Property and business interruption

In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for property and business interruption.

Key developments in 2018

The High Court’s judgment in Contact (Print & Packaging) Limited v Travellers Insurance Company Limited [2018] EWHC 83 (TCC) provided an important illustration of the willingness of the court to find cover under the physical loss section of a policy on the basis of circumstantial evidence.

The insured printer owned an industrial printing press that had failed suddenly and catastrophically. As a result of the policy’s mechanical failure and gradual deterioration exclusions, the loss would only fall for cover if the insured could demonstrate that a non-excluded cause, namely subsidence beneath the press, had caused the loss.

The insurers declined the claim, on the basis that the insured had adduced no positive evidence that subsidence had occurred and so had failed to establish that this was the cause of the failure of the press.

Notwithstanding the absence of any direct evidence that subsidence had caused the failure, the court held that it could find that the case was proved on the basis that there was sufficient circumstantial evidence that this was the case, there being no positive evidence to the contrary and each other potential cause having been ruled out as implausible.

The court also clearly regarded as unattractive the insurers’ attempt to argue, where it had neither carried out nor pressed the insured to carry out investigations that might have identified whether subsidence had caused the damage, that the absence of such evidence meant that the insured could not prove the failure was due to an insured cause.

What to look out for in 2019

The Court of Appeal will hear an appeal in January 2019 from the High Court’s decision in Haberdasher’s Aske’s Federation Trust Ltd v Lakehouse Contracts Ltd [2018] EWHC 558. This should provide valuable authority as to the circumstances in which a sub-contractor is entitled to insurance under a contractors all risks (CAR) policy.

The contractor, Lakehouse, had entered into a sub-contract with Cambridge Polymer Roofing (CPR) to carry out works as part of a project to construct school buildings. Hot works carried out by CPR caused a fire, which resulted in extensive damage.

The CAR policy that insured the project was expressed to provide insurance to “all sub-contractors of any tier”. The sub-contract between Lakehouse and CPR, however, contained an express term that CPR would arrange its own third-party liability insurance, under which such insurance had been obtained.

The CAR insurers brought a subrogated claim against CPR for a contribution in respect of Lakehouse’s liability to the employer. CPR claimed to have a defence to the claim, however, in that it was entitled to the benefit of the CAR policy as a co-insured.

The fact that the sub-contract expressly provided that CPR agreed to obtain its own insurance was held to contradict an intention that the CAR policy should provide a single fund to make good the relevant loss and damage. CPR was, therefore, not insured by the CAR policy and had a liability to Lakehouse.

The Court of Appeal’s decision will be keenly awaited.

Authored by Mike Allan.

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