Inevitable damage is not an accident

Inevitable damage is not an accident

Damage to and the eventual demolition of an accommodation block

In publishing its decision in the case of Leeds Beckett University v Travelers Insurance Company Ltd [2017] EWHC 588 earlier this month the Technology and Construction Court (TCC) gave some useful guidance on what might be classed as accidental damage and what is gradual wear and tear. 

The policy at the heart of the case was an all risks property owner’s policy (ARPI) as opposed to a contractor’s all risk policy (CAR), but some of the same principles apply.

The first useful reminder is that an “all risks” policy does not actually cover all risks. 

What it does mean is that the insured only has to prove there has been a loss and it happened by chance rather than on purpose. The event will be covered and the insured can recover under the policy unless the insurer can show the loss was caused by an excluded peril.

Accommodation block damage

This case concerned damage to and the eventual demolition of an accommodation block built across the line of an old watercourse on a site  which also had several wells, springs and disused mine shafts and which abutted a canal. In 2012 large cracks appeared in a building constructed in 1996 which was built across the watercourse, close the mineshafts and next to the canal.

Investigations revealed that blockwork below ground level which supported the wall had “turned into mush” with no structural strength. The insured property owner tried to recover under its ARPI policy and the TCC analysed whether the exclusions under the policy applied.

The policy covered accidental damage and policy holder argued that the damage was accidental and had been caused by a flood or a material increase in water volume over the site between 1993 and 2011. The TCC decided this meant damage that was not wilful or deliberate or was caused by a chance event. An event that was inevitable or due to the inherent characteristic of the property itself was not an accident. The court heard that water had run up against the building since its completion and concluded that this had progressively weakened the structural strength of the blockwork until it eventually failed and this was not an “accident” for the purposes of the policy.

Interaction of the building fabric with water

Next the claimant argued that the policy exclusion for gradual deterioration did not apply; saying the damage was covered by the policy because it was gradual deterioration of the thing itself without any influence from an external source. The court also rejected this: the damage was caused by the interaction of the building fabric with the water which flowed against it and it was difficult to see that the what had occurred could be described an anything other than gradual deterioration.

The court concluded that faulty or deficient design was the primary cause of the damage saying:

“the over-arching problem with the design of the groundwater drainage system here was that, in many ways, there was simply no design at all. Despite the fact that drainage was identified as a risk from the outset; despite the warnings [from various experts’ reports] no heed was paid to the need for a careful system of land drainage… there was no proactive drainage design of any kind…” which applied to the completed building.

The clarifications on what is accidental damage and gradual deterioration are helpful and have immediate applications to CAR insurances as well as ARPI’s.

For developers, engineers and design and build contractors: the case is a reminder to check out a site very carefully, take heed of the findings in site surveys and reports, make sure the design team receives that information and designs accordingly.