Inherent Vice, Natural Deterioration And Associated Exclusions - What Is Inevitable - Part I

The key to all of the exclusions referred to above is that they cover damage which

is caused by latent defect in the insured property or the cause of loss is a natural process resulting from the passage of time.

There is a clear distinction between damage caused by latent defects and the damage caused by natural process. It is not inevitable that damage will result from a latent defect and certainly not within the policy period.

A latent defect is just that - latent. It usually requires the intervention of another peril to result in damage. It may develop from an event such as a collision but often it will result from another excluded peril such as wear and tear.

Damage resulting from natural processes does, on the face of it, appear to be inevitable. It can be argued, however, that it is not inevitable that the damage will occur during the policy period.

Of course, one form of loss is clearly inevitable; namely that which is self-induced.

In the absence of express exclusions, are these exclusions simply implied into ARP1 policies and rebutted by express provisions or are there public policy reasons for making such perils uninsurable?

There is clearly a reluctance of the courts to find that damage caused by latent defects or inherent vice is insurable (see Overseas Commodities v. Style [1958] 1 Lloyds Rep 546.

There is no doubt that without an express provision English courts will decide that ARPI policies do not cover such perils.

A policy insuring against all risks of physical loss (without express provisions to the contrary) responds only when the following conditions are met:

- the loss must be fortuitous; and

- the loss or damage must not result wholly from an inherent quality or defect in the subject matter; and

- the loss or damage was not the result of intentional misconduct or fraud of the assured; and

- the risk must be lawful; Avis v. Hartford Fire Insurance283 NC142 (1973).

This is a summary of the law applying in both England and the US. Does this mean, however, that an ARPI policy can never cover "inevitable damage" or simply that it is impliedly excluded unless expressly covered? Also, is timing important and should fortuity be considered objectively or subjectively?

Inherent Vice, Natural Deterioration And Associated Exclusions - What Is Inevitable - Part I

By: Willis J. Watson

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