site. Judge Mackie held that the damage
caused by the incidents was fortuitous.
But Gerling also relied on an implied exception to the policy, of
willful conduct. It argued that willful conduct occurred when the
insured is recklessly or grossly negligent or if he knew that he is
involved in conduct increasing the risk of loss.
Gerling said that the following showed willful conduct : the use
of pumps and bowsers was not appropriate drainage; the shale was
known to degrade with increased moisture content and turn to slurry,
but significant additional measures were not undertaken; when works
were delayed and the season came to an end, work should have stopped
until the following year or additional drainage methods added.
Blackwell continued to work through the winter knowing its drainage
was inadequate.
Judge Mackie said that these factors read more like allegations
of negligence than of recklessness. He found no evidence that
Blackwell knew of a risk and deliberately ran it without taking
precautions, so there was no willful conduct.
Blackwell succeeded in its claim for insurance payment for damage
to the road construction works during a period of rainfall. The case
is a useful illustration of the operation of all risk policies. It
introduces the concept of the effect of a combination of events
being fortuitous even if each individual event is not.
The willful conduct exception involves a tough test and is often
difficult to prove. It must be shown that the insured was aware that
what he was doing risked causing damage of the very kind that would
give rise to a claim, and that he did not care whether there was
such a risk and went ahead regardless. |