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Liability insurance - Determination of proximate cause - Damage to goods being found

European Group Ltd and others v Chartis Insurance UK Ltd: Queen's Bench Division, Commercial Court (Mr Justice Popplewell): 11 May 2012


The developer of a recycling plant in England engaged engineering, procurement and construction contractors for the development of the plant. The construction contractors subcontracted the manufacture of economiser blocks to a company in Bucharest. The claimants and the defendant were subscribing insurers to an erection all-risk, public liability and delay in start-up insurance policy (the all-risk policy). It provided cover commencing upon the attachment of lifting gear to equipment and materials once at the plant. The defendant company was the subscribing insurer to a primary marine project cargo/delay in start-up insurance policy (the marine policy).

It provided cover during transit from the time the goods left the factory in Bucharest and terminated on delivery to the plant. Fatigue crack damage to the tubes in the economiser blocks was discovered after they had been on-site at the plant for between four and six months. It was common ground that the cracking was caused by resonant vibration. There was a claim on both policies for the costs of repairing the tubes and associated costs. The parties disputed whether the damage had been suffered prior to arrival at the plant. The parties settled the claim for £4.6m without prejudice to their position that the damage had occurred during transit and was covered under the marine policy alone.

The claimants issued proceedings against the defendant seeking their respective proportions of the amounts paid in settlement of the claim on the basis that the vibration which had caused the cracking had occurred during transport by reason of missing packing between the rows of tubes in the economisers and that consequently, they were entitled to recover 100% of their claim. That position was supported by the claimants’ expert’s evidence that resonant vibration caused by wind buffeting that would have been sufficient to have caused the cracking could be ruled out. The defendant’s case was that the necessary vibration to have caused the damage could not have occurred during the road and sea transport, and that it was likely to have resulted from the turbulent wind that had caused the tubes of the economisers to vibrate whilst they were exposed to the elements at the plant.

The defendant’s expert gave evidence that it could not be stated with any certainty that vibration would not have occurred on the plant as a result of wind excitation. The defendant alternatively relied on the inherent vice exception in the marine policy. A loss adjuster’s report to the parties described the losses as supported to the extent of £4,309,562.63 and as unsupported to the extent of £999,653.29. The defendant additionally contended that only £4.3m of the settlement sum had been established as a proved loss. The instant proceedings concerned a hearing of those issues.

It fell to be determined: (i) whether the cause of the damage had been vibration during transit or wind excitation after arrival at the plant; (ii) whether there had been an inherent vice that had excluded the defendant’s liability; and (iii) whether the developer and construction contractors had suffered insured losses of at least £4.6m. The application would be allowed.

(1) It was an established principle that first, a trial judge was not compelled to choose between two theories, where the evidence had been unsatisfactory; he could decide the case on the basis that the claimant had not proved his case. Secondly, it would not be possible to proceed on the basis of eliminating the impossible and deciding that the remaining explanation, however improbable, would have been the cause. Thirdly, the concept of proof on a balance of probabilities had to be applied with common sense (see [80] of the judgment).

On the evidence, on the balance of probabilities the damage had occurred prior to the arrival of the economiser blocks on the plant as a result of resonant vibration during transportation from the factory in Bucharest. Damage during the road transport leg of the journey in Romania, possibly exacerbated by damage during the road leg of the journey in England, had been a realistic and credible possibility. It had been much more likely than the alternative of damage by wind excitation after arrival, which had not been a realistic possibility.

Although there had been gaps in the evidence available, and uncertainties in some of the science which had been applicable, the instant proceedings were not a case in which such gaps or uncertainty had rendered it impossible to reach a conclusion on the balance of probabilities. There had been sufficient evidence in the case for the court to be able to embark upon an informed analysis of the two possible causes of the damage and to reach a reasoned conclusion as to the probable cause (see [76], [132] of the judgment). Rhesa Shipping Co SA v Edmunds, The Popi M [1985] 2 All ER 712 considered; Ide v ATB Sales Ltd; Lexus Financial Services t/a Toyota Financial Services (UK) plc v Russell [2008] All ER (D) 374 (Apr) considered.

(2) It was settled law that where a loss had two proximate causes, one of which had been within the policy and the other expressly excluded, the exclusion took effect to exempt the insurer from liability (see [134] of the judgment). In the instant case, there had been no inherent vice that had excluded the defendant from liability under the general principle. That was because it had been clear that the condition of the economiser blocks when they had left the factory in Bucharest had been such that they could reasonably have been expected to survive the transportation to the plant, if properly packed, and perform in service at the plant, without cracking.

There had, therefore, been nothing in the inherent condition or design of the economisers which could have been described as a proximate cause of the loss. The proximate cause of the loss in the instant case had been resonant vibration during transit resulting from the inadequacy of the packing. Additionally, established authorities made clear that where it had been established that a proximate cause of the loss had been a fortuity occurring during the period of cover, there would be no room for inherent vice to be treated as another proximate cause of the loss.

The damage which had occurred during transportation had been proximately caused by resonant vibration which had been an external fortuitous accident or casualty. There had therefore been no room as a matter of law for inherent vice to have been an additional proximate cause (see [135], [137]-[139] of the judgment). Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyd's Rep 122 applied; Global Process Systems Inc v Syarikat Takaful Malaysia Bhd; The Cendor Mopu [2011] 1 All ER 869 applied.

(3) On the evidence of the loss adjuster a claim in excess of £4.6m had been proved (see [143] of the judgment).

Rachel Ansell and Gemma Morgan (instructed by DAC Beachcroft LLP) for the claimants.Guy Blackwood and Gemma Morgan (instructed by Waltons & Morse LLP) for the defendant.

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